Selling Your House Through Rent-To-Buy
Simply a Rent-to-Buy sale means you sell your house by allowing your buyer to live in your home for a period as a tenant before they can actually purchase the home from you.
In a Rent-to-Buy scenario you and your buyer would agree on the sale price and other terms.
The buyer would pay you a non-refundable option fee, you would both sign paperwork covering the tenancy, the purchase and the option (which gives the buyer the right to buy the home at a later date) then hopefully in a couple of years depending on the agreement in place the buyer completes the purchase of the home.
It's important to understand from the beginning that this is not a guaranteed sale, your buyer can walk away at any point and not complete on the house purchase.
However this would really be no loss to yourself as the buyer would have lost any option fees paid up to that point and you would have had your property looked after and all expenses covered.
Now it would just mean you would need to find a new tenant buyer.
Because the buyer has already paid an option fee and maybe monthly option credits they are less likely to walk away from the sale unless their circumstances are extremely pressing.
Their motivation to see it through would be very high; otherwise they wouldn't have gone down this route in the first place.
So to summarize The Rent-to-Buy transaction between you (the vendor) and a tenant (the buyer) is comprised of: 1.
Paperwork and contracts 2.
An agreement on price and terms 3.
An option fee 4.
A lease period in which the buyer is renting your house 5.
The end sale So far this sounds as if it is a great deal for the buyer and not such a great deal for you the vendor.
After all the buyer gets to live in your house and then isn't obligated to buy at the end of the lease.
This begs the question "Why should I try to sell my home using rent-to-buy?" "What are the advantages to me?" In the introduction I mentioned the need some people have to sell but can't because the market is so sluggish or they can't achieve the value their property is worth.
For many people rent-to-buy answers these problems, you open up the possibility of selling your house to a whole different group of people and you can more or less fix the price where you want it.
Lets have a look at some of the advantages mentioned in the introduction.
You have a sale agreed and can move on If you have to move for your job or family or any other reason, knowing that you have a sale in place even if its not going to complete straight away is a big relief.
You could otherwise get caught in the situation where you are having to pay rent or another mortgage payment on top of any mortgage you already have.
With a rent-to-buy the tenants rent will cover these payments you can go ahead with a second mortgage or rent a new home.
Any mortgage you have will be covered and maybe some extra.
Yes you could actually make more money selling your house this way as the tenant will pay a premium rent and option fees, these can add up significantly over time.
And the extra cash flow is always useful and is particularly helpful if you are starting up somewhere new.
Tenant is motivated to look after the property as it will eventuallybe their own This is a big advantage if you compare this strategy against just renting your property which you might have been considering.
The tenant in a rent-to-buy situation are moving into what they consider to be their own home and have already made a significant deposit towards it.
They are usually very motivated to keep the property to a high standard and even make improvements.
This will help them in the long run when they apply for a mortgage and need to have a valuation done.
Monthly payments will be made punctually so as not to loose their option and fees If your tenant falls behind with the rent or any other payments due you would be able to have them evicted, in this case they would loose their option fee paid up front and any other payments they had made to date.
This is a big incentive to them to stay on top of things and get their rent in on time every time.
Lump sum receivable up front You would normally negotiate an up option fee of 3-5% of the purchase price.
This is yours at the beginning and is absolutely non refundable.
This is could very helpful to you when you are in the process of moving and setting up a new home yourself.
Sale price is fixed Great! You know where you are, what is going to be coming in when and what your budget is going to be.
This information is important especially if you are applying for a mortgage on another property.
No estate agents fees Well what can I say, the fewer fees we have to pay anyone the better.
No surveyors If you have sold before and your buyer is applying for a mortgage you will know that twinge of anxiety when they have to have a survey done.
All the doubts go through your mind; "what will they find? Is there damp anywhere? Will they give it us a decent valuation? In a rent-to-buy situation it is rare to have a survey done though the tenant buyer can request one if they wish.
The property is valued and price agreed between you and the buyer.
Can be done quickly On of the greatest benefits of a rent-to-buy sale is that it can all be dealt with really quickly.
You don't have to wait for surveys, banks, searches etc.
Once you have agreed the terms of the lease and sale with the purchaser it's just a matter of having the solicitor draw up the contracts and it all done.
This usually takes no more than a couple of weeks.
In a Rent-to-Buy scenario you and your buyer would agree on the sale price and other terms.
The buyer would pay you a non-refundable option fee, you would both sign paperwork covering the tenancy, the purchase and the option (which gives the buyer the right to buy the home at a later date) then hopefully in a couple of years depending on the agreement in place the buyer completes the purchase of the home.
It's important to understand from the beginning that this is not a guaranteed sale, your buyer can walk away at any point and not complete on the house purchase.
However this would really be no loss to yourself as the buyer would have lost any option fees paid up to that point and you would have had your property looked after and all expenses covered.
Now it would just mean you would need to find a new tenant buyer.
Because the buyer has already paid an option fee and maybe monthly option credits they are less likely to walk away from the sale unless their circumstances are extremely pressing.
Their motivation to see it through would be very high; otherwise they wouldn't have gone down this route in the first place.
So to summarize The Rent-to-Buy transaction between you (the vendor) and a tenant (the buyer) is comprised of: 1.
Paperwork and contracts 2.
An agreement on price and terms 3.
An option fee 4.
A lease period in which the buyer is renting your house 5.
The end sale So far this sounds as if it is a great deal for the buyer and not such a great deal for you the vendor.
After all the buyer gets to live in your house and then isn't obligated to buy at the end of the lease.
This begs the question "Why should I try to sell my home using rent-to-buy?" "What are the advantages to me?" In the introduction I mentioned the need some people have to sell but can't because the market is so sluggish or they can't achieve the value their property is worth.
For many people rent-to-buy answers these problems, you open up the possibility of selling your house to a whole different group of people and you can more or less fix the price where you want it.
Lets have a look at some of the advantages mentioned in the introduction.
You have a sale agreed and can move on If you have to move for your job or family or any other reason, knowing that you have a sale in place even if its not going to complete straight away is a big relief.
You could otherwise get caught in the situation where you are having to pay rent or another mortgage payment on top of any mortgage you already have.
With a rent-to-buy the tenants rent will cover these payments you can go ahead with a second mortgage or rent a new home.
Any mortgage you have will be covered and maybe some extra.
Yes you could actually make more money selling your house this way as the tenant will pay a premium rent and option fees, these can add up significantly over time.
And the extra cash flow is always useful and is particularly helpful if you are starting up somewhere new.
Tenant is motivated to look after the property as it will eventuallybe their own This is a big advantage if you compare this strategy against just renting your property which you might have been considering.
The tenant in a rent-to-buy situation are moving into what they consider to be their own home and have already made a significant deposit towards it.
They are usually very motivated to keep the property to a high standard and even make improvements.
This will help them in the long run when they apply for a mortgage and need to have a valuation done.
Monthly payments will be made punctually so as not to loose their option and fees If your tenant falls behind with the rent or any other payments due you would be able to have them evicted, in this case they would loose their option fee paid up front and any other payments they had made to date.
This is a big incentive to them to stay on top of things and get their rent in on time every time.
Lump sum receivable up front You would normally negotiate an up option fee of 3-5% of the purchase price.
This is yours at the beginning and is absolutely non refundable.
This is could very helpful to you when you are in the process of moving and setting up a new home yourself.
Sale price is fixed Great! You know where you are, what is going to be coming in when and what your budget is going to be.
This information is important especially if you are applying for a mortgage on another property.
No estate agents fees Well what can I say, the fewer fees we have to pay anyone the better.
No surveyors If you have sold before and your buyer is applying for a mortgage you will know that twinge of anxiety when they have to have a survey done.
All the doubts go through your mind; "what will they find? Is there damp anywhere? Will they give it us a decent valuation? In a rent-to-buy situation it is rare to have a survey done though the tenant buyer can request one if they wish.
The property is valued and price agreed between you and the buyer.
Can be done quickly On of the greatest benefits of a rent-to-buy sale is that it can all be dealt with really quickly.
You don't have to wait for surveys, banks, searches etc.
Once you have agreed the terms of the lease and sale with the purchaser it's just a matter of having the solicitor draw up the contracts and it all done.
This usually takes no more than a couple of weeks.