Rent-to-own Scheme: A Go or a No?

"If you want to achieve more in  life, you should be assertive and be persistent for  everything you need or want."

 Let me share with you a story of my sister in law in California;

 "I really wanted to have a house but i do not have a bank credit yet back then.  So i tried to  negotiate  with the owners of the houses I like  if they could let me have it through rent to own scheme, I was turned down several times  but i persisted  until i  met this  old couple who agreed on a rent-to-own basis. After 5 years, I was able to build up a bank credit  and was able to build enough equity not only to fully  bank  finance the balance,   i even had extra to remodel the house."

My sister-in-law never fall short in sharing with me her story. Sounds good right?

Here in the Philippines, we can also do arrangements like that. However, most of us are unaware  rent-to-own scheme when it comes to acquiring a home.

Want to know how it works? Read it for yourself and spread the word.

According to my own understanding, a rent-to-own concept is an arrangement between the Lessee and the Lessor where in the Lessee will have an option to buy the property after a certain period of time, and you can actually negotiate this arrangement with an owner who has property for lease or sale. Well... there is no harm in trying.

Let me give you an example.

There’s a condominium for Lease in Makati and it’s open to a rent-to-own arrangement. Instead of a regular rental contract, they have this so-called “Contract of Lease with Option to buy” document. There will be a non-refundable fee which is termed as “option consideration”. If the price of that condominium in Makati is 3 Million, then the “option fee” for that condominium in Makati will be around P150, 000 to P300, 000. You can also settle this payment through deducting it in your down payment if you decide to buy the property in the long run.

There are also terms and conditions that will be agreed upon by and between the Lessee and the Lessor. Other terms might still be negotiable depending on the buyer and the seller.

Let us take a look on the advantages of staying in a rent-to-own scheme.

1. Instant equity

Experience the feeling of having an instant  home without immediately drawing out a million peso from your account. You can also have the ability to lock in a purchase price, in case home prices increase the next few years.

2. No immediate bank involvement

Admit it, it really takes time to save and shell out cash for a one-time bigtime payment. In this deal, you will be given enough time to build your credits depending on the agreed monthly payment. It will not be costly compared to a single full payment for a certain property. You will actually save a percentage from your rental payment and part of it will be credited to your down payment.

3. Hassle-free process

If in case you’ll be interested to agree on a rent-to-own scheme, it will be easier for you to dress it up as the house is  ready to be occupied. You will get used to a place with your new friends and neighbors without making a huge purchase. Aside from having time to build up a down payment and good credit record, renters have the advantage of "trying out" the house.

However, there are also pitfalls in rent-to-own scheme. At the end of the day, if you don’t buy the home, you will lose your "option to buy consderation payment". There are also rent-to-own scams so make sure the agreement is reviewed very well.  It is also not aguarantee that prices will go up, although here in the Philippines properties have steadily gone up.  Last but not the least, there might be problems on the property that you don’t know  so better do a due diligence even before entering into a rent-to-own scheme.

Anyhow, we can always try to consult professionals for further review and assistance.

Photo Credit: Why Rent
Photo Credit: Rent To Own Pilipinas
Photo Credit: Buy Homes in Detroit

Photo Credit: Ram Jack
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