Rent to own is a amazing. You buy a property, advertise rent to own to poor people. They keep up payments for a few years paying far above what rent would have been, and then either stop paying and you get to keep all the money, or when the purchase date comes up they can't get financing, and you keep all the extra money.
You are asking from the other side of the equation, where it's a terrible idea. Rent a property, and start saving for a deposit. Conventional and FHA loans are the best value you can find. Find a property and buy it. Stay far away from shortcuts aimed at poor people, they always come with lots of strings attached and are never good.
Rent to own isn't a scam per se.... but there is very little chance it would benefit you in the long run.
Places that do rent to own are generally designed for people who have no other options, but still want to "have" stuff. Odds are the average customer has less than stellar credit (ranging right down into terrible credit)
Usually what happens is people will rent to own a bunch of stuff they could otherwise never really afford. (Big TV, big leather couch, expensive La-Z-Boy, etc) Even if the customer budgets themselves properly and completes the terms or contract, they will usually find they have paid 200 or 300% more than they otherwise would for the same thing in normal conditions.
If you are cash strapped and just starting out in the world (getting your own place) I would highly suggest craigslist for sale section. Most sellers are just happy to be getting rid of X Y or Z and will cut very favorable deals. You don't need to start off with a huge TV or fancy leather couches right off the bat.
To sum up in true ELI5 fashion - you agree to pay X payments of Y price on a TV/couch/whatever, up until you have fulfilled the contract you are basically just renting and they could come back and take all your stuff away if you break the agreement. If you make it all the way through, you now own it, but whatever "it" is, you probably could have bought two or three of with the amount of money you sent them.
I agree with everyone here that usually they are a terrible deal and if you can afford to buy something outright, that is always going to be the best bet. Saying that, there is an awesome company in Perth called Delta Rentals and I have rented-to-buy through them for several things (PS4 Pro VR bundle, 2x Gaming PC's and a Canon 80D camera) over the years and I highly recommend.
Of course, the downfall is that I paid at least 1.5 times more than the product is worth but for me it was more about the affordability to buying these expensive products outright. Yes, I could have saved for a year for each item, but the repayments were affordable enough each month that I didn't overly notice when it came out of my pay.
I think trying to find a local place is the way to go, I would say stay clear of the more well known ones like Radio Rentals and such. Everyone to their own though!
Rent to own is almost always disadvantaged towards the tenant. For one rent to own is usually overpriced above the market rental rate. And if in some point in future you are not able to fulfill your obligations, or just simply not interested anymore, you can't refund the extra money you paid.
You will notice also that rent to owns tends to be low end housings or condo. The main reason is that rent to own is not the most practical way to own a house and simple prey on people who don't know any better or people who don't have enough money to buy home in usual way.
Yes. Don't do it.
I equate it to those rent-to-own furniture stores. Or layway. Essentially, if you're seriously looking at rent-to-own, you need to seriously rethink if you can even afford this before you get in over your head. I also dabbled with the idea of rent-to-own once and everything I looked into wound up looking too predatory and unfairly disadvantaging to me.
A better approach was a creative combination of lower income when I knew my income was going to increase substantially in the coming years due to my job path, so I took advantage of my current situation looking like I needed more assistance with a family of four and single income. Then qualifying for combinations of lower income family loan programs (check out odd things like veteran loans and rural housing loans) at the federal level and first time home buyer stuff at the State and Local level. By the time I was done I had a special low interest loan for a slightly older house, and two or three gov programs putting a down payment for me and lowering my interest rate another 0.5%, in addition to various taxes like property taxes waived in my county for the first year. Get creative in a smart way. I even had to bring these ideas to my initial lender (before the loan is passed to a normal bank) and he was surprised these existed and glad to help us do it.
FYI, the house was a steal (original long time owners simply wanted out, retiring) and I put zero down. The 20% down is a myth. Some study I saw recently said that only 2nd home buyers actually meet that requirement en masse (the rich). Your average home buyer doesn't even come close.
Also, on a lot of loans, once you have paid about 20% of the equity into the house in the first few years, you can sometimes redo your loan to remove the PMI. I haven't tried though.