There is no doubt that the real estate in the country is flourishing by leaps and bounds. No wonder it is quite tough for a seller to find a potential buyer for his property. In other cases, there is a cash-strapped buyer who takes out the mortgage but finds it a bit of a challenge to get a loan, for some reasons. Thus, the thought of a dream home is left at that – just a dream. How can we solve this? The best option for both buyer and seller could be the “rent-to-own” scheme.
Rent-to-own provides one with the option to buy a leased property from the owner within a definite period of time. To put it simply, the buyer is given the permission to rent a home with an option to purchase it in 2 ways: 1) during the rental period; or 2) when the loan term expires. The arrangement is made on the following: monthly rental, purchase date, the selling prices and the clauses on the interest rate. A contract is completed once the buyer and owner agree on the terms – it is then drafted and eventually signed by both parties.
But does “rent-to-own” concept works in the Philippines? Is it good for your money?
The rent-to-own is usually “owner-financed” which is not the typical financing direction to take. This is when the owner offers financing to buyers. What happens is that the lessee pays rent that is somewhat above the market rate. The reason for this is that a part of it will be used for the downpayment for the property, in case the lessee decides to purchase it. At this instance, the lessee will have to pay for the remaining balance either through a bank or any other lending institution as part of his arrangement for financing. On the flipside, if the lessee decides not to pursue the sale and walks away – the lessor keeps all the paid rent as a form of incentive for taking the home off the market as it is being rented out.
The price stipulated in the contract is final and cannot be changed – whether or not the property’s value appreciates or depreciates during the lease period. It is important that before signing any contract – make sure that you understood everything to be able to fully agree to it.
PROS and CONS for the SELLER and BUYER
One question you may ask is, “Who gets to benefit more in this arrangement – the seller (owner) or the buyer (renter)?” Let us find out.
In most cases, both the buyer and seller mutually gain from the rent-to-own plan. The property that has been perhaps sitting out in the market for a time will be able to generate income for the owner, thus, getting rid of inventory. This income will be used to pay off his mortgage and property taxes. On the other hand, the buyer will be able to obtain a home immediately (especially for those who do not have enough cash or big savings for downpayment), while rebuilding his credit. As bank financing will start mostly after the end of the lease term (after 2-3 years), there is much time in fixing his credit and get approved for a mortgage loan. He is also expected to have some kind of a ”trial run” with the home – providing him an option to walk away and look for another property on or before the set date for purchase. Conversely, the renter who will become the owner in the end generally treats the property better as he is planning to live there in the future, as opposed to emptying the place after a year or two.
The best thing about the rent-to-own arrangement is that in case the lessee decides not to purchase – the seller doesn’t lose anything at all since the sales price of the property is already locked-in. This is quite favorable in the case of Metro Manila’s resilient real estate market where condominium prices are expectedly on the increasing trend for the next few years.
We can see now how attractive as an option is the “rent-to-own” scheme for both seller and buyer. But what might be the disadvantages it will have on both? The extra rent paid during the lease term will not be reimbursed, if the buyer for whatever reasons decides not to purchase at all. Of course, this extra cash is treated as income for the seller but the consequence of this is that he is back to finding a new tenant for his property so he goes back to square one all over again.
Potential Buyers for Rent-to-Own Properties
These rent-to-own condominiums are easily the wisest choices for young professionals who have been dreaming of their own homes. Developers have seen the potentials for business from the developments in the job market that they have aggressively built and launched a number of leasable residential and office spaces strategically in key business districts. The setting-up of international companies in Metro Manila recently have made the office segment the most in-demand among the property markets.
The key locations of these property developments spark the interest as well from the workforce, most especially the yuppies or young urban professionals like those in the IT and BPO companies. They’re on the lookout for condos near their offices. These yuppies are the most ideal investors of a condo unit. They have largely fewer financial obligations, they can accept more work since they are still young and able and lastly, they have all the many years ahead of them to work, pay for and enjoy the condo unit. Easily, the best way for yuppies to become property owners is to choose the rent-to-own scheme.
Having your own home is a big thing for Filipinos. Rent-to-own is very handy and helpful. We know that everyone works hard to be able to achieve their dreams not only for themselves but also for their love ones. Having one’s own home is such the utmost dream, but unfortunately – majority still cannot afford to purchase their own homes without any difficulty. This is where the private institutions and individual property owners fill the gap. They sell properties so whatever strategy can improve their sales is a good business opportunity. But as a buyer - you should always check first and decide wisely before you plunge into it. Know the property’s developer and ensure you are dealing with a responsible and legitimate owner-seller. As an owner-seller – you must be smart enough to screen and pick the best buyer for your property. Rent-to-own surely works in both ways and the key is to maximize its advantages.