Rent-to-own advantages and disadvantage for landlords.
Agenda:
- Understand the advantages.
- Understand the risk
- Understand how to deal with the Rent-to-own risk.
- Understand which of your circumstances are the best for Rent-to-own.
Below is the list of ten advantages of the Rent-to-own scheme:
>> YOU CAN SELL PROPERTY IN ONE DAY.
All you need to do is to sign a Joint Venture Agreement and start receiving rent and secure the sale price. Tenants-buyers are waiting for your property.
>> SECURED SALE PRICE.
you have a fixed sale price of the property. Even if property prices go down, you can be confident that you have a deal secured with an agreed price.
>> GUARANTEED RENT.
the rent is guaranteed by the joint venturer and not the tenant. So if the tenant won't pay rent or is late, the landlord still receives it on time.
>> FIXED MONTHLY NET RENT.
the level of rent is guaranteed during the rent-to-own period.
>> FIXED MONTHLY NET RENT.
the level of rent is guaranteed during the rent-to-own period.
>> NO SALES AGENT FEES.
there are no selling agency fees. The tenant-buyer pays all selling fees. That's around 1.5% of the selling price saved.
>> NO LETTING AGENT FEES.
all landlords receive is a net rent figure. So the figure is not deducted by any fees.
>> NO MAINTENANCE OR LEGAL COSTS.
all that fees are being taken care of by the joint venturer.
>> YOU DON'T HAVE TO DO ANY REFURBISHMENT.
the tenant-buyer can do all. If you have been told to do some work by an estate agent, save money and don’t do it.
>> NO VOIDS.
tenant buyers have to make payments to buy the property, so there is very little chance of rent default and even if the rent is always paid and guaranteed by the joint venturer.
>> SAVINGS ON TAX.
some landlords and tenant buyers find increasing a purchase price while lowering a monthly long term rent as a better option. That way, your tax bill can decrease and be delayed.
As with everything in our lives, Rent-to-own has some disadvantage which you should be aware of:
>> FIXED SALE PRICE.
You may find that the purchase price increased, and it is higher than on the agreement. Well, on the other hand, it can go down. It is an investment sale, and it is a calculated risk, but on the other hand, the landlord has a secured buyer with secured rent over the agreement period. Lack of any sales fees also helps a lot.
>> LOWER RENT.
long term rent is always lower than short term rent. The typical difference is about 10%. The advantage is no void periods and guaranteed rent for years.
>> LITTLE MONEY TODAY.
in some circumstances, the landlord can receive part of the deposit paid by the tenant-buyer but let’s face it - by selling with the Rent-to-own, you get money at the expiry of the agreement. So if you are looking to sell because you need to cash in all your equity Bespoke Property Wealth is not the option.
>> NO CAPITAL RAISING DURING AGREEMENT.
unless communicated and discussed before signing joint venturer agreement, no capital raising or remortgage is permitted unless approved by tenant-buyer. If you are looking to remortgage and doing capital raising, please communicate first, as you may not have that option during the agreement term.t the expiry of the agreement. So if you are looking to sell because you need to cash in all your equity Bespoke Property Wealth is not the option.
There are certain aspects each landlord has to consider and be, potentially, able to deal with. Valuation risk. If the market is down and prices go down, there is little chance that the tenant-buyer will complete the transaction. It won’t make financial sense, but more importantly, the tenant buyer might be short of money due to down valuation. We advise both landlord and tenant-buyer at that stage to extend the agreement term by initially one year. We all want a good deal at the end of the day, but we want to look after every person involved and don’t put good tenants buyers into trouble. Some tenant-buyers' circumstances, which they do not control, can prevent them from completing the purchase on time. It varies from a break in the relationship, death, temporary job problems etc.; we kindly ask both landlord and tenant-buyer to extend the agreement term to allow the tenant-buyer to complete the transaction.
The joint venturer taking responsibility for payment of anything to do with the property, including:
- Rent-to-own is a relatively low-risk product.
- The main risk of the valuation of the property can be dealt with as an extension of the agreement.
- Money from sale with Rent-to-own and comes only at the end of the agreement.