One of the easiest ways to own a home is to consider a rent to own contract. Here, lease the home with a chance to purchase the property at the end of the contract. You are required to pay a percentage of the property value of about 5 to 7 percent. This is a contribution towards the down payment of the property when you decide to purchase it. You have to pay monthly rent and a rent credit which is a contribution to the down payment for the property.
Here are things to negotiate with the landlord
Option fee
The rent to own contract includes an option fee. This is a one-time non-refundable fee paid upfront. This shows your commitment towards purchasing the property when the lease expires. Fortunately, the option fee is negotiable since there is no standard rate. So, you can negotiate with the landlord how much you are willing to pay. You have to be sure that you have about 5 percent of the property value. The option fee gives you a right to purchase the property when the lease expires. This should be set in the agreed period and should be fair and fixed.
Rent credit
This is a non-refundable amount paid to the landlord towards the purchase price of the property. Since it doesn’t go into an escrow account, you can’t get this amount back when you decide not to purchase the home. However, it contributes to reducing the home’s total purchase value. There is no standard amount but it might be about 10 to 15 percent of the monthly rent. Rent credit is very important in a rent to own contract.
When ready to get rent to own homes in London Ontario, negotiating with the landlord regarding the rent credit is very important. This amount reduces the total cost of the property when you decide to purchase it when the lease expires. Additionally, it contributes to building your down payment for the home. You just have to negotiate a fair deal with the landlord. This allows agreeing to a rent credit that you are sure to make timely payments to avoid revoking the terms of the contract. Delay making a monthly payment forfeits your rent credit for that month.
Purchase price
The rent to own contract should specify the amount you are to pay for the property in the future. This price is determined according to the current market value of the property without reflecting future appreciation. Luckily, you have a chance to negotiate for a lower price. However, ensure to have the price of the price fixed at the current value. The price of the home is always negotiable in a rent to own deal just like buying outright.
You have to research on the current property value. Luckily you can do this on home value comparison sites. Understanding this helps you negotiate a fair price for the property. Have the landlord to fix the agreed-upon price at the moment. Deals, where the purchase value of the property is determined later or based on future appraisal, should be avoided.
Maintenance responsibility
You have to understand maintenance obligation before signing a rent to own contract. Some landlords put too many maintenance obligations on the tenant. This becomes a heavy financial burden over time. The contract should explain maintenance costs and time for the tenant and landlord. Your responsibility to maintain the lawn might be limited to a particular amount annually. The contract should spell out responsibility for maintaining capital improvements including roofing.
Some landlords whose properties have latent issues might assume most maintenance obligations. Be wary about these before accepting this responsibility. A trick is to delay signing the contract until the issues with the property are repaired by the landlord as part of the six months warranty. Spending on maintenance as soon as you have signed the contract is a sign of a bad deal.
Lease renewal
At the end of the lease, you might decide to extend. Perhaps you are not ready to purchase the property after the expiry of your lease. Ensure to include a clause stipulating this when signing the first contract. A good deal that favors the buyer includes a lease extension option. However, the landlord has a right to raise the purchase price and rent.
Opt-out clause
Finally, it is not mandatory to purchase the property when the lease expires. When negotiating with the landlord, ensure that the contract includes an opt-out clause. This gives you the freedom not to purchase the property. Living in the home before buying it gives you a chance to test drive. By the end of the lease, you are sure whether it is your dream home or you deserve a better one.
In a nutshell
Rent to own contract is the most affordable way to own a dream home. And, you get a chance to live in the home before making up your mind to buy it or not. Before signing the contract, ensure to negotiate with the landlord aspects like the option fee, rent credit, and purchase price. This ensures that you get a good deal.