What’s the difference between rent-to-own and land contract property deals?

On Behalf of | Jan 8, 2021 | Residential Real Estate

Sometimes, you can afford the payment on a house easily enough — but you can’t scrape a down payment together and still pay your rent.

Those are the kinds of problems that can lead buyers to look at properties with owner financing, including rent-to-own and land contracts. While similar, however, these are not quite the same.


Also called “lease-to-own,” rent-to-own properties allow someone to start out as a tenant and transition into ownership at a set time. While the terms of individual contracts may differ, it’s common for a portion of your monthly rent to be credited toward a down payment on the house.

The landlord, however, remains in control of the property and retains ownership until you can exercise your option to buy. That means the landlord gets all of the tax breaks, but they are also responsible for the property taxes, insurance and repairs.

With rent-to-own properties, you usually have a long time (maybe years) to exercise your option to buy — and you’re not locked in. If you decide to leave at the end of your lease, you have no further commitment.

Land contract

Land contracts transfer an immediate ownership interest to the buyer. The seller becomes the buyer’s financier, essentially acting as a bank holding a mortgage.

With a land contract, you take on all the responsibilities for the property taxes, insurance, and repairs. You do get the tax credit for your interest, however, just like you would with a regular mortgage.

Just as with a regular mortgage, you cannot easily walk away from a land contract. Defaulting on your payments can lead to foreclosure, eviction, problems with your credit and more.

Don’t enter into these kinds of agreements without legal guidance

Drafting a legal rent-to-own agreement or land contract cannot be left to chance. Whether you’re the buyer or the seller, make sure that you have experienced attorney representation throughout this process.