If your New Year’s resolution is to own a house but do not have the funds to pay for the house by your target purchase time, one of the options you could go for is a rent-to-own arrangement. Rent-to-own is when you rent a house for a particular period of time with the aim of buying it at the end of the lease agreement. Here is what you need to know about a rent-to-own arrangement:
Jackson Mayanja, a property manager MTK Real Estate and Mining, if the property owner is ready to sell out his or her property, the tenants get a deal to own the property without spending more money on property agents and managers.
“Payments can be done according to the agreement either in instalments or full payment on the agreed date.
“Both tenants and landlords can benefit from these arrangements, but it is essential that everybody knows what the risks are before getting started,” he says.
Mayanja adds that to avoid any risk during purchase and sale, the tenant and landlord should complete the purchase more or less immediately after agreeing to terms at closing, but rent to own is different. With rent-to-own, the buyer can decide not to buy.
Erias Nkoyoyo, an innovator, says: “The tenants may discover negative things you never knew about, and they may decide not to buy. It’s advisable to hire innovators before making any deal,” he says.
Mayanja says during the renting period, the tenant makes deposits to the landlords, and these payments usually reduce the money needed to buy the house at a later date.
Mayanja says that process is similar to lease option because they both involve contracts.
“Both the tenant and landlord agree to certain terms, and all of the terms can be changed to fit their needs. Depending on what is important to both parties,” he says.
Mayanja adds that you can request certain features before signing an agreement.
For example, you might request a larger or smaller up-front payment if that would be helpful for you.
He advises that you hire the services of a real estate attorney to avoid getting cheated.
He adds that several fraudsters take advantage of people short of funds and high hopes of buying a home.
Juliet Naiga, who bought a house on lease, says from the start of any rent to own transaction, the tenant pays the landlord an option premium as commitment fee.
“The initial premium payment is non-refundable, but it can be applied to the purchase price if the tenant ever buys the home, she will not have to come up with as much cash,” She says
Naiga says in rent-to-own, both the tenant and landlord should set a purchase price for the home in their contract and the time frame. At some point in the future depending on negotiations.
“The tenant can purchase the home regardless of what the home is actually worth.
“When setting the price, the landlord has to consider the state of the property. If the home has gone up in value faster than expected, things work out in the tenant’s favour,” she says.
Naiga says if the home loses value, the tenant will probably not buy the home partly because it might not make sense and not be able to qualify for a big loan to have a makeover.
“Your agreement should specify who is responsible for routine maintenance and extensive repairs before sealing the deal,” she says.
Naiga adds that some agreements state that before any transaction, the landlord is supposed to make repairs or to cut cost through the payments of the tenants.
Risks of rent to own
Home prices might fall and you might not be able to renegotiate a lower purchase price. Then you’re left with the option of sacrificing all of your option money or buying the house.
Late payments hurt:
Depending on your agreement, if you do not pay rent on time, you may lose the right to purchase along with all of your extra payments because they are non-refundable.
Home issues: There might be problems with the property that you don’t know about until you try to buy it such as title problems and ownership.