Probably you have heard people say many times that renting living space is a waste of money. There are several reasons for this, and the main one is reflected in the fact that you can live like this for years without achieving anything in the end.
On the other hand, living like a tenant with the possibility to buy off that real estate later sounds better. Of course, in such a case, you should be ready to pay more on a monthly level.
During a lifetime, everyone is doing their best to afford themselves an easy life and we all know real estate plays one of the crucial roles in that. Still, the very thought of asking for a loan from the bank for 30 years or more makes us feel dizzy.
Also, the fear you may lose your job in the meantime, making you unable to repay the bank debt prevents you from taking that step. On the other hand, if you take a lease, there is a chance that you will be left homeless if you do not repay within the prescribed period. All this creates fear in people and resistance to raising large sums of credit. This is where rent-to-own emerges as a solution.
What Is Exactly Rent-To-Own?
Rent to own has proven to be a very smart solution in solving housing problems. In the simplest words, the term rent to own refers to renting a property for later purchase. What this is actually about is the signing of a contract between the landlord and the buyer, which states that after a certain amount of time spent in the apartment as a tenant, the tenant has the right to buy that property.
The key thing you need to know before you decide to take this step is that by signing a rental agreement you are one step closer to owning it in the future because with this agreement you commit to renting for a certain period, after which you can buy it. Of course, the rental price will be a little higher than usual, because the percentage of payment is applied to the purchase price.
As ideal as it may sound, this principle of buying real estate has certain pros and cons everyone should consider before deciding to make this step.
Now we know that home rental management is challenging but with Mynd, you will have great relief as they manage your property and your renters smoothly.
Pros of Rent to Own
1. Buy with Bad Credit
Buying a property in this way is good news for all those who do not meet the conditions for housing rental because for a start only a rental agreement is enough. Unlike the classic lease agreement, it is signed for 1 year, this one is usually signed for 2 or more years. During the time you live as a tenant, you can work on renewing the credit points and be ready to welcome the purchase of the house after the expiration of the lease agreement.
2. Lock in A Purchase Price
Since the value of the real estate is variable, it may not be a bad option to sign a purchase agreement at today’s price, although the buyer has the option to cancel if the value of the property falls.
Unlike tenants, you have the opportunity to adapt the living space to yourself, to renovate it, and make certain changes in it even before you sign the sales contract.
4. Inner Peace
New real estate is unattainable for many. Just think of waiting during construction, buying tiles, floors, and other works, and only finally buying furniture. Choosing an apartment to rent, you also choose what suits you, but at a more affordable price.
5. Experiencing Before Owning: The Test Drive
Rent-to-own offers a unique chance to ‘live-in’ and gauge your future home and neighborhood. This helps evaluate aspects like ambient noise, commute duration, local amenities, and overall compatibility before locking in the investment. Essentially, it’s your own personalized trial period, ensuring the property aligns with your lifestyle and aspirations.
6. Growing Wealth with Equity Buildup
Rent-to-own often allows a slice of your rent to contribute towards property equity, essentially turning rent into future savings for a down payment. As property value appreciates, you stand to benefit from potential equity growth. This financial gain can ease your journey from a renter to a homeowner, possibly even securing you a more favorable mortgage rate.
Cons of Rent to Own
1. Monthly Rent Is Higher
We have already mentioned that the monthly rent is more expensive because part of the money is set aside for the future purchase of the house or apartment you are currently renting. The big drawback is that in case you cancel the purchase for the duration of the lease.
Besides, the contract is only valid for a particular property, so you cannot change your mind and change it for another in the meantime.
2. Repairs and Maintenance
Although these are the obligations of the landlord, in the case of signing a rent to own contract, do not hope too much, because all the responsibility for payment is on you.
3. Landlord Rules
Read the contract twice before signing, go through each clause in detail so as not to be unpleasantly surprised to learn that the landlord is entitled to penalties in case of an irregular settlement of obligations by the buyer.
4. Potential Problems Can Occur
If you think you are solving everything by signing a contract – you are wrong. Before you do that, do all the necessary checks on the history of the property, because, in case there are some problems related to the house from before, you, as the future owner, could inherit them.
5. Possible Scams
Unfortunately, it very often happens that people are deceived by the landlord. Read the contract carefully to make sure there is no obligation to purchase the property, as this should be listed as an option. Also, it is not wise to provide your financial information.
If at some point you notice that the landlord refuses to allow you an examination or refuses to bear the costs of a lawyer related to the contract, it is the right time to give up your intention and look for another solution.
6. Balancing Commitments: A Financial Juggling Act
Rent-to-own agreements often involve hefty upfront payments or escalated monthly rents, potentially constraining your financial fluidity. This hefty commitment can pose challenges in distributing funds for other essential expenses or promising investments.
Your ability to save or explore additional opportunities may be hampered during the rental period. So make sure you’re well informed before committing and check some of the details on the website we provided.
7. Riding the Market Wave: Uncertainty and Risks
Rent-to-own contracts usually freeze the property’s purchase price right at the inception. However, this can backfire if the real estate market takes a tumble. A fall in property values during your lease period could result in overpaying at the time of purchase. This market volatility could expose you to financial perils and leave you at a potential disadvantage in terms of the property’s actual value.
So, before you make such an important decision in your life, put on the scale all advantages and disadvantages of it. Also, the help of a real estate agent and a real estate attorney is playing a key role. What is important is to realistically look at your financial situation and assess whether you are financially strong enough to take this big step.
When buying a property, pay attention to the neighborhood, as well as to whether the facilities and institutions you need are nearby. Also, pay attention to the neighbors, it would not be bad to check whether the area is quiet or there are road robberies. The price of the apartment itself will tell you a lot about that – if it is too good to be true, then it is!