Get a foot in the door with rent-to-buy

Although the banks currently have several mortgage products available especially for first-time buyers, it is still difficult for many to qualify for a home loan due to the stringent requirements of the National Credit Act.

But this does not necessarily mean that all is lost, says Martin Schultheiss, CEO of Harcourts Africa and rental property management company RentalsDotCom.

“First-timers may still be able to realise their dream of home ownership if they can lease a home with an option to buy it at the end of the lease period – or perhaps even sooner, finances and landlord permitting.”

He says the best way to create a lease with option opportunity is by searching the “homes to let” ads for a landlord who can be persuaded to give you an option to buy. “And you should be prepared to lodge an option fee that will be forfeit if you do not go ahead with the purchase by the agreed date.”

Like any contract, the terms of the lease-with-option will then be negotiable: the length of the lease, the rent and the eventual purchase price of the property – “and the seller may even agree to credit a portion of the rent each month toward the purchase”.

The advantages of such an arrangement for potential buyers are of course that for relatively little upfront cash, they can “tie up” a property at an agreed price, and live in it before deciding to buy it.

Schultheiss says that there are, however, also advantages for a landlord / home seller in a rent-to-buy scenario: “Tenants are likely to take much better care of the property if they intend buying it, and will have even more of an incentive to do so if part of the rent is going towards their purchase.

“Meanwhile, the seller still has a monthly income from the property – and gets to keep the option fee and the property itself if the tenants don’t take up the option.”

The potential disadvantages for both parties lie in the possibility of a radical market change before the option to buy is taken up. To avoid the possibility of selling too low – or paying too much – sellers and potential buyers should seek the assistance of an experienced estate agent before settling on the purchase price and drawing up their lease-with-option agreement.