There are instances when one wants a home to call their own, but the finances won’t allow it. The prices for Philippine real estate can be prohibitive for some people. The trying economic times make it even more difficult to meet the necessary down payments and other fees. For those who have financial security but not the resources to make an offer on the home of their dreams, it is possible to find a rent to own house. Contracts of this nature are also known as the “lease option.”
The simplest definition of a lease option is an agreement wherein the owner allows a person to rent the house for a specified period for a fee that is higher than the market rate. At the end of the agreed-upon lease period, the person has the option to buy the house from the owner. This is an agreement that can also apply to the purchase of a Makati condo. Aside from the option to buy at the end of the contract, there are also other potential advantages.
Minimum cash at the start
Since there is no down payment to be made, someone who looks into a rent to own house does not have to shell out large amounts of cash at the very start. Most contracts of this nature only require what is known as an “option deposit” – an amount of money that represents interest in making a permanent purchase of the home. This money is credited in full at the end if the home is purchased. Some contracts may also require an advance in rent or some other deposit, but this is a small amount compared to the full down payment one is expected to pay for Philippine property.
Rent goes to the payment
The fees for a rent to own house are typically higher than is average for the market. The excess cash goes towards the final purchase of the home. This can either be done in the form of a reduction of the final price or in an accumulating lump sum credited to the cost. This is advantageous in the long-term because it can reduce the purchase price of the property significantly, depending on how long the lease agreement is.
The possibility of walking away
Individuals who purchase a Makati condo immediately are unable to simply walk away if they later find problems with the house. For those who are taking a lease option, this is not always the case. Depending on the terms of the agreement with the owner, a potential buyer can still back out if they find anything seriously wrong with the house or condo unit. Doing this will cause them to lose their option deposit and any rent already paid, but it saves more money in the long-term by allowing them to avoid any renovation, repair, or maintenance costs.
Potential profits from appreciation
The selling price of a rent to own house is locked in by the terms of the contract. The owner will likely charge for more than the house is worth, to accommodate for the possibility of the property value increasing over time. It is also advantageous to the potential buyer because he can get the house for a much lower cost than its appreciated value in the Philippine real estate market would be. This is strictly a theoretical advantage, as there is no guarantee that the property’s value will rise within the lease period.
No credit considerations
In purchasing a home directly, one’s financial stability and income will be put into consideration before a bank or lending agency will agree to a loan. The qualification restrictions can make it difficult for anyone who is not absolutely financially stable to make the appropriate payment. In contrast, the owner of a rent to own house can approve a prospective lease agreement based solely on his own discretion.
There are still risks in entering a lease option for a Makati condo or house, but this is true of any long-term investment. Take time to consider whether buying immediately or entering a lease option would be better given one’s current finances. There are numerous advantages to renting a house with the option to buy later, and it gives an individual time to secure their finances to make that all-important final payment.
