5. Rent‐to‐Own advantages and disadvantages - ZoWy

Rent‐to‐Own advantages and disadvantages.

Agenda:

  • • Understand the advantages for tenants‐buyers.
  • • Understand the risk of tenants‐buyers.
  • • Understand how to deal with the Rent‐to‐Own risk.

Below is the list of ten advantages of the Rent‐to‐Own scheme:


  • YOU MOVE IN IN ONE DAY.
    You are probably tired of renting out and relying on the landlord's plans and mood or just scared of renting in the first place. There is no more security than owning your home, especially if you have a family. The legal work is straightforward, and you can move in literally in days.
  • YOU OWN THE PROPERTY FROM DAY ONE.
    Simple legal process to sign a lease‐purchase agreement can be done within days and online. After that, you own the place ;)
  • NO CREDIT SCORE IS REQUIRED!
    You have a bad credit history, or have you just moved to the UK and have no credit history? No problem!!! Rent‐to‐Own is a program that aims for people who want to build their credit history and finalize the purchase with a mortgage in a few years.
  • NO INCOME ‐ NO PROBLEM!
    Have you just graduated? Do you own your business and show little income? Are you a parent and working little hours now? Then you are the perfect candidate for Rent‐to‐Own tenant‐buyer. We are sympathetic towards lower payment if you are in a position where your income goes up in.
  • YOU ARE MOVING FROM ABROAD.
    No problem! You are more than eligible for Rent‐to‐Own. You have time to have your credit history, and you will have more and more money saved towards deposit with time.
  • SECURITY OF FIXED PRICE.
    You can be sure what price you will pay in a few years once the Rent‐to‐Own term is over. If the property is worth more than it is your extra profit.
  • FLEXIBLE WAY TO PAY OFF THE PROPERTY.
    You are free to make any extra payments towards the purchase price. If you wish, you can make regular overpayments, so the mortgage will not be required ever!
  • SMALL DEPOSIT.
    You are required to pay just a fraction (typically less than 10%) of the total purchase price. It is far less than typically required by banks.
  • YOU DON'T WANT TO BUY THE PROPERTY. NO PROBLEM!
    We can just sell it on the market on your behalf. Moreover, if you achieve the price above your fixed price, the difference goes to you :) It sounds great, doesn't it?
  • FLEXIBLE TERM
    With specific properties, we are flexible with terms of the Rent‐to‐Own. We can arrange a longer time to meet your requirements.
  • YOU CAN ASSIGN PURCHASE TO SOMEONE ELSE
    Yes, it is not a problem, and it is one of the terms in the Lease Purchase Agreement you probably like the most. Don't worry if you want to assign the property to a relative, child or purchase the property alone if you split with your partner.
  • YOU DON'T NEED FULL DEPOSIT NOW
    In specific deals, we can even split deposit payment into many instalments. So, if you expect a larger payout and just cannot wait longer to own the property now ‐ don't wait. We have it sorted.
  • YOU WANT MORE EXPENSIVE PROPERTY
    Yes, you can afford to buy the property, which seems too expensive now. All you need to do is to make sure you will be in a position to buy it after the Rent‐to‐Own term, but, hey, was that your dream :)?
  • PAYING YOUR RENT AND PAYING YOUR PROPERTY BACK AT THE SAME TIME!
    Yes, part of your rent goes towards your house, so it is less and less each month. Is it not much better than standard rent?
  • As with everything in our lives, Rent‐to‐Own has some disadvantages which you should be aware of:


    • FIXED PRICE BUT WHAT THE PROPERTY IS NOT WORTH THAT MUCH AT THE END OF TERM.
      It is the most common issue tenant buyers see before signing the agreement. Although it makes sense that property prices are going up in the long term, there is no guarantee that the fixed price will match the future valuation. There might be several reasons for it, but landlords are usually reasonable in extending a lease by an additional year if the valuation is lower due to economic reasons. However, suppose the property is not in bad condition and not looked after. In that case, landlords usually are not happy with any extension as it is a fault on the tenant‐buyer site. Tenants‐buyers must also try to apply for another valuation with another lender as valuations vary from one lender to another.
      However, the risk for tenant buyers is that if the landlord will not grant an extension to the lease and valuation is lower than the purchase price. The shortfall needs to be met from tenant‐buyers’ sources.
      We appreciate that during difficult economic times, property prices can go temporarily down. In most of our agreements with landlords, we have the option to extend their agreements until the properties are back to the same value at the time of signing the contract. That is the extra‐economic security we arrange for our tenant‐buyers.
    • I SPLIT UP WITH MY PARTNER/I AM OFF WORK AND CANNOT AFFORD TO GET A MORTGAGE NOW
      This unfortunate issue is no one's fault. Although it usually doesn't affect the monthly payments paid by tenant‐buyers long‐term, it decreases the chances of obtaining the mortgage. There are two options how to deal with this scenario: Find another person who can be a joint applicant for the mortgage. As all agreements are assignable, it is not a real problem OR Sell the property before the Rent‐to‐Own agreement expires. We will sell it on tenant‐buyer behalf but need to know it at least six months before the end of the deal.
    • I CANNOT MAKE MONTHLY PAYMENTS
      In this unfortunate event, the circumstances are essential. According to the signed agreement, failure to make two consecutive monthly payments is the default, and you lose your property then. However, subject to circumstances and exit plans, the landlord might be flexible with payment arrangements to some extent.
    • I MOVED IN, AND THE HOUSE REQUIRES MORE WORK THAN INITIALLY EXPECTED.
      The property which is sold under Rent‐to‐Own is always in habitable condition. It means that it has a gas and electricity certificate, valid E or below EPC rating, and generally fair condition and cleaning. Any work to the property is always carried out by the tenantbuyer and their investment into their properties.
    • WHAT IF I CHANGE MY MIND?
      Unfortunately, if you decide not to go ahead with your Rent‐to‐Own, you will lose the deposit and rental payments being made so far.


    Conclusions:

    • • Rent‐to‐Own is a relatively low‐risk product but requires preparations and consistency to get a mortgage once the term is over.
    • • The main risk of valuation of the property can be deal with as the extension to the agreement.
    • • Rent‐to‐Own doesn't require many criteria to be met to join in opposite to the standard purchase.

    Further reading:

Rent‐to‐Own advantages and disadvantages.

Agenda:

  • • Understand the advantages for tenants‐buyers.
  • • Understand the risk of tenants‐buyers.
  • • Understand how to deal with the Rent‐to‐Own risk.

Below is the list of ten advantages of the Rent‐to‐Own scheme:


  • YOU MOVE IN IN ONE DAY.
    You are probably tired of renting out and relying on the landlord's plans and mood or just scared of renting in the first place. There is no more security than owning your home, especially if you have a family. The legal work is straightforward, and you can move in literally in days.
  • YOU OWN THE PROPERTY FROM DAY ONE
    Simple legal process to sign a lease‐purchase agreement can be done within days and online. After that, you own the place ;)
  • NO CREDIT SCORE IS REQUIRED!
    You have a bad credit history, or have you just moved to the UK and have no credit history? No problem!!! Rent‐to‐Own is a program that aims for people who want to build their credit history and finalize the purchase with a mortgage in a few years.
  • NO INCOME ‐ NO PROBLEM!
    Have you just graduated? Do you own your business and show little income? Are you a parent and working little hours now? Then you are the perfect candidate for Rent‐to‐Own tenant‐buyer. We are sympathetic towards lower payment if you are in a position where your income goes up in.
  • YOU ARE MOVING FROM ABROAD
    No problem! You are more than eligible for Rent‐to‐Own. You have time to have your credit history, and you will have more and more money saved towards deposit with time.
  • SECURITY OF FIXED PRICE
    You can be sure what price you will pay in a few years once the Rent‐to‐Own term is over. If the property is worth more than it is your extra profit.
  • SMALL DEPOSIT
    You are required to pay just a fraction (typically less than 10%) of the total purchase price. It is far less than typically required by banks.
  • FLEXIBLE WAY TO PAY OFF THE PROPERTY
    You are free to make any extra payments towards the purchase price. If you wish, you can make regular overpayments, so the mortgage will not be required ever!
  • YOU DON'T WANT TO BUY THE PROPERTY. NO PROBLEM!
    We can just sell it on the market on your behalf. Moreover, if you achieve the price above your fixed price, the difference goes to you :) It sounds great, doesn't it?
  • FLEXIBLE TERM
    With specific properties, we are flexible with terms of the Rent‐to‐Own. We can arrange a longer time to meet your requirements.
  • YOU CAN ASSIGN PURCHASE TO SOMEONE ELSE
    Yes, it is not a problem, and it is one of the terms in the Lease Purchase Agreement you probably like the most. Don't worry if you want to assign the property to a relative, child or purchase the property alone if you split with your partner.
  • YOU DON'T NEED FULL DEPOSIT NOW
    In specific deals, we can even split deposit payment into many instalments. So, if you expect a larger payout and just cannot wait longer to own the property now ‐ don't wait. We have it sorted.
  • YOU WANT MORE EXPENSIVE PROPERTY
    Yes, you can afford to buy the property, which seems too expensive now. All you need to do is to make sure you will be in a position to buy it after the Rent‐to‐Own term, but, hey, was that your dream :)?
  • PAYING YOUR RENT AND PAYING YOUR PROPERTY BACK AT THE SAME TIME!
    Yes, part of your rent goes towards your house, so it is less and less each month. Is it not much better than standard rent?


As with everything in our lives, Rent‐to‐Own has some disadvantages which you should be aware of:


  • FIXED PRICE BUT WHAT THE PROPERTY IS NOT WORTH THAT MUCH AT THE END OF TERM.
    It is the most common issue tenant buyers see before signing the agreement. Although it makes sense that property prices are going up in the long term, there is no guarantee that the fixed price will match the future valuation. There might be several reasons for it, but landlords are usually reasonable in extending a lease by an additional year if the valuation is lower due to economic reasons. However, suppose the property is not in bad condition and not looked after. In that case, landlords usually are not happy with any extension as it is a fault on the tenant‐buyer site. Tenants‐buyers must also try to apply for another valuation with another lender as valuations vary from one lender to another.
    However, the risk for tenant buyers is that if the landlord will not grant an extension to the lease and valuation is lower than the purchase price. The shortfall needs to be met from tenant‐buyers’ sources.
    We appreciate that during difficult economic times, property prices can go temporarily down. In most of our agreements with landlords, we have the option to extend their agreements until the properties are back to the same value at the time of signing the contract. That is the extra‐economic security we arrange for our tenant‐buyers.
  • I SPLIT UP WITH MY PARTNER/I AM OFF WORK AND CANNOT AFFORD TO GET A MORTGAGE NOW. This unfortunate issue is no one's fault. Although it usually doesn't affect the monthly payments paid by tenant‐buyers long‐term, it decreases the chances of obtaining the mortgage. There are two options how to deal with this scenario: Find another person who can be a joint applicant for the mortgage. As all agreements are assignable, it is not a real problem OR Sell the property before the Rent‐to‐Own agreement expires. We will sell it on tenant‐buyer behalf but need to know it at least six months before the end of the deal.
  • I CANNOT MAKE MONTHLY PAYMENTS
    In this unfortunate event, the circumstances are essential. According to the signed agreement, failure to make two consecutive monthly payments is the default, and you lose your property then. However, subject to circumstances and exit plans, the landlord might be flexible with payment arrangements to some extent.
  • I MOVED IN, AND THE HOUSE REQUIRES MORE WORK THAN INITIALLY EXPECTED.
    The property which is sold under Rent‐to‐Own is always in habitable condition. It means that it has a gas and electricity certificate, valid E or below EPC rating, and generally fair condition and cleaning. Any work to the property is always carried out by the tenantbuyer and their investment into their properties.
  • WHAT IF I CHANGE MY MIND?
    Unfortunately, if you decide not to go ahead with your Rent‐to‐Own, you will lose the deposit and rental payments being made so far.


  • Conclusions:

    • • Rent‐to‐Own is a relatively low‐risk product but requires preparations and consistency to get a mortgage once the term is over.
    • • The main risk of valuation of the property can be deal with as the extension to the agreement.
    • • Rent‐to‐Own doesn't require many criteria to be met to join in opposite to the standard purchase.

    Further reading:

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