A common question we get on rent to own is “how do you determine the option price?”
Again, the answer to this question will depend on who you ask, but most rent to own providers apply some sort of appreciation rate to the initial purchase price to determine the future purchase price at the end of the rent to own term. For simple example, if a client purchases a home for $200,000 today and the appreciation rate is set at 3% per year, their buy-out price at the end of a 3 year program would be $218,545.
We try to be conservative with the appreciation rate we use to set the option price to make sure clients are setup for success. This is an area to be careful of with rent to own since some companies will use a more aggressive appreciation rate to pump up the return for their investors but at this can also put the client at risk.