The old saying goes, "If you can't beat 'em, join 'em," and that's exactly what apartment firms are doing. After losing resident after resident to the lure of low interest rates, apartment companies are paying new attention to home-buying incentive programs.

"We're doing it to remain competitive and to offer another service to our residents, since many of them are short-term renters," says Frank Romano, director of operations for Waterton Associates, an apartment owner and manager in Chicago that recently partnered with RE/MAX on such a program. "They're saving to eventually buy a home."

It's a switch from the past, when homeownership programs were seen primarily as an amenity. But as more renters have bought homes, many apartment firms have begun offering down payment assistance programs as a way to stay competitive with prospects and boost retention among current residents.

In many cases, the programs do seem to achieve their goals. Equity Residential says residents who participate in the Rent With Equity program stay in an Equity property an average of 31 months" almost twice as long as the average Equity resident. "We also have anecdotal evidence that a significant number of our residents who use Rent With Equity have lived at multiple Equity Residential properties, most likely because they wanted to continue earning credits when they relocated to different areas of town or to new cities," says Rick Conner, assistant vice president of strategic business development at Equity, a Chicago-based REIT that owns and manages more than 200,000 apartments.

Smaller apartment firms also see potential in such programs. Through Waterton's program with RE/MAX, renters can earn credits that they can apply to the closing costs on an existing home. "Most of the other major companies have some type of rent-to-own program," Romano says. "We liked the idea of this because it was on a national basis. Every location that we have across the country could participate, since Bank of America and RE/MAX are national companies."

Even companies with existing home-buying incentive programs are expanding their offerings. BRE added agents to its HomePlan program in 2000. As for Equity, the multifamily giant has worked since 1998 with big national builders such as Pulte Homes, D.R. Horton, and Centex Homes to offer home-buying programs to its residents. But Equity's Conner realizes these programs won't help the majority of Equity renters who are leaving their apartment for a house. "New-home buyers are only 16 percent of our resident base," he says. "We need to come up with a way to touch the other 84 percent. So, we're expanding it [the Rent With Equity program] to include broker services for pre-existing homes or mortgages or moving van lines or anything that has to do with what it's like to move."

Behind the Scenes

Despite what one might expect, apartment owners don't generate much extra revenue from "rent-to-own"programs, which generally work like this: Each month, residents who sign up earn credits or an amount based on a percentage of their rent. They can use this money for purchasing a home. (Procrastinating pays off: The longer a resident stays in an apartment, the more he or she accrues toward the big house purchase, although most programs cap the benefit at 3 percent of the home's sale price.)

Once a resident wants to buy a home, he or she is referred to a home builder or real estate agent participating in the program. If a person chooses to buy a new home (and skips the agent), the cost of the equity accrued by the resident (and provided by the apartment firm) is covered by the lack of real estate commission on the deal. In other cases, real estate agents agree to cut their commissions in exchange for referrals from apartment firms, once again covering the cost of providing the discount to a renter who wants to buy.

Firms who want to offer such a program need to research their local real estate requirements. When BRE Properties established its HomePlan program in 1998, it had to know the real estate sales laws in each state where it planned to operate. In California, for instance, nobody could sign up for HomePlan until they talked to someone with a real estate license. So the San Francisco-based REIT asked its plan administrators get real estate licenses.

Others go beyond the basics. Mark-Taylor Residential, for example, operates its own realty company. Residents who use Mark-Taylor real estate agents to buy their house can take advantage of flexible lease terms and don't need to worry about paying fees for breaking their lease if they find a house they love.

They save in other ways, too. Mark-Taylor leverages its relationships with lenders and product suppliers to offer residents both reduced home loan costs and discounts on home furnishings, according to Laura Pulli, director of operations with Mark-Taylor Realty.

Trouble at Home

Privately, some apartment owners and managers say they don't like these programs because they pull renters out of apartments.

Steve Heimler, president and CEO of Stratus Real Estate, a third-party manager in Woodland Hills, Calif., expresses concerns as well. "I think it creates more turnover, especially if you're giving them the credit early," he says. He also worries that such programs may alienate a renter who wants to buy a home in an area or from a builder that doesn't participate in the apartment firm's program.

Other people question whether these down-payment assistance programs really help apartment companies set themselves apart. "In certain markets, they're very attractive," says Lisa Brase, manager of BRE's HomePlan program. "But [home] prices in Phoenix went up 40 percent last year. One or two thousand may help them, but if someone else is offering the same program, it's very competitive for us."

Some also question how effective such programs are in less affluent apartment classes. While rent-to-own programs may be an attractive selling point in the Class A, renter-by-choice category, Heimler believes such programs wouldn't make much economic difference at many of his properties. "My renters aren't thinking about buying a home," he says. "Most of them are one paycheck away from an eviction."

For residents who are more financially stable, though, even small amounts of assistance is helpful. According to HUD, a grant of only $1,000 to a low-income renter could significantly boost the chances of homeownership" and the likelihood of a positive referral from a grateful former resident.