Thanks to the tiny house movement, owning your own home and living debt-free doesn’t feel like an impossible dream. But even with reduced rates, dropping $10,000 to $40,000 for your own tiny house build, or $50,000 and up to buy one can be steep for some. At the end of the day, entering a rent to own agreement might be your only option.
So, can you even rent to own a tiny house? Rent-to-own agreements are typically advertised for condos and other forms of real estate. Not all tiny house builders will openly advertise this, which is why it’s best to ask builders upfront if they allow a rent-to-own program.
In this article, we talk about the basics of rent-to-own, its benefits for buyers and sellers, and the potential costs involving this model.
How Does Rent-To-Own Work
Renting to own is a financing option that has been around since the early 2000s. Once limited to tenants and renters, the rent to own model is now being applied by real estate institutions because it attracts buyers who may not be financially capable of making a big commitment, but might be interested in owning property some day.
People often enter rent to own agreements because:
- They are not sure if they want to commit to the area where the property is located
- Their credit isn’t good enough to qualify for a mortgage
- They don’t have enough money to make a down payment
- They don’t feel ready to take on a financial commitment
- They want to have the option to buy the property in the future
- They have a poor credit score and want to build up their rating
In a rent to own agreement, part of the renter’s monthly rent, which includes rent payments as well as any additional fees, will go towards the purchase price. If you’re renting your tiny house for $1,000 a month, it means $300 to $500 will be funneled towards its buying price (depending on your lease agreement), which will allow you to buy the property before the lease agreement ends.
Most rent-to-own agreements last for three to five years. Depending on your lease agreement, you will either have the option or the obligation to buy the property.
- Lease option: Lease option contracts give you the option to buy the property at the end of your lease. It’s best to settle with a purchase price before you enter the contract. You can either negotiate a price or agree with the market value at the time of your lease.
Though buying is an option, know that the money you have used to meet the downpayment is nonrefundable, regardless of whether or not you’re buying the property. If you choose not to buy the space at the end of your lease, your contract simply expires and you can move on to another property.
- Lease purchase: Because you are slowly filtering money towards the eventual buy, the purchase price is usually higher than market value. Part of your monthly rent will go towards the final purchase price. As such, your monthly rent might be higher than average rates.
With a lease purchase option, you will be contractually obligated to buy the property when your lease expires. Ideally, renters would prepare financing options close to the deadline so they can pay for the rest of the amount when the contract expires.
How Is It Different From Buying Directly?
In most cases, prospective homeowners will have to apply for a mortgage in order to finance the new property. A good credit score and a substantial deposit are necessary to make it happen.
With a rent-to-own agreement, interested individuals who have neither now have the ability to possibly buy a property. It’s a great option for both renters and sellers alike.
Can You Rent to Own Tiny Houses?
Renting to own a tiny house is a great way to experience tiny living, without committing to it forever. For prospective tiny house owners who can’t wait to have a tiny house but aren’t financially ready to support this decision, a rent-to-own contract can speed up the process of owning one.
While relatively more affordable than traditional housing, tiny house living can still put a dent on your bank account. With costs ranging from $30,000 up to a $200,000, renting to own a tiny house might be the only option for some.
Just like with traditional real estate, renting to own a tiny house is something you will have to negotiate with the seller or builder. There’s a chance that they won’t openly advertise this on their site, so don’t hesitate to ask about rent-to-own agreements for tiny homes.
Are You a Candidate?
Entering a rent-to-own contract is perfect if:
- You want to try tiny house living but aren’t completely sold on tiny homes
- You want to experience living in a different city, but are not sure if you are going to stay there permanently
- You want to become a tiny house owner but don’t have the capability to build or buy your own
- You are investing in one or more tiny homes and need financial flexibility
- You want to compare different tiny house builds and see which design you like the most
Setting Your TIny House Up For Rent
Rent-to-own contracts aren’t just beneficial for renters. Building a tiny house can be costly, and the turnover might not be as quick as you want. Compete with other tiny house builders in your area by giving more flexible payment options for people who want to own tiny houses.
Why Rent to Own a Tiny House
Renting to own a tiny house is practically a win-win situation for both sellers and builders. As a renter, you have a secure roof over your head with the possibility of owning your own house someday. Even without investing all the time and money on building, you now have the opportunity to live in your very own tiny house.
As a seller, you wouldn’t want anything you’ve built to depreciate and go to waste. With rent-to-own programs, you can make money off those that have yet to sell, and start building new designs from monthly payments.
As a Buyer
1) It allows independence
Tiny houses aren’t just about having a smaller space or having fewer payments every month; it’s really a lifestyle that opens you up to different possibilities.
Even though you can travel with a tiny house on wheels, the hassle of travel and finding a new (and legal) place to park can really put a damper on your adventure. Instead of staying in one city forever, why not live in different ones?
Renting to own will give you the flexibility of travel, minus the hassle of driving your 10,000 lbs tiny house down the freeway.
2) You can treat it as an investment
Just because you buy a tiny house doesn’t mean you have to live in it. Rent to own options are great because you don’t have to worry about what happens after the contract.
If you do decide to proceed with the buy by the time the lease is up, but realize you’d rather stay elsewhere, you can easily turn your newly acquired tiny house into your own rental property.
3) Prices are more stable than traditional real-estate
The search for a fairly priced and livable apartment is becoming more and more difficult every year. Why settle for a crappy apartment or condo when you can have the same space and more freedom for a lot less?
Condos, in particular, are typically acquired using a rent-to-own agreement. Instead of buying something that’s going to have lower value in just 10 years, consider investing your hard-earned money into something as timeless as a tiny house.
4) Financial requirements are more lenient
If you thought mortgage for traditional homes is challenging, try getting a mortgage for tiny houses. Because institutions have yet to develop ways of accommodating this type of dwelling, mortgage terms for tiny homes have even more ridiculous rates.
With rent-to-own programs, you’ll receive fairer consideration even if you don’t have a good credit score. As long as you can make your monthly rent, you’ll be eligible for buying your first home.
As a Seller or Builder
1) You can start building more tiny homes
If you’re a builder, you might want to consider rent-to-own programs because it ensures profit on your part.
When you set up your existing tiny homes for rent, you don’t have to worry about them going to waste. As a builder, you have a steady stream of income every month, which you can funnel into building other tiny related projects.
2) You don’t have to rely on selling tiny houses
The tiny house lifestyle is becoming increasingly popular and with that more builders are joining the market. Competing with big names in your area might prove increasingly difficult in the coming years.
By having rental properties, you don’t have to rely on a complete purchase to pay your dues. Even without consistently selling new builds, your rental properties can still make you money every month. It might not be comparable to the profit of selling a full property, but the extra money you get should help cover some loss from unsold units.
3) You preserve the value of your tiny homes
Not every single tiny house you build will sell immediately. Instead of letting builds sit in the warehouse, consider renting them out to people instead. By doing so, you’re actually putting your tiny house to use. The cost of maintaining and cleaning an unoccupied home can be expensive and time-consuming. By renting out your property, you can put that responsibility on your renters.
More importantly, renting your tiny house means putting it out in the world. Every time your renters are asked about their roving home, they can refer you to other prospective buyers. You’re increasing your market reach without having to spend a single dollar on advertisement.
4) You have a wide market
Tiny homes are the perfect rental opportunity because they’re accessible for a lot of people. When you operate on a rent-to-own basis, your market isn’t just people who can buy on the spot; you’re catering to fresh graduates, new families and couples, as well as retirees.
Building your own tiny house is a huge commitment, one that other people might not be ready to make. But with rent-to-own options, people are more likely to invest in your tiny house knowing they don’t have to worry about a bank-breaking one-time payment.
How Much Does Renting to Own a Tiny House Cost?
The cost of renting a tiny house depends on the agreement you have with your landlord or builder. Typically your rent might be higher than market value because of your rent-to-own agreement.
Some sellers might ask for a 2-5% down payment up front while others might consider your rent as part of the down payment. This really depends on the agreement you have with the seller. So if you’re buying a tiny house worth $60,000, you will have to put in a down payment of $1,200 to $3,000.
If you are entering a lease purchase contract, keep in mind that you’ll have to prepare the full price by the time your lease expires. You might be required to take on a mortgage to pay for the remaining amount at the end of your lease.
Join the Tiny House Movement
Buying your own tiny house might not be the smartest financial move right now, but that shouldn’t stop you from living in one. Rent-to-own contracts are great for individuals who are looking to invest in their very own property, but don’t have the means to at this very moment. The next time you see an awesome tiny house build, consider getting a rent-to-own contract for it.
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