How Does a Rent-To-Own Agreement Work?

Rent-to-own is gaining popularity among both buyers and owners in the real estate market. This method allows tenants to rent a property with the possibility of buying it in the future, which can be beneficial for both parties. In this post, we are going to talk about what rent-to-own is, how it is done, and how long a contract can last. If you are interested in discovering rental apartments in Girona, you can also consult the list of properties that we have available in this city.

What is a Rent-To-Own Agreement?

A rent-to-own agreement is a type of agreement in which the tenant has the right, but not the obligation, to buy the property they are renting at the end of the agreed rental period. This agreement combines the elements of a lease agreement and a purchase option. During the rental period, the tenant pays a monthly rent to the owner, and a portion of that payment may be allocated to the future purchase of the property.

This type of contract is especially useful for those who want to buy a house but do not have enough money saved for the initial payment. Related to this point, if you are thinking of renting a property, we recommend consulting our post on everything you need to know about housing rental assistance for young people.

How is a Rent-To-Own Contract Made?

To understand how a rent-to-own contract is made, it is essential to know the key components of this type of contract. Below, we detail the most important steps and elements:

• Initial negotiation: Both the owner and the tenant must agree on the terms of the rent and the purchase option. This includes the purchase price of the property, the duration of the rental agreement, and the amount of the monthly rent.
• Initial payment or premium: Generally, the tenant pays a premium to the owner for the purchase option. This premium may be a percentage of the purchase price and is usually non-refundable.
• Rental agreement: A standard rental agreement is drawn up that includes the monthly rent, the responsibilities of the tenant and the owner, and the conditions for maintaining the property.
• Purchase option: A purchase option clause is added to the rental agreement. This clause specifies the purchase price of the property, the deadline to exercise the option, and how the rents paid will be applied to the purchase.
• Execution of the option: At the end of the rental period, the tenant can decide if they want to buy the property. If they decide to buy it, the rental payments made will be applied to the purchase price as agreed in the contract.

How Long Can a Rent-To-Own Contract Last?

The duration of a rent-to-own contract varies depending on what the parties involved agree. In general, these contracts usually last from one to three years, although they can be extended depending on the specific needs and agreements between the tenant and the owner.

A longer period may be beneficial for the tenant, as it gives them more time to save money and improve their credit rating. However, it is crucial that both parties agree on a term that is realistic and beneficial for both.

Advantages and Disadvantages of Rent-To-Own

Below we detail the different advantages of rent-to-own and its disadvantages:

Being able to enjoy the property before buying it is a great advantage. Being able to live in it and experience it before taking the big step of buying is of great interest, so the tenant can see if the house or apartment meets their expectations.
One of the other advantages is that the purchase price is fixed at the beginning of the agreement. Therefore, if at the end of the agreed period the prices of housing in the real estate market have risen, the price of a house or apartment for rent with an option to buy remains intact.

One of the main drawbacks for the owner of the property is that their objective is to sell the property and this contract does not guarantee the sale.
In the event that a home is rented, the owner is responsible for paying the taxes for the rental. They will have to pay the Property Transfer Tax.

Likewise, we want to detail the different rights and obligations of a rent-to-own:

1. For the owner, it is interesting to set an initial premium for the right to the purchase option. Although it is not mandatory, it is a good way to ensure that the tenant is really interested in buying the home. And if, finally, they do not want to proceed with the purchase, they must be clear that they will lose the premium and the fees invested in the rent.
2. The owner has the obligation to maintain the contract and not transfer, rent or sell the apartment to third parties while it lasts. On the other hand, the tenant has the right to continue leasing the home for the years that the rental agreement lasts. They also have the right to have exclusive purchase within the period established by the contract.
3. The purchase of the home can be made long before the rental agreement expires. In fact, it is beneficial for both parties: the tenant does not suffer the fluctuation of prices and the owner fulfills their objective: to sell the home.
4. The final purchase price of the home cannot be modified by either party. The rental price, on the other hand, can vary according to the CPI or if the owner so requires.
5. If the tenant owes the rental amount for more than two months, they may lose the option to purchase the property.

Find your Rent-To-Own with Espígul

Do not hesitate to contact us!

If you are interested in exploring the rent-to-own option, Espígul is your best ally. We can help you find the house you are looking for: whether for rent, for purchase, for rent-to-own, or even for new construction. With more than 30 years of experience in the real estate sector and a great team of professionals who can help you find what you are looking for.