Rent to buy – the pros and cons

Renting to buy a property is not a common option for homebuyers. But no two homebuyers have the same needs and requirements. This means that there will be prospective homebuyers who could benefit from some of the pros of renting to buy, despite the cons. It all depends on your unique circumstances, risk profile and financial standing. If you want to rent to buy, this article is for you!

What is “rent to buy”?

Rent to buy is a homeownership solution where you rent the home you want to buy with the option of buying it after a stipulated period of time. You and the seller agree on the period and include it in a rent-to-buy agreement. During the lease period you pay an extra monthly amount (over and above the agreed rental) and this money is set aside as a savings account to build up a deposit. It is a flexible agreement specifically for those who are not ready to buy, are not sure if they want to buy just yet or those who have to work a bit harder on their finances.

The pros of renting to buy

If you are a young buyer and you don’t qualify for a home loan yet, you can live in your dream home while you work on building up your credit score. A good credit score will help you secure a better interest rate.
You may not need to pay property taxes – depending on your contract.
You lock in the purchase price of the home, which means that over the renting term you can put a financial plan in place without the goal posts shifting.
It can help you remove the burden of the “subject to sale” clause because you can rent while you get your first house sold and then buy when the time is right.
If you haven’t saved a deposit, you can rent to buy until you have enough money to put down a substantial deposit, which will cut the amount of interest you pay over the long term.
As a seller, if your tenants are renting to buy, they are more likely to take good care of the home because it will eventually be their home.

The cons of renting to buy

You will be liable for upfront costs which are not refundable if you default on the agreement.
If the seller decides to not sell the property, there is a risk that you will lose money because with renting to buy, the rent is often higher than what it would normally be.
If you find a better home in a neighbourhood you prefer, it could be challenging to get released from the rent to buy contract you signed with the seller.
If the property prices drop during your rental term, you could land up paying more for your home than it is worth considering the market conditions.
You can lose your right to buy the home if you pay late or miss a rental payment. You will also lose any money you were paying towards your deposit.
You are responsible for the ongoing maintenance of the property during the rent-to-buy lease period, unless stipulated otherwise in your rent-to-buy lease agreement.
The laws governing a rent-to-buy arrangement are quite complicated. As a result, you may need to get legal counsel before going ahead.

Renting to buy is increasing in South Africa, which shows that prospective homebuyers are seeing the advantages this type of arrangement offers. If it is a solution that matches your requirements, make sure you cross every T and dot every I. Just like any other legal contract, a rent-to-buy contract should be carefully reviewed before you sign on the dotted line. Not only for your peace of mind but for the peace of mind of the seller too.

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Homebuyers guide

Preparing to buy a home

Finding the perfect home

Making an offer

Getting a bond

Owning it

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