Recently some people have started to talk about rent to own concent.
What is Rent to Own?
Simply put, it is a easy way to achieve desired result for some one trying to buy and sell the property. This concept has been popular in USA, Australia and other places. This is a new concept in UK and therefore people do not seem to know or understand how this works.
For the buyer:
Plenty of people would like to buy a property but can’t as they do not have either deposit for mortgage, right or long enough credit histry or do not feel confident to commit themselves yet.
The Rent to own concept allows them to rent the property with right to buy. The purchase price is decided now and tenant (or potential buyer) is given the option to buy within a set time frame (say 1 to 5 years). This allows the tenant to build up the deposit or repair the credit history. This also focuses their mind on the home ownership.
The good thing is that if for any reason tenant decides that the home ownership is not for him or her, or they do not like the house or area etc then they are free to walk away.
Also, if property prices start to rise again, tenant pays the price that was agreed and not the current (higher) price.
Whatever the current price of the house, whenever tenant decides to exercise his option to purchase the property, home owner can not refuse to sell at that price.
Benefits for Home owner:
They get long term tenant. They do not need a rental agency to manage that property, hence saving 10-15% management fees, as well as the void periods. And there are no estate agency fees either when they do sell the property.
Home seller often charges an option fee to enter into such an arrangement. It is usually 3% and can be lower or higher. This fee is unrefundable. Home owner also charges higher rent every month which helps with the cashflow.
Some home owners allow the deposit and excessive rent amount (over and above the going rate) to be credited towards the purchase price. This helps the tenant with deposit and increases attraction.
Indeed if tenant decides not to exercise the option then the option fee and excessive rent is not refundable.
First time buyers:
This scheme has major attractions for people who are either new in the country and hencedo not have long credit history or do not have large deposits to get a mortgage. Indeed those with bad credit histories get another chance to repair their credit and still lock in the price of their future house.
For the DIY enthusiasts, it represents a great opportunity to DIY intheir spera time and enhance the value of this property That way when it comes to applying for mortgage and survey, property is valued at higher than agreed price. This again helps with the deposit.
In other words people can get on the housing ladder without having to hope that the goal posts (house prices or deposit amounts required for a mortgage) would not change when they are finally ready to buy the property.
What exactly is Rent to Own?
Simply put, it is a easy way to achieve desired result for some one trying to buy and sell the property. This concept has been popular in USA, Australia and other places. This is a new concept in UK and therefore people do not seem to know or understand how this works.
Listen: How Rent to Own works – a brief introduction
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Benefits For Buyer
Plenty of people would like to buy a property but can’t as they do not have either deposit for mortgage, right or long enough credit histry or do not feel confident to commit themselves yet.
The Rent to own concept allows them to rent the property with right to buy. The purchase price is decided now and tenant (or potential buyer) is given the option to buy within a set time frame (say 1 to 5 years). This allows the tenant to build up the deposit or repair the credit history. This also focuses their mind on the home ownership.
The good thing is that if for any reason tenant decides that the home ownership is not for him or her, or they do not like the house or area etc then they are free to walk away.
Also, if property prices start to rise again, tenant pays the price that was agreed and not the current (higher) price.
Whatever the current price of the house, whenever tenant decides to exercise his option to purchase the property, home owner can not refuse to sell at that price.
Benefits For Seller
They get long term tenant. They do not need a rental agency to manage that property, hence saving 10-15% management fees, as well as the void periods. And there are no estate agency fees either when they do sell the property.
Home seller often charges an option fee to enter into such an arrangement. It is usually 3% and can be lower or higher. This fee is unrefundable. Home owner also charges higher rent every month which helps with the cashflow.
Some home owners allow the deposit and excessive rent amount (over and above the going rate) to be credited towards the purchase price. This helps the tenant with deposit and increases attraction.
Indeed if tenant decides not to exercise the option then the option fee and excessive rent is not refundable.
First Time Buyer
This scheme has major attractions for people who are either new in the country and hencedo not have long credit history or do not have large deposits to get a mortgage. Indeed those with bad credit histories get another chance to repair their credit and still lock in the price of their future house.
For the DIY enthusiasts, it represents a great opportunity to DIY intheir spera time and enhance the value of this property That way when it comes to applying for mortgage and survey, property is valued at higher than agreed price. This again helps with the deposit.
In other words people can get on the housing ladder without having to hope that the goal posts (houe prices or deposit amounts required for a mortgage) would not change when they are finally ready to buy the property.
Podcast
To hear our podcast on the Rent to Own concept, click on the play button below.
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