Investors tried rent-to-own homes—here’s what happened

Not sure whether to rent or buy a home? Meet the middle ground, rent-to-own.

Although rare, rent-to-own properties are in the spotlight amid reports that President Trump may build up to 1 million “Trump Homes” that would start out as rentals with the option to buy. The idea has also spawned specialized listing sites, such as Rent To Own Labs, and attracted celebrity backers, like Jay-Z and Will Smith.

Sounds great in theory…but does it work?

Investor Shayla Dempsey of Four 19 Properties tested the model recently on three single-family homes in Texas. “Rents were roughly $1,450 to $1,700, and we credited about $250 to $300 per month toward the purchase price,” she explains. “Most had the option to buy in two to three years.”

The outcome was mixed. One tenant purchased her home after three years. The other two deals fell through—one after a job loss, the other due to relocation. Dempsey learned that this arrangement has its pros and cons. “Since these tenants had skin in the game, they treated the homes better,” she explains, adding many were happy to wait on repairs or fix things themselves. The downside? “These transactions require more communication. If you don’t have everything documented, it won’t take long before issues arise.”

A rent-to-own reality check

Dempsey’s experience reflects why rent-to-own has struggled to gain traction. Even larger institutional investors have fumbled: Divvy Homes and Blackstone’s Home Partners of America both shut down their rent-to-own programs last year.

“Many assume it’s easy to switch from tenant to owner, but circumstances can change,” says Matt Bigach at Nexus Homebuyers in Knoxville, TN, who has tried five rent-to-own arrangements. Two parties ended up buying their homes. “Both were focused from day one: stable income, improving their credit, taking care of the properties. You could tell they already saw the homes as theirs.” As for the three who did not, Bigach says, “One moved for a job. One got divorced. The other couldn’t qualify for a mortgage once lending tightened. That’s the reality with rent-to-own.”

Even in the best-case scenarios where renters do end up buying, investors often lose out.

“Landlords assume a lot of risk. Typically, a purchase price is pre-negotiated, and if the market goes up, tenants are in a great position to get a deal,” explains Sierus Erdelyi, a Los Angeles real estate attorney and broker at TruLine Realty. “But if the market goes down, the tenant simply doesn’t exercise their option. Rent-to-own is a fool’s errand.”

Still, Dempsey isn’t writing off the strategy.

“Would I do it again? Yes, but we screen much harder now and talk through expectations early,” says Dempsey. “When it works, it’s a great bridge to homeownership, but it has to be structured carefully. Rent-to-own is a serious commitment.”