In today's economy, developers are turning to build lease-to-own properties. There are many benefits to this approach, especially when it comes to attracting and retaining tenants. In this blog post, we'll explore some of the reasons why this approach is becoming more popular and how it could benefit your investment portfolio.
1. Rising Cost of Renting vs. Owning
One of the biggest reasons why people are choosing lease-to-own is because of the rising cost of renting. According to Zillow, the average rent for a one-bedroom apartment in the United States is $1,471 per month. That's a 3.3% increase from last year! Meanwhile, the average mortgage payment is $1,264 per month. That's a difference of over $200 per month! For many people, that's the difference between being able to afford a place to live and being forced into homelessness.
2. The Ability to Build Equity
Another reason why lease-to-own arrangements are becoming more popular is that they provide tenants with the opportunity to build equity. Instead of simply paying someone else's mortgage each month, tenants have the opportunity to put that money towards their own mortgage. Over time, this can add up to significant savings. In addition, should the tenant ever need to move for any reason, they will have built-up equity in the property that they can use as a down payment on their next home.
3. Increased Flexibility
Lease-to-own agreements also offer increased flexibility for both landlords and tenants. For tenants, there is usually an "option period" built into the contract that allows them to purchase the property at any time during the lease term. This gives them the ability to lock in today's low prices and avoid having to worry about future price increases. For landlords, these types of arrangements provide a guaranteed income stream and can help fill vacancies more quickly than traditional rental units. It also allows to keep getting income from a property you want to sell but can't during economic tightness and provides you with a potential buyer who may more easily qualify.
There are many reasons why developers are turning to building lease-to-own properties. From the rising cost of renting to the ability for tenants to build equity, there are countless benefits for both landlords and tenants alike. This is why at PES (Private Equity Solutions), we add these properties as part of our portfolio when the economy demands them.