Rent to Buy Secrets All Property Investors Should Know
Although traditionally, you are supposed to have substantial financial backing if you want to buy a house, being without enough capital shouldn’t always mean that you cannot own one. You may not have the 35% deposit nor the kind of good credit to get the money you need, but if you are just a little creative, you will find that you can own a home through rent-to-buy agreements.
What is a rent-to-buy agreement?
Referred to as a ‘Master Lease’ when dealing with commercial properties and a ‘Lease Option’ when dealing with private properties, a rent-to-buy agreement is when the buyer and the seller come to an understanding on how the property is going to change hands over time. The seller agrees to hand over all the property management and owning rights in exchange for a set monthly payment. This sort of agreement almost always attracts very little to no initial deposit. The buyer keeps every profit they make above and beyond the agreed monthly payments.
For example, if you agree to be paying the seller £ 2,000 every month, should you find ways to make £2,500 from the property (maybe by turning it into an HMO or renting it out to a single family) then you get to keep the extra £500. Once all your payments add up to the total agreed sale price, only then will you out rightly and legally own the house. It is a higher purchase of sorts whereby, as the buyer, you get to handle all the maintenance, taxes and so on. You will be very much like the owner of the house without legally owning it as yet.
Rent to buy secrets all property investors should know
– Always have a qualified lawyer draw up the lease agreement. You need an experienced hand that knows the ins and outs of real estate law as it applies to the location.
– Always perform a title search to make sure that the property in question does not have any liens. If liens exist, then you need to understand their nature.
– Always get an appraisal so you know what you are getting into before you agree upon a set property price.
– Hire a trustworthy holding company that will retain possession of the executed deed and all original documents until the agreement is fulfilled.
– Be clear on the exit strategy should things not go according to plan.
– The agreement should be made with a level head and substantiated property value projections.
Even though this type of sale agreement is one of the best ways to own a piece of property without actually having to go through banks and credit checks, it still needs to be well thought out. It is not uncommon for buyers to agree to extreme terms just because they feel indebted to the seller. Ensure that the terms are sound and that you can deliver on your monthly payments.