Given the financial impact of the COVID-19 pandemic, there were numerous real estate highs and lows until property finders seem to become amiable with rent to own condos.
You were almost certainly hard hit by the global pandemic’s financial crisis. It’s difficult enough to maintain financial stability while renting, given the cost and payment methods. Who has time to calculate the cost of renting versus purchasing when they are struggling to make ends meet during a global crisis?
If you want to own a condo but cannot afford a large down payment right now, you may want to look into affordable rent-to-own payment options.
Rent-to-own (RTO) is a type of contract in which the buyer rents a property with the intent of purchasing it at the end of the rental period. Before signing any contracts, both parties agree on details such as monthly rent, purchase date, and sale price. However, it effectively guarantees your future ownership of the property while you continue to rent it.
Is Owning Rent to Own or RTO Condo a good idea?
An RTO agreement is an excellent option for aspiring business owners who require time to build financial stability. With a rent-to-own condo, you can move into your dream home immediately while working toward obtaining a mortgage on the property.
Yes, when it comes to a rent-to-own home, you will need to do a great deal of planning and communication. You pay the monthly rental and the down payment on the property over time, and you finance the mortgage at the lease’s end. However, even in difficult economic times, an RTO agreement brings you one step closer to owning your dream home.
When it comes to purchasing real estate in the Philippines, a prudent renter considers all available options. Are you a prospective homeowner looking for the most affordable financing options for your future home? Consider the following rent-to-own tips for all future real estate needs.
1. The advantages and disadvantages of rent-to-own
Purchasing condominiums vs. renting to own
What are the key distinctions between the traditional method of purchasing a condominium and an RTO agreement?
When purchasing a high-quality condominium unit, you pay a large sum upfront in exchange for immediate ownership of the property. You plan your finances around the down payment, mortgage, and installments, as well as expenses such as legal fees and furniture. You pay a large sum of money upfront to immediately own your home.
When you enter into an RTO agreement, the process of acquiring ownership is significantly more gradual. You repay your down payment over the lease term and work to improve your financial stability in preparation for the eventual mortgage payment. You can immediately move into the property, but you do not officially own it until you purchase it.
According to your circumstances, you may prefer the former over the latter. Given the global impact of the COVID-19 crisis in 2020, you may be more inclined to pursue an RTO agreement for the sake of your financial stability.
If you’re during a financial crisis, investing in real estate is unlikely to be a priority — even if you’ve desired homeownership for a long time. When you purchase a unit, you must be confident in your financial situation to pay it all off at once. However, if you are experiencing an unstable situation such as a pandemic, you may not feel secure enough to do so for an extended period.
With an RTO agreement, prospective homeowners can move into their dream home immediately, giving them time to improve their financial situation before applying for a mortgage on the property. You pay the monthly rental and the down payment on the property over time until you are financially stable enough to finance your mortgage at the end of your lease.
Of course, there are disadvantages to consider as well. For instance, if you decide during your leasing period that you no longer want to purchase the unit, you forfeit all the additional funds you contributed toward the property’s down payment.
Additionally, you do not have complete control over the property because you do not yet own it. If your landlord loses the property in foreclosure or makes poor maintenance decisions for the unit, you and your landlord are both at risk of suffering significant financial losses.
In conclusion, a sound RTO contract is critical to the success of a condominium project. Make sure the contract is as thorough as possible by going over it with your landlord and any other hired lawyers or professionals. This way, you can ensure both parties’ security while also profiting from the condo real estate opportunity.
2. Suggestions for finding an affordable rent-to-own condominium
Secure a home early to purchase it at a discount to market value
When you enter an RTO contract, the written agreement’s sale price is final and cannot be changed. If you and your landlord agree on the purchase price of the property at the outset of the contract, the seller cannot increase it later. This means that you could theoretically acquire a property at a discount to its current market value.
The contract price is final and cannot be increased, even if the value of the property increases over time. Therefore, secure your home early and draft your contract early. Your future self will thank you when they pay a fraction of the current market value for a home.
Suggested Read: Is Buying Pre Selling Condo the Better Option?
Utilize this time to boost your credit score
Given the additional time that this type of agreement provides, make the most of it by improving your credit score.
Credit scores in the Philippines are critical in assisting you in obtaining a mortgage for your eventual home purchase. The higher your credit score, the more easily you will be able to obtain loans for this financial responsibility. With a good credit score, you increase your chances of approval from financial institutions.
A rent-to-own contract gives you time to straighten out your finances, which is especially beneficial during a financial crisis. You get to “lockdown” your future home and even live in it while saving for it. Therefore, make the most of your time by working toward a stellar credit score.
It is entirely up to you to decide whether RTO is a prudent financial strategy for you. The amount of money you must pay each month or year for a rent-to-own condo is entirely dependent on the terms of your future agreement with your landlord.
If you’ve decided on a future residence, a rent-to-own condominium plan is likely to be the most affordable option for you. It’s a prudent strategy for securing your dream home, even if you’re unable to make a large down payment all at once. You save money and improve your credit score in preparation for a future mortgage payment.
3. Make prudent choices regarding your rent-to-own condominium lifestyle
Before contract execution
Assume you’ve already decided on an RTO scheme and wish to pursue a contract. As a prudent renter, you’ll want to consider several critical factors before making a condo real estate commitment for your future residence.
Consult with lawyers and real estate experts before signing any contracts to ensure that you have covered all your bases. There are no restrictions on the provisions you can include in your contract if you communicate effectively with your landlord and attorney.
If your intention to purchase the unit is already stated in your contract, you must complete the purchase upon the lease’s expiration. If you decide not to purchase the property in the future, you will forfeit all additional payments made toward the down payment — so make your commitment wisely.
Before signing the contract, both parties must also agree on fundamentals such as the monthly rental rate, the final purchase date, and the purchase price. As the buyer, you should be aware of the contract’s provisions regarding family, pets, and future renovations.
Following the contract’s execution
Once you’ve signed the contract, it’s critical to remember to keep up with your financial obligations, even if you’re renting the home.
Given that this is a long-term investment in your future, set aside funds for future legal fees associated with owning the property. You should look for ways to increase your income and pay off the debt to avoid building up stress before the final purchase date.
Never forget to work on improving your credit score as well to qualify for a loan on the final purchase date. Even if your RTO agreement is longer than a year, you have a long-term objective to work toward. As a prospective homeowner, you must consider the long term and plan for a happy and secure future.
4. Maintain Communication with your Landlord Regarding your Responsibilities
When it comes to prime real estate, you want the best. However, to maintain a high standard of living, you must also agree on who is responsible for what in terms of condo maintenance. Responsibilities are well defined in traditional landlord-tenant or buyer-seller relationships. However, who is responsible for upkeep in a rent-to-own situation?
Clarify your responsibility for maintenance. If you oversee maintenance, discuss with your landlord what constitutes “maintenance.” Is it inclusive of routine tasks such as cleaning the property? What about small repairs? Clarify these responsibilities to ensure the safety and functionality of your home.
Recognize who oversees critical issues. Who oversees appraisals and inspections? Clearly define who is responsible for major maintenance issues to avoid being evicted due to a misunderstanding.
Indicate who is responsible for fees and taxes. Additionally, you’ll need to specify who is responsible for association dues and property taxes during the lease term. If your landlord wishes for you to pay for those in addition to your incremental down payments and monthly rent, this must be specified in your lease. Otherwise, even if you intend to purchase the property, they are responsible for those fees.
Simply ensure that you and your landlord go over every detail of your RTO agreement to ensure that you both understand your respective responsibilities for this long-term property investment.
5. Consider the long-term viability of your real estate investment
As a prudent renter or aspirant homeowner, you should research the future of your real estate investment to plan for unforeseen circumstances. Some critical life decisions you’ll need to make include your job stability, income, and whether you are planning to start a family.
You must also plan for future crises when making a long-term investment. Consider the following critical questions:
- Are you prepared for the possibility of another pandemic? If you are unable to do so, what can you do to prepare?
- Is your future residence disaster-proof? How can you ensure that it is disaster-proof?
- How can you contribute to financial stability to ensure your security in the event of another global financial crisis?
If the year 2021 taught us anything, it was to anticipate the unexpected. Always plan for your long-term rent-to-own investment property.
Considering a Rent to Own Condo?
If you’re an aspiring homeowner, you probably struggled this year to make any long-term real estate investments. Due to the pandemic and other natural disasters, this year was financially unstable for the entire world.
However, it is time to reassess your investment strategy. As a prudent renter, you can anticipate a future home if you take the time to investigate all available real estate options. Consider the wonderful opportunities that have presented themselves.
You have reason to be optimistic about the future of your financial situation. There is so much to look forward to if you take the correct path. Explore the world of rent-to-own condo plans to learn how you can transition from renting to owning a property.
Suggested Read: 8 Reasons To Invest In Real Estate Amidst Global Pandemic