Usually, this means that the prospective tenant/buyer has either a subpar credit score or no down payment.
If you have good credit and 5% down, you can buy now...and you should. Analysts predict interest rates over the next year. So, the cost of borrowing is only going up. Lack of available housing inventory in many markets will create higher demand and...rising prices.
The problem with these rent-to-own deals is that they're set up to benefit the seller, not the buyer. The seller will expect one or more of the following: a rent "premium" meaning that you would be paying above market rent, a large, non-refundable amount which you stand to lose if you aren't able to fulfill the terms of the contract, the landlord will hold your "down payment" until you are ready to purchase.
All of these things cost you more money. Then, there is the issue of price. Do you agree to a price at the beginning of the lease term? If so, how do you know what the home will be worth in 12 months or 24 months? Again, the owner will want you to pay "his" price if he's accommodating your needs with a deal like this. You have very little bargaining position.
Then, let's use a 24-month lease/purchase as an example...what happens if your market declines? Your purchase price won't stand up to appraisal...then what? Now, you can't fulfill the terms of the contract and your landlord is holding your money.
There are ways to make it work...writing the agreement to make the transaction contingent on the property appraising at selling price...but, it's unnecessarily sticky.
I would advise renting until you're ready to buy, if that's what you need to do. Otherwise, buy now.
If you find a home you'd like to rent, ask the owner if he would consider selling at the end of the term. Talk about it when the time comes...when you're not compromised by whatever situation is causing you to look for rent-to-own because it's never going result in favorable terms for you.
john greene Realtor