By Lew Sichelman. In an effort to attract and retain tenants in the face of the rush to homeownership, some of the nation's largest landlords have adopted an "if you can't beat them, join them" attitude.

Instead of denying the existence of homeownership, or trying to fight it, they are rewarding loyal occupants with frequent flyer-like programs that offer discounts on house prices, options and upgrades, closing costs, and in the latest twist, mortgage fees. But apartment owners and their renters aren't the only beneficiaries. So are participating builders.

Amanda Johnson, vice president of corporate marketing for Beazer Homes USA, in Atlanta, figures that one out of every four buyers in her company's home market last year came to it through the rent-to-own program operated by Equity Residential Properties, a Chicago-based real estate investment trust with 225,000 units in 1,110 properties nationwide.

And Tom Bozzuto, of Bozzuto Homes, a home and apartment builder in Greenbelt, Md., says that in any given year, 10 percent of his sales are a direct result of a similar program he has in place for the 11,000 units his company manages in the National Capital region.

Yes, these programs cost builders money -- up to 3 percent of the selling price, in some cases. But it's money they might have given to real estate brokers or spent on advertising, anyway, participants say. So why not use it to get their name and product in front of a segment of the market that's itching to buy just as soon as they possibly can?

"To us, it's worth the money," says Beazer's Johnson. "Our target market is first-time buyers, so it's a captured audience. We are marketing to folks before they even start to look for a house so that when they do start, we are already in front of them."

Popular With Landlords

Though rent-to-own programs have been around since the mid-1990s, no one knows for sure exactly how many landlords offer the bonus. But David Cardwell, vice president of finance and technology at the National Multi-Housing Council, a Washington, D.C., trade group, says as many as two-thirds of the largest owners and managers give their tenants something.

Photo: Courtesy Equity Residential

Be buyers: Tenants at Bourbon Square, in Palatine, Ill., take advantage of rent-to-own programs.

With record low mortgage rates drawing people out of apartments and into homes of their own, "it would be foolish not to," Caldwell says. Indeed, of the nearly 70 percent of Equity Residential's residents who move out in a given year, 40 percent leave to buy a house, says James Sweeney, first vice president of strategic business development for Real Estate Investment Trusts. And that's not out of the ordinary, industry sources confirm.

The various rent-to-own programs run the gamut from simple deals for a discount with a local realty firm to complex nationwide arrangements. But no matter how they're structured, they're all designed to attract tenants who think they want to be owners and then keep them there while they accumulate the cash they'll need to turn their dreams into reality.

As a landlord, the two-hatted Bozzuto, who owns half the units his company manages, says the popular "How to Own Your Own" program "allows us to be competitive ... and keep tenants in place a little longer." And as a 200-unit-a-year builder, it directs a pool of predisposed buyers to his for-sale product.

The ability to build equity while renting was the deciding factor for Carlen Stone, a 30-year-old mother of twins who resides at Countrybrook, an Equity Residential apartment community in Chandler, Ariz. It was the "whole reason" she and her former husband chose the spot, she says. And it's the reason she and the kids stayed after the couple separated.

Everyone Enrolled

Sweeny says he expects more than 1,000 Equity Residential tenants to take advantage of the company's "Rent With Equity" program this year.

Under the program, everyone who signs a lease is covered. And every month, they earn credits that can be used to buy a home, either a new one from a participating builder or an existing house from an individual seller. The longer they stay, the more credits they earn.

Tenants are required to fulfill the terms of their leases. And credits must be used within 120 days after they move out. But credits are transferable between any Equity Residential Property. Points equal to 15 percent to 25 percent of the monthly rent, depending on the market and the builder, are credited to a tenant's account every time the rent is paid on time. And when the occupant is ready to buy, he can redeem the credits in several ways.

If purchasing from a participating builder, the buyer can use the points to obtain up to a 3 percent discount off the purchase price. And in the latest wrinkle, if he chooses to buy from a non-participating builder, he can still get up to $1,000 off of his closing costs if he secures his financing through Equity Residential's new in-house mortgage division.

Thus, someone paying a base rent of $800 a month would accrue Rent With Equity credits of $160 a month. After 24 months, which is about how long its takes to earn the maximum credit, he'd have $3,480 in builder credits and $960 in mortgage credits.

Of course, the landlord doesn't pay the discounts, builders and lenders do. But so what, says Beazer's Johnson. "For us, it's a marketing program. We're going to be advertising anyway, so why not go specifically to the critical mass?"

Two Caveats

Beazer is one of three big builders who are major participants in the Rent With Equity program, along with smaller regional and local builders. The other two are KB Home and Dominion Homes. But Beazer doesn't partake in every market it shares with Equity Residential.

"We target our participation where we need it," says Johnson, noting it is simply not necessary in places like California, "where people are beating down our doors" to buy.

And one other thing: Both Beazer and Bozzuto say tenants can bring their real estate brokers with them. But if they expect their agents to be paid, they'd better be ready to pay them out of their own pocket. In other words, no double-dipping.

"Brokers are welcome, but this is where their 3 percent is going," says Johnson. "If they want an agent, that's fine. But it is their responsibility to pay them."