Rent-to-own is something that's not often discussed in the local real estate market, but that does not mean it's not an option for prospective buyers and sellers looking for a beneficial deal. The arrangement is one pursued by prospective buyers who are tired of renting, but are not in a position to make the necessary deposit to qualify for a mortgage. Like any arrangement, there are advantages and disadvantages, but when it works well, it's a win-win for all parties involved.
Rent-to-own arrangements are clearly laid out in a contract, which outlines how the rental will work and the expectations of the prospective buyer and seller. There is usually a set time during which the buyer must complete the purchase. A portion of the rent is also set aside in the rent-to-own contract arrangement as a part of the down payment required to purchase the home.
Both the rental price and sale price must be outlined in the contract and agreed upon by the parties involved. The process is usually quite simple; the renters pay a set price each month, for an agreed period - about three years - before the option to purchase arises. The arrangement can prove beneficial for those with little financing for a down payment, and allow the seller to generate additional income.
In most rent-to-own agreements, renters pay a slightly higher rent than is normal, as there is an agreed-upon fee which covers the rent, and a portion set aside as a "rental charge" or "option fee" - to be applied if the renter proceeds to purchase the home.
For example, if your rent is $2,000 a month, the owner as outlined in the contract could agree that $500 from that figure would be directed at the deposit. Some would suggest making two payments, one outlying the $1,500 for the rent and $500 clearly indicated as an option fee, to be used for building up credit for the actual purchase. If the agreed-upon period for the sale to be finalized is three years, then at that time based on the described arrangement, the renters would have accumulated $18,000 towards a mortgage for the purchase of the property.
Both the renter and buyer should be aware of the risks involved in rent-to-own agreements. During the rental period, the home could appreciate or depreciate; if the selling price is included in the rent-to-own contract, either the seller or buyer could be displeased at the end of the arrangement depending on the state of the housing market. Additionally, sellers who agree to a particular price are locked into the agreement even if another buyer is willing to pay more for the home. Generally, the renters take responsibility - for any repairs carried out on the property, so it is wise for renters to consider the condition of the home prior to entering into an agreement. But, again that is something that must be clearly spelt out in the contract.
At the end of the contract period, if the renter decides not to purchase the 'option fee' remains the property of the seller. A deal is a deal, so be careful to cover all your bases within the contract negotiations, and know exactly what you are signing and the commitments you have to make.

o William Wong is the president of Wong and Associates Realty. He was also a two-term president of the Bahamas Chamber of Commerce and the Bahamas Real Estate Association. Questions or comments can be emailed to William@wongsrealty.com.

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