What is Rent to Own

The concept has been around for a long time in one way or another, Brickell’s have developed the process, so it is attractive to both Landlords and Tenants alike.

In a nutshell

Rent to own is whereby Bricknell’s let a property on behalf of a Landlord to a Tenant Buyer who aspires of owning their own home.

The Tenant Buyer then rents the property at a pre-agreed rent for a pre-agreed term (typically 5-10 years).

The Tenant Buyer has the option to buy the property at a pre-agreed price at some point in the future.

So, the tenant / landlord agrees a fixed rent for an agreed fixed term.

They also agree a price that the tenant has the option to purchase from the landlord at the end of the fixed term.

In additional to the rent the tenant pays a ‘top up’ which over the fixed term will accrue to 10% of the agreed selling price enabling them to provide a deposit to purchase.

Who is it for?

Tenant Buyers

RTO is perfect for Tenant Buyers who aspire of owning their own home but who are currently in no position to purchase.

The main three reasons that Tenant Buyers become Tenant Buyers rather than immediate purchasers are:

Deposit – a lot of prospective homeowners don’t have enough deposit saved up.

Poor Credit – When finances are tight people prioritise differently and some financial commitments are missed.

Self Employed – It can be very difficult to get a mortgage if you are self-employed and have under 3 years accounts.

Landlords

More profitable – On average Rent to Own is more profitable than traditional single lets.

Owe more than the property is worth – if the property is worth £95,000 but you owe £100,000, you will still have to pay back £5,000 to the mortgage company if you want to sell the property. With the way RTO is structured you will in most circumstances get more back than your property is worth should you sell it to a Tenant Buyer.

The tenant is responsible for repairs – As the Tenant Buyer has a vested interest in the property, they are responsible for repairs. However, the Landlord cannot opt out of their legal responsibility to carry out repairs as per the Landlord and Tenant Act 1985. What can be done is the landlord can be compensated for the cost of these repairs from the recurring monthly ‘top up’ which the Tenant Buyer is contractually obliged to pay on a monthly basis.

Exit strategy – With RTO you get a clear indication of when the Tenant Buyer will buy the property, although as with any sale it may not go through. Its an option, not an obligation. Except with RTO the Tenant Buyer has rented the property for several years, has in many cases improved the property and has a ‘top up’ account that if they don’t purchase the property, they will forfeit all the money in that account. RTO gives a planned sale of the property and therefore one can take advantage of CGT allowances.

Less hassle – RTO gives that consistency of a hassle-free portfolio. The main reason being that the Tenant Buyer is more like a homeowner than a tenant and treats their home as such, tends not to miss rent payments and looks after the property.

Home improvement – We have found in many cases the Tenant Buyer has improved the property in some form or other. 

What agreements are needed

AST – between the Letting Agent and Tenant Buyer

Option Agreement – between Tenant Buyer and Landlord

Management Agreement – between Landlord and Letting Agent

IF YOU THANK THIS IS OF INTEREST TO YOU, WE WOULD SUGGEST A MEETING TO DISCUSS YOUR INDIVIDUAL CIRCUMSTANCES AND SEE IF RTO IS RIGHT FOR YOU.

Please call Chris Holmes 07743 702739