The real estate market in Dallas isn’t only fast-moving, but competitive. So, many landlords have to think creatively to make the most of their investment.
While traditional rentals and sales are the go-to options for most landlords, rent-to-own housing agreements are a popular alternative.
If you’re a Dallas landlord looking to secure a future sale from long-term tenants, rent-to-own housing might be the perfect strategy. It allows you to keep rental income flowing, minimize turnover, and set up a pre-arranged sale without listing your property on the open market. Talk about a win-win-win!
In this guide, we’ll cover how rent-to-own housing in Dallas works and how to structure it correctly.
What Is a Rent-to-Own Home?
A rent-to-own home is a rental property where the tenant has the option — or sometimes the obligation — to buy the home they’ve been living in after a certain amount of time. It’s different from a typical lease because the tenant isn’t renting the property until the lease ends, but working toward owning the home while living there.
At the start of the agreement, the tenant pays an option fee to secure their right to buy later. In Dallas, the price is determined by both the landlord and the tenant. The tenant also makes monthly rent payments, and sometimes a portion of that rent goes toward the future purchase price. These are known as rent credits.
There are two main types of rent-to-own contracts:
Lease-Option Agreement: The tenant has the option to buy, but they aren’t required to.
Lease-Purchase Agreement: The tenant must buy the home at the end of the lease.
Many landlords stick with a lease-option agreement to keep some level of flexibility in case the tenant decides to back out.
Why Should a Landlord Consider Rent-to-Own in Dallas?
The Dallas market is competitive for both buyers and renters. Rent-to-own housing helps landlords attract responsible tenants while setting them up for a sale.
Here’s why you might consider it in more detail:
Attract Long-Term, Committed Tenants: Tenants who plan to buy the home are more likely to treat it well. They see your property as their future home, not just a temporary place to live.
Reduce Vacancy and Turnover Costs: With a traditional rental, turnover means cleaning, repairs, marketing, and lost income while you search for a replacement. Rent-to-own homes in Dallas appeal to long-term tenants, meaning less work and expenses for you.
Generate Additional Income: Rent-to-own tenants are working toward homeownership, so they’re often willing to pay slightly above market rent in exchange for rent credits. Plus, the option fee is yours to keep, even if they don’t end up buying.
Sell Your Property Without a Traditional Listing: By offering rent-to-own, you’re effectively pre-selling your home without worrying about real estate agent commissions, staging, or open houses. You secure a buyer without the uncertainty of the market.
Lock in a Strong Selling Price in Dallas’s Growing Market: Dallas home prices have been rising for years, and while markets can fluctuate, setting a guaranteed future sale price allows you to benefit from current appreciation trends.
How to Structure a Rent-to-Own Agreement in Dallas
Setting up a rent-to-own agreement in Dallas requires careful planning.
Here are some critical steps to take:
Step 1: Determine the Sale Price
The sale price can either be set upfront or based on an appraisal closer to the purchase date. Since home values in Dallas have been increasing, many landlords choose a slightly higher price to account for appreciation. Researching recent home sales in the area can help ensure the price is fair for both parties.
Step 2: Establish Rent Payments & Credits
Rent payments should be competitive but still above market rates, as a portion will go toward the tenant’s eventual purchase. For example, if similar homes rent for $2,000/month, a rent-to-own landlord might charge $2,200/month, with $200 per month credited toward the purchase. This encourages tenants to stay on track with their payments while ensuring the landlord profits, too.
Step 3: Collect an Option Fee
In rent-to-own housing situations in Dallas, tenants typically pay an upfront option fee, ranging from around 2-7% of the home’s value, securing their right to buy later. For a $350,000 home, this means an option fee of $7,000 to $24,500. Some landlords apply this fee toward the purchase price, while others treat it as separate income for added security if the tenant changes their mind.
Step 4: Draft a Legally Sound Contract
Texas has strict rules for lease-purchase agreements. It’s important to work with a real estate attorney to ensure the lease includes:
Maintenance responsibilities: Who fixes what?
Late payment policies: What happens if rent is late?
How rent credits apply to the purchase
Deadlines and potential financing requirements for the tenant
Potential Risks and How to Avoid Them
You may run into obstacles while trying to manage rent-to-own houses in Dallas.
For instance, if your tenant fails to secure financing, they may be forced to walk away from the deal, meaning you’ll start the whole process over with a new tenant or buyer. To prevent this, it’s essential to pre-screen tenants to ensure they’re financially stable. Providing access to credit counseling or financial coaching can also help tenants improve their financial situation.
Market fluctuations can also impact the deal. If home values drop, tenants might walk away, leaving you without a buyer. Including a price-adjustment clause that accounts for changes can help you avoid this.
Additionally, if a tenant stops paying rent, eviction might be necessary, which can be costly and time-consuming. A solid agreement should outline potential penalties and allow landlords to retain the option fee and rent credits as compensation if this happens.
Finally, legal concerns are a possibility if the agreement isn’t compliant with Texas’ rent-to-own regulations. To avoid disputes or legal issues like accusations of predatory lending, consider working with a real estate attorney.
How to Find Rent-to-Own Tenants in Dallas
Not every tenant is a good fit for rent-to-own housing. To find serious, mortgage-ready tenants, try:
Listing on reputable sites like the MLS, Zillow, and RentToOwnLabs.
Working with a Realtor who specializes in lease options.
Marketing to renters with near-mortgage-ready credit.
Screening applicants for financial security and homeownership potential.
Tips for Landlords Offering Rent-to-Own Homes
Rent-to-own houses in Dallas can be profitable, as long as you set yourself up for success. It’s crucial to:
Set clear expectations: Tenants should know exactly how rent credits, option fees, and maintenance work.
Require tenants to maintain the property: They should handle minor repairs like a homeowner would.
Keep detailed records: Document all payments and agreements to protect yourself legally.
Offer financial coaching: Helping tenants qualify for a mortgage increases the likelihood of a successful sale.
Is Rent-to-Own Worth It in Dallas?
Rent-to-own houses in Dallas are a smart investment for landlords looking for stable tenants, fewer vacancies, and a way to sell without a traditional listing. Not only can you maximize your rental income, but you can secure a sale in a growing market.
If you’re interested in learning more about rent-to-own housing in Dallas, the property management experts at Evernest can help! Our team provides guidance on structuring your lease agreements, finding qualified tenants, maximizing your ROI, and more.
