Rent to Buy Property Search

Scheme outline

• An agreed sales price is reached by the seller and the buyer.
• The buyer pays a down-payment to the seller, a five-year rental agreement is signed and the buyer takes possession of the property.
• The buyer has the right to sub-let the property, but remains personally responsible for the payment of the rent to the seller.
• The buyer has the option to purchase the property and settle the balance at pre-determined amounts at the end of the first, second, third, fourth or fifth year. The remaining balance decreases monthly as part of the rent payment is deducted from the total amount due to the seller.
• The buyer may sell his option to a third party during the 5-year period under the same terms.
• The buyer has the right not to proceed with the purchase at the end of the five-year term. If so, he relinquishes all money paid up to date.
• The above decision, not to proceed, does not make financial sense as the buyer may sell his right to a third party at a profit.
• The buyer’s right to purchase is valid as long as he does not delay his monthly payments. However, there is a provision for a small delay in payments during the option period.
• The balance owed to the seller decreases with every monthly rental payment. The interest amount is determined by setting the rate between local bank deposit and loan interest rates. This way the finance charge is fair for both the buyer and the seller.
• The deposit amount equals approximately 10% of the agreed sales price and is much lower than what would be required for bank financing.
• The monthly rent has to be higher than the monthly interest charge so that the balance is reduced every month.
• At the end of the five-year period, the balance should not exceed 85% of the initial agreed price.

Reasons why a Seller would be attracted to the scheme

• The seller can sell his property at a fair price, instead of having the property on the market, without any income and paying interest on loans.
• The seller generates positive cash flows. Firstly, a deposit amount is paid and then there is a monthly rent. If the buyer exercises his option the balance due is settled.
• The seller finances the buyer for 5 years but during this time he earns interest. The interest rate exceeds the bank deposit rate and is calculated on the amount due to the seller.
• If the buyer does not exercise his right to purchase, the seller does not refund any money that has already been collected.
• From the moment the buyer takes possession of the property, he is responsible for all maintenance required.

Reasons why a Buyer would be attracted to the scheme

• The terms of the financing provided by the seller are better than what banks are offering, e.g. lower interest rate, smaller deposit amount etc
• The sales expenses are postponed for five years eg. stamp duty, transfer fees and bank charges. When they are incurred, they are calculated on lower amounts.
• For some buyers this is the only financing they will get to afford the purchase of their home.
• The option to purchase can be sold at a higher price; therefore it is suitable for investors. The buyers can also sub-let the property, if they wish.
• Buyers can buy their dream home easier than ever before.