What is rent to own?
With property prices rising and interest rates hitting a recent high, it’s only natural that buyers are looking at more creative ways to take that first or next step on the property ladder.
And among the ways they’re doing that is through rent to own. But what exactly is rent to own and how does it work?
What is rent to own?
Also known as rent to buy, rent to own sees the purchaser agree to buy a property for a pre-determined price at a set time, but in the interim they rent it from the vendor.
It may also see the prospective buyer pay a higher rental price for the property, with some of that going towards the agreed purchase price for the property.
As simple and appealing as that might sound, it’s also a method of purchasing with some drawbacks, so let’s walk through a rent to own and its pros and cons.
Rent to own pros and cons
Renting to own comes with both pros and cons. While it potentially allows a buyer to purchase a property without saving for that initial deposit, there are some risks involved.
For example, what happens if you can’t get finance for the property by the set sale date? Or what if the market drops and the property is no longer worth the price you agreed on?
In the interim, you might also have been paying higher rent for a property that ultimately you are unable to purchase.
Meanwhile, who is responsible for maintenance and repairs? Some rent to own schemes see the prospective buyer foot this bill rather than a traditional rental agreement where the owner handles any required maintenance and repairs.
In the meantime, it’s also important to remember the owner tends to have greater protection than the renter who intends to buy the property.
After all, the owner’s name is on the title, which means they can use the property as equity and it also remains in their legal possession until handover.
That said, renting to own can be an effective way to purchase a property in the long term, without having saved that all-important deposit.
It can also be appealing for property purchasers who might have a poor credit rating and need more creative ways to buy a home.
The takeaway
Rent to own has become more widely known in recent years courtesy of a rising property market, lending constraints, and also limited housing supply.
But if it’s something you’re considering, it’s important to do your due diligence first. This includes seeking financial and legal advice on the pros, cons and potential risks of entering into a rent to own agreement.
Every buyer has unique financial and personal circumstances, and understanding whether rent to own suits yours is imperative.
How we can help
Our experienced property managers pride themselves on establishing great relationships with both rental occupiers and owners.
We manage every property as if it were our own and you can learn more about our property management services here.
Alternatively, if you are looking to rent a property, you can view the properties we currently have available here.
