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Private equity powerhouse Blackstone recently poured $6 billion dollars into one of the biggest bets on suburbia in recent history. In July of 2021, Blackstone purchased America’s largest rent-to-buy (RTB) company, Home Partners, which owns 17,000 houses across the country. The rent-to-buy model has been around for years, but with Main Street now putting real money into this financial model, it could shift the consumer real estate market — and change the path to home ownership for average Americans.
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The model is simple enough. Companies gobble up thousands of homes and put them on the market as “rent-to-buy” — meaning you enter the home as a renter, but with the option to buy the property outright from the owner — or owning company — at a future date.
Rent-to-Buy Works for Investors and Would-Be Homeowners
With skyrocketing demand for homes and waning inventory, the rent-to-buy model became very popular during the pandemic. President of digital real estate platform Home Qualified, Ralph DiBugnara, told GOBankingRates in a note he believes that investment banks are betting on the rent-to-own model because of the increased focus on single-family home rentals, as well as the expressed strategy to make a higher rate of return on related investments.
The return on investment typically favors the investor. In these kinds of arrangements, a portion of the renter’s monthly rent goes towards a down payment on the home. The price at which the home could be sold to renter is agreed upon beforehand and the percentage of your rent that goes towards the actual down payment is agreed upon in the contract. It is important to note that the monthly rent a renter pays in these types of arrangements is higher than actual market value (meaning what a normal renter would pay to simply rent the home).
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The percentage of rent that goes toward a down payment in such an arrangement depends on the specifics laid out in any attached contract. To reiterate, the monthly amount paid by the renter is higher than fair market value, as the extra money goes toward an eventual down payment. This arrangement can be a benefit to a would-be homeowner who wants to slowly save for a home while actually living in it, but it comes with risk. Rocket Mortgage says the biggest disadvantage of rent-to-own homes is that you will forfeit any money you paid in rent to the homeowner should …….