Rent to Own vs. Contract for Deed

(My Original Blog Post: http://ping.fm/Xqykw)
Rent to Own vs. Contract for Deed- This is an often asked question and a very good one. What are the differences from a rent to own compared to a contract for deed. Most of the differences come down to taxes, how ownership is given and how default of the contract is handled.  Also how much money is customarily needed. How a lender sees the two are all factors that differentiate the two.  Most every difference is described in this lease option article and if you compare it to the contract for deed article I wrote you can see the clear differences, so since almost everything is covered let me sum up the differences in this paragraph easily.  Generally speaking the seller gets the tax write-offs on a lease option and remains owner, where as on a contract for deed the seller loses homestead and ownership writes and the buyer gets those tax write-offs transferred to them.   Contract for deeds takes longer to get the buyer out compared to a tenant through an eviction because of this and the tax differences the seller generally will always ask for far more money down on a contract for deed.  A contract for deed needs to be recorded within 6 months in Minnesota or a penalty may be incurred.  The contract for deed being recorded will put the buyer on record publically and a lender will see that as a starting point as ownership on title and makes for a much easier refinance of a loan in the near future, possibly 1+ year later where as with a rent to own, you are likely to need to treat it like a new purchase. If you have a memorandum of option recorded and canceled checks for 1+ years you may get a lender to understand that, but it's much easier for them to understand the contract for deed.  Contract for deed purchase will require a closing, where a lease option wouldn't.  A contract for deed will probably deal with property taxes and proration of taxes, etc.  I personally find contract for deeds a more serious purchase and are more likely to be followed through some day.  In either case if a buyer or tenant had anything recorded with a cloud on title or equitable interest, they may need to quit claim deed the interest back to the seller to clear the title.  Sellers can wait to pay taxes on option money until it's excercised or expired whereas with a contract for deed, their could be some immediate payment needed on funds received and or capital gains, please check with your accountant on this.  In a nutshell more money down with a contract for deed usually makes a contract for deed make more sense over a lease option, at least for the seller.   As a buyer I like being able to simply refinance the property later on, and actually owning the property.