Maybe you aren’t sure if a tiny house is for you. Perhaps you just can’t afford to purchase one of these custom-built homes outright.
If this sounds like you, then you might want to join the growing trend and find a rent-to-own property that gives you the best of everything. You can enjoy the tiny house lifestyle while keeping your expenses low.
How do you rent-to-own tiny houses?
Renting to own a tiny house comes with agreeing to a lease agreement and paying more than a normal monthly installment for rent. Once the established price of the house is paid off in full, you can become the official owner of the home.
If you want to learn more about rent-to-own tiny houses, take a look at this detailed breakdown of what you can expect:
Where Can You Rent-to-Own Tiny Houses?
Many people are curious about tiny house living, but they want to be certain that it is right for them before making a major commitment. Why not try out the tiny house lifestyle by renting one of these small dwellings first?
A rent-to-own property can give you a little bit of time to test out a particular home before you invest thousands of dollars into purchasing one. All you have to do is find the right location.
The truth is that you can rent-to-own tiny houses wherever you want.
Buying a tiny home can be very expensive, even tiny houses on wheels!
Some states have a thriving tiny home community that is conducive to this type of arrangement. All you have to do is perform a quick search to figure out which areas have available programs for you to join.
Rent-to-own programs are available in popular states like Tennessee, Missouri, Florida, Alabama, Georgia, and Kentucky.
If you want to find popular listings in your area, you can use major tiny house search engines like:
These search engines will show available tiny homes for sale or rent. From there, you could reach out to the owners to see if they would be open to negotiating a rent-to-own contract on their property. For more information on how rent-to-own properties work, make sure to keep reading for the section below.
Another option that many prospective homeowners consider is purchasing a shell. Shells can be financed and can be a great way to save on the costs of a custom build.
A shell is simply the outside of a tiny home that has been constructed while the inside remains unfinished. You can purchase these shells in varied states of completion depending on your skillset and what you hope to accomplish.
While you may not find these as rent-to-own options, you can find financing through popular programs like Lightstream from Sun Trust Bank.
This can be an affordable way to get started with your own tiny house.
How Does “Rent-to-Own” Work for Tiny Houses?
If you found your dream property for sale or rent, you might need to negotiate a rent-to-own contract with the owner.
Understanding the nuances of this process can be a little tricky because there are so many different things to consider.
First of all, you must know that there are two main types of agreements: a lease option agreement and a lease-purchase agreement.
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With both agreements, you enter into a contract and agree to rent the property for a specific time.
The main difference comes when that contract is finished.
With a lease option agreement, you have the opportunity to purchase the home. A lease-purchase agreement obligates you to purchase the home.
Entering into either one of these contracts is going to be very similar. You must first agree on the prospective purchase price of the house. This is often decided when the lease agreement is signed but not always.
Sometimes, property owners will decide to wait to name the purchase price in case of positive fluctuations in the real estate market.
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Paying Off Your Home
Next, you will establish the rent payment due each month.
A certain percentage of your rent is put aside as a credit toward the future purchase of the home. As a result, you might find that the payments are a bit higher than the average rent would be on the same size tiny home in the same area.
A leasing term will also be set.
Finally, there is likely to be opt-in money involved. This is a sum of money that both parties agree to as a nonrefundable, one-time fee that grants you the opportunity to purchase the home. This amount is typically put toward your equity in the home.
Unfortunately, there is no standard amount for the opt-in fee. It is usually based on the overall cost of the home.
If you decide to purchase the home at the end of the lease, then you will have to go through the closing process.
You will need to either come up with cash to cover the cost of the home or secure financing through a program like Lightstream.
The lender will help you to set a closing date and the money set aside from your opt-in fee and monthly rent payments will be credited to you.
What Are the Pros of Renting-to-Own?
Renting to own is a great option for people who like to be homeowners but cannot afford to make a purchase right now.
Coming up with a down payment and monthly mortgage payment can be a challenge for many, even with the lowered cost of tiny homes compared to traditional homes.
Rent-to-own houses require less money out of pocket upfront. You may even struggle to find financing for the purchase of larger homes due to poor credit.
The good news with renting to own is that you have time to work on your credit score while you are in the “renting” phase of your contract. You may have several years to work on boosting your score before you have to obtain financing to purchase the home outright.
Another benefit of renting to own is that you can try the home out before making a major commitment. If the layout or the lifestyle is not for you, then you can cut your losses and move on at the end of your lease agreement.
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What Are the Cons of Renting-to-Own?
A tiny house functions best when your individual needs and desires are considered during the building process.
Most tiny home builders create custom homes because everyone’s needs are going to be different. Some people may need more storage space in the living room while someone else prioritizes the kitchen cabinetry. However, rent-to-own homes are typically either pre-owned or manufactured without input.
Unfortunately, you do not get this level of attention to detail when renting to own.
You must stick with the floorplan that is available to you which may not be conducive to your lifestyle, and not all tiny homes are portable or easy to move.
While you may be able to adjust and make things work in your favor, it would be vastly improved if your needs had been accounted for during construction.
You should also make sure that you are well-versed in tiny home construction if you are leasing a pre-owned home. Take a careful look around to make sure that it was constructed with quality materials and accurate labor.
Because there are not always clear building codes and standards that apply to tiny homes, you might have a hard time getting a good home inspector to review the property.
Do You Need a Good Credit Score to Apply?
You do not necessarily need a good credit score to apply for a rent-to-own home. Your new landlord or the seller of the home may still permit you to rent the house with poor credit.
In return, you may be required to put down larger amounts of money and pay higher rent.
Keep in mind that you will still need financing after the lease is over. Having good credit will make a difference in whether you are approved and what interest rate you receive.
One of the benefits of renting-to-own is that you can take the time during which you are renting to work on improving your credit score. Lower your debt-to-income ratio, make all bill payments on time, and work on paying down credit card debt to potentially boost your score for the years ahead.
Rebuilding credit is a slow process, but it could make a difference in your ability to own a home.
Who Covers Maintenance During a Rent-to-Own Agreement?
The air conditioner breaks in the middle of a sweltering summer.
Do you call the HVAC repairman or do you call your landlord? Knowing who is responsible for the maintenance of the home is crucial if you want to rent-to-own your property. In most scenarios, the buyer (the person who lives in the home) is responsible for all repairs and upgrades made to the home.
Of course, this should be determined when you are hashing out the details of your lease agreement.
When discussing the price of your rent, asking about who is responsible for maintenance is a great idea.
Remember that you will lose all of the money you put into upgrading the tiny house if you choose not to purchase it at the end of your lease. Only make major modifications to the house if you plan to actually purchase it.
A rent-to-own tiny home could be just the solution you have been searching for.
It allows you an opportunity to try out the lifestyle and see if it is really for you.
With some of these handy reference points, you should be able to hammer out a favorable contract on the property of your dreams!
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Maria is the founder of GoDownsize. While studying architecture in Denmark she became fascinated with designing living spaces for boats, tiny houses, RVs, and other small spaces.
She mainly writes about space optimization, interior design, and downsizing. She’s also in charge of our YouTube channel. Read more about Maria here.