Rent with option to buy
Cabopino Realty provide buyers-tenants and sellers-landlords additional options during questionable times for the market or the individual parties. The general agreement allows for a potential buyer, who may not have the capital to buy the house out-right or the credit to get a loan, to pay a deposit up-front, traditional rent and a rent premium and live in desired home immediately.
OPTION 1 – WITH DOWNPAYMENT
The deposit on a rent-to-own is usually between 2.5 and 20 percent of the property price. The traditional rent goes straight to the seller-landlord, as in any other rental agreement. The rent premium acts as a further deposit toward the purchase of the house on the first year 100% on the second year 90% and the 3th year 80%. Most rent-to-own contracts are fairly short term – one to three years is the usual length. And the price of the property is usually established at the contract signing. With this option we will advise you to take a lawyer as there is no rental contract but a private purchase contract with a max time agreed between the seller and the buyer. If the property is not purchased on the agreed time the potential buyer will lose the quotes paid and has to leave the property.
A good example of rent to own is: Selling price of the property:
200.000€ Rental price of the property: (15% = 30.000€ /36) 833€ per month Maximum period to purchase: 3 years Purchase first year: 20.000€ deductable Purchase second year: 39.000€ deductable Purchase third year: 57.000€ deductable OPTION 2 – WITH MINIMUM RENTAL PAYMENT
A lease option allows the buyer-tenant to work towards the purchase of the house without an obligation to buy. This arrangement provides the buyer-tenant 6 to 36 months to save money or raise a credit score that is slightly below the needed one. A lease option also reduces the potential buyer’s anxiety about making the long-term and all-inclusive commitment of purchasing a home and provides him or her time to further consider the pros, cons and responsibilities of home ownership. At the same time, a lease option agreement gives the seller-landlord more security than with a traditional renter. The tenant can ultimately decide not to by the home, but he or she usually forfeits the original deposit and the rent premiums paid every month. On this option the tenant will have to pay a higher rent to an equivalent of 15% in the purchase price over a maximum or 36 months. With the lease option the deductions are specified in the example below:
A good example of a lease option is:
Selling price fixed on: 200.000€ Rental price per month: (30.000€ / 36) 833€ per month An extra rental deposit is required equivalent to 2 months rent: 1.667€ Purchase first year: 9.667€ deductable Purchase second year: 16.167€ deductable Purchase 3rd year: 15.875€ deductable OPTION 3 – WITH EXTRA RENTAL PAYMENT
Unlike a lease option, in a lease purchase the buyer-tenant agrees to buy the house in the initial contract and is obligated to follow through with the purchase at the end of the lease term. A lease purchase provides the seller-landlord the most security outside of an out-right sale, as it contractually guarantees the eventual purchase of the property by the buyer-tenant. However, both parties should be cautious if the agreement is hinged on a significant savings or credit score improvement, as a failure to accomplish either may result in a continued inability for the tenant to purchase the home, leaving both buyer and seller in a lurch. If the tenant ultimately decides NOT to buy the house, he or she faces the potential consequences of a broken contract in addition to losing the deposit and rent premiums. The seller, then, also faces legal expenses in pursuing the broken contract.
The path to a successful rent-to-own – for both buyers-tenants and sellers-landlords – requires a solid and detailed contract and a thorough game plan. If potential buyers engage in a lease option or purchase in an effort to improve their credit over the lease period, they should make sure they do in fact raise their credit scores and will be granted loans for the mortgage. Otherwise, premiums and deposits will be surrendered, and they may end up in a worse position than in the beginning. Likewise, sellers-landlords should enter rent-to-own arrangements acknowledging that they are usually long-term solutions and not avenues for immediate capital. For security and planning, both parties should establish a property price at the beginning of the agreement – or decide to go with the market price at the time of the purchase – and write the price into the contract. On this option the tenant will have to pay a higher rent to an equivalent of 20% in the purchase price over a maximum or 36 months. With the lease option the deductions are 90% of the total paid when purchasing the first years, 85% of when purchasing the second year and 75% when purchasing the 3th year.
A good example of rent to own is:
Selling price of the property: 200.000€ Rental price of the property: (20% = 40.000€ /36) 1.111€ per month Rental deposit equivalent to 2 months rent 2.222€ Maximum period to purchase: 3 years Purchase first year: 14.222€ deductable Purchase second year: 25.556€ deductable Purchase 3th year: 35.556€ deductable The prices advertised on our website are always the current asking price for the purchase of the property and the normal rental price for long term rental. To calculate the specific conditions for a rent to buy please go to our rent to buy calculator.
For more questions please do not hesitate to contact us.
Sandra Goovaerts
Cabopino Realty SL
info@cabopinorealty.com