We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What Is a Rent Premium?

Jim B.
Updated: May 16, 2024

A rent premium is a feature of a specific technique for buying a home known as lease-to-own. This method allows potential buyers the opportunity to live in the house and pay rent while ultimately giving them the option to purchase the house. In addition to the normal rent, the person renting the home must also pay an additional fee, known as the rent premium, which is subtracted from the purchase price of the house if the renter exercises the option to buy. If there is no eventual purchase, the seller of the house gets to keep this extra premium.

Many people wish to buy homes but lack the necessary funds to make these wishes into reality. An option for people who fall a bit short is the lease-to-own option, which combines elements of renting and buying. The seller of the home allows the potential buyer to lease the house with monthly rent payments, but also charges additional fees on top of the monthly rent. One of these fees is the rent premium, a feature that is unique to lease-to-own.

The person who is renting the home must not only come up with the rent to live in the home in a lease-to-own arrangement, but he also must pay a monthly rent premium. Most lease-to-own options are complete within a period of a few years, at which point the renter must decide if he wants to buy the home. If he does decide to buy, all of the premium payments will be added up and subtracted from the purchase price.

For example, imagine a seller agrees to a lease-to-own agreement that calls for a rent premium of $200 US Dollars (USD) per month and gives the renter the option to purchase the home after three years. The purchase price of the home is $80,000 USD. After three years, or 36 months, the renter will have paid $7,200 USD in premiums. If he decides to purchase, the price will be reduced to $72,800 USD, which is the original $80,000 USD minus the $7,200 USD of premiums.

Using a rent premium protects the seller from losing out completely if the renter decides to walk away from the option to buy the home. If that were to occur, all of the premium payments would be kept by the seller. The ability to collect the premiums, along with the option fee charged to the renter in a lease-to-own arrangement, can make the situation profitable for a seller even if the option to buy is never exercised.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Jim B.
By Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own successful blog. His passion led to a popular book series, which has gained the attention of fans worldwide. With a background in journalism, Beviglia brings his love for storytelling to his writing career where he engages readers with his unique insights.
Discussion Comments
Jim B.
Jim B.
Freelance writer - Jim Beviglia has made a name for himself by writing for national publications and creating his own...
Learn more
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.