While most Filipinos aspire to have their own home, not everybody can afford it. As a result, many households have little choice but to rent, especially if they want to live near their place of work. However, many fail to realize that outside of buying a home and renting one, a convenient medium exists. There are plenty of rent-to-own condo units or house and lot packages in the market. Some of these properties might even align with your desired location, amenities, and budget!
Of course, buying your own home should always be a priority. However, doing so is a big commitment that requires a substantial investment of money, time, and patience. For those who have not finalized their family or career plans, holding off on a house purchase and renting instead makes sense.
However, many frown at the idea of renting as it’s money that leads to nowhere. Of course, the money goes to your rent, but many feel that paying a monthly mortgage toward owning the property eventually is a better deal. This is especially true if your rent costs are equal to or near the monthly mortgage rates for a comparable unit. Meanwhile, for those caught between buying or renting, there’s always a rent-to-own unit available.
Reasons for Renting Instead of Buying
A home purchase is a long-term commitment that involves a large sum of money. Naturally, potential buyers would want plenty of value for their money. However, the real estate market is also driven by external market forces such as inflation, central bank interest rates, and supply and demand.
When interest rates are high, a housing loan requires more money to pay. Similarly, high market demand pushes home prices higher as buyers compete for choice units. Many would-be homeowners will often wait it out until conditions improve. However, those who already identified their dream property will want to secure it before somebody else does. In these cases, they consider entering into rent-to-own condo arrangements to see if the property is worth buying later.
How Do Rent-to-Own Agreements Work?
Of course, many attractive properties will continue to appear even during less desirable market conditions. Some tenants will experience renter’s remorse and wish they could just buy the property… if only they could afford it. Thankfully, some developers and property owners offer rent-to-own (RTO) options that give tenants an option to eventually buy the home.
RTO: Giving Tenants the Right to Buy
In this type of agreement, the owner gives a tenant the right to purchase the property within the lease period. However, tenants will have to pay an extra amount on top of monthly rental rates to serve as an installment for the eventual downpayment if the purchase pushes through. Usually, this extra payment becomes nonrefundable when the renter eventually declines to continue with the purchase.
Two types of rent-to-own agreements are common in the market: the lease option and the lease purchase. The first allows renters to purchase the property within a lease agreement period. Meanwhile, the latter binds the tenant to purchase the property after the lease expires. Those considering a rent-to-own setup should always make sure to identify which contract type is used in the agreement.
Why Choose Rent-to-Own?
Buyers who need more time to raise the required down payment would find a rent-to-own agreement favorable. This is especially true during times of economic recovery where interest rates are expected to go down. By going the RTO route, buyers can lock in a desired property before somebody else claims it for themselves. During the lease period, the buyer can thoroughly evaluate their home-living experience, giving them a good grasp on whether they want to stay there a long time or not. An RTO option also allows buyers to pay off the downpayment in increments instead of a one-time, big-time lump sum. Those with limited budgets will surely appreciate a flexible, more affordable option.
A final advantage of renting-to-own is the option to back down. During the agreement period, new, more affordable properties can show up. Or, the tenant improves their financial position and can now afford regular house purchases. Beware, however, that any additional payments made during the RTO period will remain with the landlord.
Property Owners Also Benefit from RTO
Compared to managing idle properties waiting for a buyer, a rent-to-own option can attract a certain market segment. At the least, they get to rent out their units and potentially get to flip their homes. If things don’t work out, at least the owner gets to keep the additional payments made during the contract duration.
Are There Risks Involved in Rent-to-Own Agreements?
Similar to home mortgages, buyers are locked into purchase prices stipulated in the RT agreement. Depending on the contract, you can’t pay lower rates even when the market rates go down. On the bright side, property owners will similarly have to abide by the agreed prices even when their property’s value goes up. An additional risk for sellers is that RTO agreements are usually made between the buyer and owner only, which means that there are no banks or credit institutions involved. While buyers will have to bear the costs upfront, they won’t have to deal with additional fees or charges these institutions charge.
A rent-to-own option might help homebuyers with little liquidity. However, a lot of money will still change hands along the way. One way to reduce your risks is to check the prevailing rental rates in the property’s vicinity. If rentals are high, it means properties are in demand. As such, it might make sense to pull the trigger on an RTO purchase.
The best way to do this is by checking the price-to-rent ratio. You can do so by computing the average property price in the area and dividing it by your annual rental cost. If the sum is below 15, the rental rates in the area might be too high. In this case, it’s more feasible to enter into an RTO agreement than rent. For example, a typical 1-bedroom unit in a neighborhood costs P5 million. Meanwhile, the rental rate for the same unit goes at P30,000/ month or P360,000 a year. With a price-to-rent ratio of 13.9, you might want to say yes to your landlord’s offer to buy the condo unit.
Whether It’s Buying Property, Renting, or Renting to Own, Ohmyhome Has Your Back
You alone know what property deal is best for you, It can’t hurt to ask for professional advice from trusted experts in the field. That’s why Ohmyhome can help you find the best answers to your home ownership problems. As one of the country’s leading prop tech platforms, Ohmyhome holds a considerable listing of thousands of properties from the country’s top developers and property owners. Our team of real estate professionals will be happy to provide expert advice and secure you the best properties.
Apart from helping you find your dream home, Ohmyhome can also help you find tenants, RTO purchasers, or outright buyers for your idle properties. Sign up for a free account today and we’ll be happy to assist you with all your property needs.