Rent to buy remains an attractive option for both prospective buyers and willing sellers.
How does it work? As with any other contract, a rent to buy contract will be agreed upon between the landlord, the willing seller, and tenant, the prospective buyer. Terms the two parties will have to agree upon include the following:
The length of the contract - The tenant will have to sign a lease, say for a year. The contract will state that he/she will have the option to buy the property when the lease expires, or even during the lease term.
The option fee - The tenant will have to pay a fee for the option to buy. This amount will be determined by both parties, and will be forfeited should the tenant decide not to go ahead with the purchase at the end of the contract.
The purchase price - The parties will decide upfront what the purchase price will be. The risk is that big market movements may result in the landlord selling the property for much less than its actual value. If market prices are significantly lower than the agreed price, the buyer can choose to forfeit his option fee and walk away from the deal.
Rent payments - In some rent to buy contracts, landlords will agree that rent paid over the duration of the lease may be deducted from the purchase price of the home. This will give the tenant an added incentive to buy, as his rent money will not be “wasted”.
Going the rent to buy route has various advantages. For the buyer, it means you can live in a property before deciding to own it. Tenants can also “tie up” a property for a specific purchase price without parting with much cash upfront. Landlords, on the other hand, can benefit as tenants are more likely to look after a property when they might own it a few months down the line.