Buyers and sellers may discover that participating in a rent-to-own arrangement is the best option in today’s challenging market.
The real estate market is currently saturated, making it harder for sellers to discover potential purchasers. Additionally, cash-strapped buyers who take out a mortgage may have problems obtaining a loan for a variety of reasons. As a result, they are unable to buy the home of their dreams.
Rent-to-own (RTO), sometimes known as lease-to-own, is a sort of agreement that allows a person to purchase a rented property from the owner over a set length of time. Simply put, a buyer can rent a home with the opportunity to buy it at the conclusion of the rental time or until the loan term ends.
How does the rent-to-own system operate in the Philippines, though?
At the commencement of the agreement, both parties must identify the monthly rental, purchase date, sales price, and other details such as the interest rate. They draft and sign a contract when they have agreed on the conditions.
In contrast to traditional financing, rent-to-own is owner-financed, which implies that the seller funds the purchase. Lessees pay a somewhat higher rent than the market rate as a result. This is because if the lessee decides to buy the home, a portion of the rent will be utilized to make the down payment. In this instance, he or she will need to obtain financing for the remaining sum from a bank or another lending institution. The lessor keeps all rent paid if the lessee decides to depart the premises, which is his or her incentive for keeping the property off the market while it was rented.
Keep in mind that the sales price indicated in the contract is final and cannot be modified, regardless of whether the property’s value rises or falls during the lease time. As a result, before you sign any deal, make sure you understand what you’re signing.
Who benefits from this scheme?
Both parties benefit from this type of agreement. Buyers can purchase a property right away and have time to rehabilitate their credit. Sellers who have had their property on the market for a long time can earn money to pay off their mortgage and property taxes.
Another advantage is that purchasers can “test drive” the home before purchasing it, having the opportunity to walk away and look for another home on or before the purchase date. Meanwhile, because the sale price is already locked in, vendors lose nothing if the lessee decides not to buy.
Issues to consider
1. Payment Due Date
Risk is inherent in any funding transaction. These can be avoided if both the buyer and the seller make certain that the contract addresses all essential points and concerns.
Buyers face the drawback of forfeiting all rent payments if they decide not to purchase. Another difficulty is that if the home’s value decreases throughout the renting time, the tenant may find up paying much more for the property than market value. The lessee may be evicted if he or she falls behind on rent, forfeiting the down payment and all past rent payments. Finally, the lessor may be unable to pay the mortgage, in which case the rent paid will be forfeited and the prospective buyer will be unable to purchase the property.
There is also a disadvantage for the seller or the company. They will miss out on any price hikes or property appreciation. This would benefit the renters by allowing them to acquire the home below market value because the sales price is established from the start.
2. Rental Agreement
The number of clauses that can be incorporated in a contract is unlimited. Regardless matter whether you are the buyer or the seller, safeguard all of your interests to avoid future legal issues. If required, hire an attorney to properly analyze the deal before signing it.
Aside from the basics like the monthly rental rate, the purchase date, and the sales price, both sides must agree on pet regulations, the maximum number of tenants allowed in the home, and future improvements.
Furthermore, because a rent-to-own arrangement is complex and rare, both the lessee and the lessor would benefit from reviewing RA 9161, or the “Rental Reform Act of 2002,” to get a complete understanding of the regulations governing RTOs in the Philippines and avoid any unheard-of breaches.
3. Major Appliances Included
A home seller isn’t required to leave their appliances for the next buyer of the property. Move-in ready homes will include refrigerators, freezers, and stoves; as well as laundry machines, heating and cooling systems, and dishwashers. Check the condition, age, and energy efficiency of the appliances you’ll keep at purchase — some may be close to their replacement age.
Move-in ready means something different for every home buyer. At its simplest, you want a clean and structurally sound home. Talk to your real estate agent about what you want in a home and consult a home inspector to make sure everything is up to code.
