What is rent-to-buy contract?

Rent with an option to buy consists of a formula by which a rental contract for the property is established and once the agreed period of time has elapsed, the tenant can exercise their right to purchase the home.

This type of contract is made up of two subcontracts:

1. The rental contract. It is a regular rental contract that is governed by the regulations that regulate rentals.

2. The contract with purchase option. This contract gives the tenant the possibility of purchasing the home during the duration of the rental contract and determines the conditions for the sale, such as the period from which the tenant can exercise his right to purchase, the sale price, the initial amount, that is, the premium to be paid by the tenant if so decided, and the percentage by which the rental payments paid from the beginning of the lease contract until the moment of purchase would be discounted.

In what case might it be convenient to perform this type of operation?

Renting with an option to buy can be an interesting alternative to consider if your idea is to purchase a home in the short or medium term and you do not have immediate financing. Additionally, banks are not providing mortgages easily at this time.

However, it is important to keep in mind that within this type of contract there are variants that the parties can decide with complete freedom as long as they do not differ from what is established in the laws.

We will tell you a few in case they can help you decide if this type of operation could be convenient for you.

Characteristics of the rental contract with option to purchase:

An amount will be decided that the tenant must pay as a down payment at the beginning of the rental period. This amount is called the premium and is normally 10% of the sale price of the property, although the parties may agree on a different amount.
This amount will be deducted from the sale price set at the time of purchase.
All rents paid will also be deducted from the amount payable at the time of purchasing the property. In some cases it is agreed to deduct 100% of the rent during the first year and a lower percentage from the second, but this will be agreed between the owner and the tenant.
If after the period established in the rental contract, the tenant chooses not to buy the home, none of the amounts paid at the beginning of the rental contract with option to purchase would be refunded.
You can opt to purchase the property as long as the rental contract is in force.
The tenant will have preference to purchase the property over other potential buyers.

Having said that, we are going to mention the advantages and disadvantages of renting with the option to buy, both for tenants and owners, so that you can assess for yourself whether this type of real estate operation is for you or not.

Advantages of rent-to-buy contract

TENANT:

Some or all of the money you pay for rent is deducted from the sale price of the property.
The rent payment is in turn a kind of savings for the purchase of the home.
Time is saved and the amount of money to be financed for the purchase of the property is reduced.

Sometimes we get surprises when we buy a home. And the rent with option to buy gives the tenant the opportunity to check if the property meets their needs in terms of location, orientation, noise, neighbors, community, etc…

OWNER:

The owner has greater security regarding the payment of the rent, since to exercise the purchase option it will be essential to be up to date with the payment of the rent.
You can obtain tax benefits for renting your property through this type of contract.

Disadvantages of rent-to-buy contract

TENANT:

It is possible that the rental price will be higher due to the fact that there is an option to purchase. This will depend on what the owner decides. You can always do a market study to compare whether the rental price adjusts to the market price.
If the price of the home decreased during the contract period, the tenant would not be able to benefit from this reduction since the agreed price must be respected.

OWNER:

By agreeing on a sale price in advance, the owner will not be able to benefit from a possible increase in prices.
If an occasion arose in which another buyer made a higher offer, the owner would not be able to sell as he must honor the rent-to-own contract.
The owner must wait for the contract to end to receive all of the money from the sale of his property, so if he needed immediate liquidity, he would not be able to have it.

What do you think of this type of rental? Do you still have any doubts?

Write us in the comments and we will be happy to assist you.

How does it work a rent-to-buy contract?