How rent to buy properties work

How rent to buy/rent to own properties work

By HouseFurb, August 07, 2018

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Not having enough money to cover buying costs for a property to buy a property (bond registration, transfer costs, deposit) or not having a "good enough" credit record can sometimes get in the way of a buyer looking to purchase a property. With rent to buy properties, buyers can now afford more time to build an upfront budget for these costs and good credit history for the bank to approve bonds. Many ask if it is better to rent or to buy, we'd say there's an option to do both, hence rent to buy.

What is rent to buy and how does it work
It is a leasing arrangement that provides the tenant renting a property an option to buy the property at the end of a rental period. The tenant would pay a normal monthly rental amount that goes to the landlord/property owner and an additional amount every month that can be used to cover necessary buying costs of a property so that the property is purchased at the end of the rental lease.
The sum of the additional amount is often forfeited if the tenant decides not to buy the property when the lease ends, but, depending on the agreement, can count towards the purchase price if the sale goes ahead. This agreement needs to be properly documented and put in writing on the properties' title deed where necessary (tenant's Right of First Refusal, agreed sales price and how will upfront payments be handled in the situation the tenant accepts or declines the sale).
Without the agreement, nothing can stop the property owner from selling their property to someone else without initially offering to sell to the tenant and nothing can stop the tenant from breaking the promise of buying after the rental leasing period.
Rent to own can also be regarded as a type of installment sale, with an installment agreement and a separate lease agreement running concurrently. The tenant could rent the property for a period, at an agreed rate while paying off the purchase price in separate installments.
Tenants are required to make the property purchase through traditional finance channels, the Right of First Refusal and opportunity to live in a property before deciding it's worth buying are key benefits of rent-to-own purchases.
Please note that rent-to-buy is not always the best option in property buying, but may be a great option for people who are still struggling to fully finance a property. Please speak to property professionals like HouseFurb and specialist legal professionals to get the best advice on suitable to your current financial situation.

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