The nation's biggest owner of apartments helps former tenants make down payments on new homes from selected builders.

Equity Residential, a real estate investment trust that owns almost 250,000 apartment units in 35 states, calls it the "Rent With Equity" program. Tenants automatically garner credits worth 15 percent to 25 percent of the monthly rent, depending on where they live. When tenants move out, they can get a voucher worth all their accumulated credits, which they can redeem when they buy a newly constructed home made by a selected builder. They can use the equity credit as part of the down payment, to defray closing costs, or to pay for improvements such as nicer-than-standard kitchen cabinets. They can't take the equity credit in cash.

The program doesn't cost tenants anything. Tenants don't have to pay a fee, and the program doesn't increase the monthly rent. Residents automatically are enrolled in the program when they sign a lease.

At first glance, the Rent With Equity program sounds too good to be true -- a classic warning sign. But it's not too good to be true. Equity Residential made a hard-headed business decision when it started the program. Although there are restrictions that limit the program's appeal, it offers a win-win-win situation for Equity Residential, its tenants and builders.

"What we get from it is lease extensions," says Rick Conner, director of strategic business development for Equity Residential. The average stay of a tenant who does not take advantage of the program is 12 months; the average stay of someone who ends up cashing in an equity voucher is 18 months. When tenants stay longer, Equity Residential's costs go down because the company has fewer empty apartments and it doesn't have to repaint and recarpet as often.

Equity Residential started the program in 1998. That year, six people redeemed equity certificates when they bought houses. The numbers increased to about 90 in 1999; 150 in 2000; and 300 in 2001. An estimated 400 people will use the vouchers in 2002. The value of the equity certificates averages roughly $2,500 nationwide, with wide variations in different markets.

The credits are portable from one Equity Residential complex to another. A tenant could move from the Summerwood complex near Oakland to Autumn Cove near Atlanta and keep racking up the equity credits. Later, they could be redeemed when buying a townhouse at Redwood Cove, a Beazer Homes development outside Atlanta.

The program benefits builders because they get to sell homes without paying commissions to real estate agents, and they market directly to Equity Residential tenants through the management company's monthly newsletters and special events.

Here's the catch
For tenants, the program's most important drawback is the restriction on where the vouchers can be spent. In most markets, Equity Residential has a deal with one or more builders that are constructing housing developments. The equity vouchers can be cashed in only on new homes made by those selected builders. Buyers can't be represented by real estate agents.

Vouchers can be redeemed for up to 3 percent of the home's purchase price in most markets and up to 2 percent in others.

These restrictions mean that the program isn't for people who plan to buy previously occupied houses, or homes that aren't in developments being built by the selected builders. With a limit of 2 percent or 3 percent of the purchase price, the vouchers shouldn't be used as the sole source of down payment.

"It's almost like an automatic deduction that places money in a savings account," says Rudy Cavazos, spokesman for Houston-based Money Management International, which runs nonprofit Consumer Credit Counseling Service offices in four states.

Cavazos says renters have to weigh costs vs. benefits of the program. "If you're a strong saver and you have your financial house in order, this might not be a great opportunity if the apartment complex takes you 20 to 25 miles farther out from your place of employment," he says, because you'll pump a lot of your equity savings into your gas tank.

Furthermore, he says, if you're looking for an apartment and you're interested in the program, tour the housing developments where the vouchers can be cashed in to see if they'll meet your needs.

Conner, of Equity Residential, says tenants can get their Rent With Equity certificates on the spot at their apartment complex's leasing office. They can walk in, get the certificate, walk out and redeem it at the builder's sales office.

Cavazos has advice on how to spend it. "Financially speaking, you definitely want to apply your equity toward the purchase price," he says. "That way, you are financing a smaller amount." If you don't want to do that, apply the money toward the closing costs.

He doesn't recommend using the voucher to pay for upgrades: "What you're trying to do here is use this equity as effectively as you can, and applying it toward the purchase price or the closing costs will be of more advantage to you in the long run."

Among the builders that participate in the program are Beazer, Cambridge, Centex, KB, Morrison and Ryland.