The age-old method of saving for a home deposit is becoming increasingly difficult for many, and securing a suitable mortgage may seem an impossible task. Today, the option of rent-to-own is becoming a popular alternative method of purchasing real estate.
The rent-to-own option offers improved accessibility and flexibility for home seekers. Pre-purchase valuation services in New South Wales often serve as useful tools for those seeking to buy a property, and with rent-to-own possibilities, you may just be able to afford your dream property.
What is a rent-to-own property?
Rent-to-own, otherwise known as rent-to-buy or lease-to-own, is a real estate arrangement that combines parts of renting and purchasing. The tenant who wishes to buy the property generally agrees to rent the property for a specified period, often many years, with an option to buy the property for a predetermined price once the lease contract expires.
How does it work?
Typically, the tenant agrees to pay a slightly above-market rental price with a piece of the excess being allocated toward a future down payment; should they choose to purchase the home. The amount is often held by a third party and eventually credited towards claiming full ownership of the property.
What are some of the benefits of rent-to-own properties?
A range of benefits exist for those who opt for the rent-to-own path. A few of the main advantages are:
An alternative path to homeownership
Not everyone has the financial capacity to make a large downpayment on a property, and many feel excluded from an opportunity to own real estate.
Rent-to-own arrangements offer an alternative way of purchasing real estate, even for those with below average credit scores and limited savings.
Time to gain financial stability
The rental period can be used to boost existing finances by paying off debts, improving credit scores, and increasing existing savings.
Many will progress in their professional ambitions and find themselves in a much more secure financial position by the time the lease agreement ends, and the purchase can move forward.
An opportunity to test the property
With no set obligation to purchase the property, renting first allows you to live in the space and the neighbourhood to see if it suits you before making a final commitment.
By the time the lease agreement ends, you’ll have a clear sense of whether you want to purchase this property or look elsewhere.
Fixed purchase price
The selling price is determined when the lease agreement is set up, and you don’t have to worry about market changes increasing the final price.
Tenants are shielded from the fluctuations of the property market and only must pay whatever was initially agreed upon.
Potential downsides
While the benefits are plenty, it’s important to review the possible downsides. Going over both the positives and negatives can help you determine if a rent-to-own option suits your circumstances.
Contract obligations
With rent-to-own agreements, you’re typically tied into a long-term contract with detailed rights and responsibilities for both parties. You need to carefully review the terms and conditions of the contract to make sure your interests are protected.
Market fluctuations
Although tenants are shielded from market fluctuations, there’s always a chance that the value of the property declines during the rental period. As a fixed price is set, you may end up buying the property well above the current market value.
Condition and maintenance of the property
As a tenant with the intention of purchasing the property, you may be responsible for the upkeep and maintenance of the place. Reviewing the contract terms can provide clarity on what your maintenance obligations are.
Default risks
If you fail to meet your lease obligations, it may result in the loss of a purchase option and possible eviction. Always make sure you understand the consequences of not meeting your contractual obligations.
Navigating the rent-to-own market
If you’re considering a rent-to-own property in NSW, undertaking the following steps is critical:
Seek professional guidance
Pre-purchase valuation services are a valuable tool for anyone considering a rent-to-own agreement. A valuation report provides a definitive outline of the property’s market value, and you can make sure the fixed price set is not well above its market price.
Financial assessment
Review your financial position before agreeing to purchase a property. Consider your ability to meet the rental obligations, existing savings, and your professional trajectory. Don’t agree if you are not financially stable enough to do so.
Review the property yourself
Make sure the property fulfils your needs and wants as a home seeker. Inspecting the property gives you a chance to determine if the home looks comfortable and attractive to you.
Summary
The real estate market in Sydney is vast and full of opportunities for home seekers. The new trend of rent-to-own properties offers a more flexible and accessible method of purchasing real estate.
The arrangement involves a set rental period where rent is paid above the market rate. The excess amount is held and used as a deposit for purchasing the property at the end of the lease period. A fixed purchase price is set for the property at the beginning of the rental period.
There are a range of advantages to this, as well as some potential downsides. Going over the key details can help you determine if a rent-to-buy option suits you.
For more information on the real estate market and property valuations in NSW, don’t hesitate to give us a call today.
