Buy Home · May 2, 2021 0

Is there a rent-to-own option?

More than 90% of young Spaniards want to buy a flat or a house that they own. However, the precariousness and instability of the labor market, the increase in the price of housing and the difficulty in accessing mortgages means that many discards the purchase and continue to live on rent.

Due to this situation, more and more people are turning to a third alternative: renting with the option to buy, a form of access to housing that is not very common in but which is gaining strength in recent times.

Precisely, because it is neither a purchase nor a rental, the rental contract with the option to purchase has specific characteristics. The main one is that it is made up of two subcontracts: one for rent and one for purchase.

This mixed document acts as a pre-contract for the purchase and it reflects both the monthly payment that the tenant must pay as well as the rental time or the final price of the property, from which the amount paid during the lease period will be deducted.

But what other issues does this contract contemplate with Sky MarketingIs it necessary to request a loan to sign it? Is there a specific period to exercise the purchase option? Is it possible to give it up?

Many of our clients are interested in the availability of rental apartments with the option to buy in our real estate agency. That is why in this article we have wanted to answer some of the most common questions about this type of real estate transaction.

Questions and answers about renting to own 

What is rent-to-own?

A rent to own option allows us to rent while we pay for our future home. Basically, it is a contract that includes two subcontracts: one for rent and the other that stipulates all the aspects related to the purchase option (terms to exercise it, sale price, discount percentage when making the purchase, etc.).

After the time of the first contract, the tenant has the right to buy the house since a part of the rent paid during the rental months is deducted from the final price.

Since during the initial period this contract works like a normal rental, it is not necessary to request a mortgage loan to be able to sign it , although the owner may require some type of guarantee for the future sale. In fact, tenants of a home with an option to buy usually pay a higher rent precisely as a guarantee of the execution of their purchase option.

What aspects should the rental contract with the option to purchase reflect? 

Rental contracts with the option to purchase are not regulated as such, although they can be signed within article 14 of the Mortgage Regulations. They are also mentioned in the Urban Leasing Law. As a consequence, its application is a manifestation of a private pact between two parties.

In any case, in a rental contract with the option to buy it must be clear that it is the owner’s will to sell the home, what the rental fees are, what the final price of the property is, how long the purchase option lasts, or what Percentage of the rent will be discounted at the time of sale. It can also be reflected if the future buyer has to provide an endorsement or premium when signing the contract.

When and how is the purchase executed?

To exercise the option to purchase in this type of contract, it is enough to notify said wish and make it effective, before a notary, within the deadlines set in the contract. At that time a notarial act will be made and the sale agreed by both parties will be launched.

Can the purchase option be lost? 

Leasing contracts with the option to purchase may have the duration agreed by both parties, although it is usually between two and five years. If after that time the tenant wishes to extend the rental contract, he can do so if the owner wishes, although he will lose his option to purchase. If both parties wish, they can sign another contract under the conditions they deem appropriate.

Another reason why a tenant may lose this right, which entails the non-remuneration of the percentage of the rent or the guarantee given, is to be late in paying the rent for more than two months.

How does rent-to-own work at the tax level? 

Both the rent and the initial premium for the purchase option (if any) must be declared and the tenant can deduct it from personal income tax. If the contract only establishes a price and a term, the owner must declare it. When the final payment for the purchase is made, the owner will have to declare this capital gain.

Who is rent-to-own recommended for? 

Currently, young people become independent later and their first option is to live in rent, since low wages make it difficult to save money to give the entry of a house or to request a mortgage.

Despite not being a very common option, rent-to-own is recommended for people who want to own a home. In this way they can turn their monthly rent into an investment and have a more flexible purchase option in the future.

Advantages and disadvantages of houses for rent with option to buy

The rent with option to buy has some advantages and disadvantages that you should know beforehand.

Thanks to this formula, the rental costs become an investment. In this sense, the option is interesting for people with average salaries who could not buy a home in any other way. In addition, and unlike mortgages, in rental apartments with the option to purchase the final price of the house is increasingly lower , since we will be paying part of it in the rental fee.

On the other hand, with a rental contract with the option to buy, we have priority to acquire the property in which we live. In fact, while the contract is in force, the owner cannot sell the property to a third party. Selling a building with tenants is not that easy.

Since the final price of the house is negotiated at the signing of the contract, it will be maintained for the duration of the purchase option and regardless of market trends. This advantage can become a double-edged sword, since either party can win or lose at the time of the sale.

Finally, rent-to-own can also be advantageous for the owner, who receives a monthly rental income. However, if when the time comes to make the purchase effective, the tenant decides not to accept, he must adapt the price of the house to the current market situation, with the loss of money that this may entail.
Did you find this article interesting? Are you looking for houses for rent with option to buy in your city? If so, contact Tajarat properties.