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Times were hard for renters this 2020. There were so many real estate highs and lows, given the financial impact of the COVID-19 pandemic. When you’re exhausted by the financial demands of paying rent, a to own condo will sound like a distant and impossible dream for you.
You were probably hard-hit by the financial crisis wrought by the global pandemic. It’s hard enough to be financially stable while renting, due to affordability and payment methods. Who has the time to calculate between renting and buying when you’re making ends meet during a global crisis?
If you want to own a condo but can’t afford a one-time, big-time payment right now, maybe you should explore affordable rent-to-own payment schemes instead.
Rent-to-own (RTO) is an agreement wherein the buyer can rent a property, with the intention of purchasing it at the end of the rental period. Both parties agree on things like the monthly rent, purchase date, and sales price before signing any contracts. But it essentially ensures your future ownership of the property while you’re still renting it.
Is RTO a good idea?
An RTO agreement is a great idea for aspiring owners who need time to work on their financial stability. With an affordable rent-to-own condo, you get a chance to move into your dream house right away, while working towards getting a mortgage on the home.
Yes, you will have to do a lot of planning and communication when it comes to a rent-to-own home. You pay for the monthly rental and the property’s down payment over time, and you finance your mortgage at the end of the lease. But an RTO agreement brings you one step closer to owning your dream home, even during difficult times.
A wise renter explores all their options when it comes to buying real estate in the Philippines. Are you an aspiring owner who’s looking for the best financing options for your future home? Check out these rent-to-own tips for all your future real estate needs.
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1. Rent-to-own pros and cons
Buying condo property versus rent-to-own
What are the distinct differences between the traditional process of buying a condo property versus an RTO agreement?
When buying a good condo unit, you pay a lot in one go for immediate ownership of the property. You strategize your finances towards the down payment, mortgage, and installments, along with expenses for legal fees, furniture, and the like. You pay a lot at once to immediately own your home.
When you enter into an RTO agreement, your ownership process is a lot more gradual. You pay off your down payment over the course of your lease, and you work towards improving your financial stability for the eventual mortgage payment. You get to move into the property right away, but you don’t officially own it until you buy the property.
Depending on your situation, you may prefer the former option over the latter. However, given the way the COVID-19 crisis impacted the whole world in 2020, you may be more inclined to pursue an RTO agreement for the sake of your financial stability.
If you’re in the middle of a financial crisis, property investment will not be your priority — even if you’ve wanted to own a home for a long time. When you buy a unit, you need to be secure in your finances to pay off everything at once. But you may not feel safe enough to do so for a long time if you’re going through something unstable like a pandemic.
With an RTO agreement, aspiring owners have a chance to move into their dream house immediately, allowing them time to work on their financial health before getting a mortgage on the home. You pay for the monthly rental and the property’s down payment over time so that by the end of your lease you’re stable enough to finance your mortgage.
Of course, there are cons you have to consider too. For example, if you decide during your leasing period that you don’t want to buy the unit anymore, you lose all the extra money you put in for the property’s down payment.
You also don’t have total control over the property because you don’t own it yet. If your landlord loses the property through foreclosure or makes bad maintenance decisions for the unit, you’re both at risk for huge financial losses.
All in all, a good RTO contract is the key to a good condo home. Be as thorough as possible with the contract by going over it with your landlord and with other hired lawyers and professionals, too. That way, you can ensure security for both parties and benefit from the condo real estate opportunity.
2. Affordable rent-to-own condo tips
Secure a home early to buy it under market value
When you enter into an RTO contract, the property’s sale price on the written agreement is final and cannot be changed. If you and your landlord set the property’s purchase price at the start of the contract, the seller cannot increase its price after the fact. That means that you could technically buy a property for less than its current market value.
The amount listed in the contract is final and cannot be increased, even if the property’s value increases over time. So secure your home early and write that contract out early. Your future self will thank you when they pay for a home that is way under its current market value.
Use the time to improve your credit score
Given the time that this kind of agreement affords you, use this time wisely by improving your credit score.
Philippine credit scores play a big role in helping you secure a mortgage for your eventual home purchase. The higher your score is, the easier your access will be to loans for this financial responsibility. You gain a higher chance of approval from financial institutions with a really good credit score.
A rent-to-own contract provides you the time to get your finances in order, especially during a financial crisis. You get to “lock down” and even live in your future home while saving up for it. So make use of your time by working towards a fantastic credit score.
It’s up to you to determine if RTO is a good financial strategy for you. How much you have to put down each month or year for a rent-to-own condo will really depend on your future agreement with your landlord.
As long as you’ve decided on your future home, a rent-to-own condo plan will probably be the most affordable property investment for you. It’s a wise way for you to lock down your dream home, even when you can’t manage a huge down payment in one go. You save cash and build your creditworthiness in time for your future mortgage payment.
3. Plan your rent-to-own condo life wisely
Before signing the contract
Let’s say you’re fully decided on an RTO scheme and want to pursue a contract already. As a wise renter, you’ll need to plan out a few key things before making that condo real estate commitment for your future property.
Before signing any contracts, seek the expertise of lawyers and real estate experts so that you can cover all your bases. There are no limits to the provisions you can put in your contract, as long as you communicate well with your landlord and your lawyer.
If your intention to buy the unit is already stipulated in your contract, you have to eventually make that purchase upon expiration of the lease. If you decide against buying the property in the future, you’ll have to forfeit all the additional payments you made towards its down payment — so commit wisely.
Before signing the contract, both parties also have to agree on basics such as the monthly rental, final purchase date, and the sales price for the purchase. As the buyer, take note of contract rules regarding family, pets, and possible renovations in the future too.
After signing the contract
Once you sign the contract, remember to follow through on your financial responsibilities, even as you’re renting the home.
Since this is a long term investment towards your future, take the time to save up for future payments for legal fees to actually own the property. You should find ways to increase your income and get rid of debt too so that the stress doesn’t pile up before the final purchase date.
Never forget to take the time to improve your credit score too so you can qualify for a loan for that final purchase date. You have a long-term goal to work towards, even if your RTO agreement lasts longer than a year. As an aspiring homeowner, you need to think long-term and plan ahead for that happy and secure future.
4. Manage your responsibilities with your landlord
When investing in prime real estate, you want the best of the best. But to ensure a high quality of living, you also need to agree on who is responsible for what in the upkeep of the condo. In traditional landlord-renter or buyer-seller relationships, responsibilities are clear. But in a rent-to-own situation, who’s in charge of the upkeep responsibilities?
- Clarify your maintenance responsibilities. If you’re in charge of the maintenance, clarify what falls under “maintenance” with your landlord. Does it include everyday tasks like cleaning the property? How about minor repairs? Clarify these responsibilities so that you can maintain a safe and functional home.
- Know who’s in charge of major issues. When it comes to appraisals and inspections, who’s in charge? Specify who is responsible for serious maintenance issues, so that you don’t end up getting evicted for a misunderstanding.
- Specify responsibilities for fees and taxes. You’ll also need to specify who is in charge of association dues and property taxes during the lease. If your landlord wants you to pay for those on top of your incremental down payments and monthly rent, they need to stipulate that in your contract. Otherwise, they’re responsible for those fees, even if you intend to purchase the property.
Just make sure to go over every little detail of your RTO agreement with your landlord so that you’re both clear on your responsibilities for this long-term property investment.
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5. Look into the future of your real estate investment
As a wise renter and an aspiring homeowner, you need to look into the future of your real estate investment so you can plan ahead for any unforeseen circumstances. Some critical life questions you’ll need to consider:
- How stable is your job right now?
- Will you be getting a raise or a promotion any time soon?
- Are you marrying someone or starting a family in 2021?
- In essence, are you expecting any long-term plans that may impact your decision to pursue an RTO?
You need to plan for future crises for your long-term investment too. Take into consideration these important questions:
- Are you prepared for another pandemic? If not, what can you do to prepare?
- Is your future home calamity-proof? How can you make it calamity-proof?
- How can you work towards financial stability to ensure your security in case of another global crisis?
If 2020 taught the world anything, it was to expect the unexpected. Always prepare things ahead of time for your long-term, rent-to-own property investment.
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If you’re an aspiring homeowner, you probably had a hard time investing in any long-term real estate decisions in 2020. This year was financially unstable for the whole world, due to the pandemic and other natural calamities.
But it’s time for a new outlook on your investment plans. As a wise renter, you have the opportunity to look forward to a future home if you take the time to explore every real estate possibility. Think about the great opportunities that have presented themselves to you so far:
- Don’t be afraid to explore a rent-to-own condo contract if you’re an aspiring homeowner in a financially unstable situation. It might work best for you!
- If you plan on committing to this long-term financial plan, use the time to take steps towards ensuring your financial stability overall.
- Communication with your landlord is the key to a successful RTO contract.
- You have hope for the future of your financial situation. There’s so much to look forward to, if you know the right direction to take.
Go from renting a property to owning one when you explore the world of rent-to-own condo plans. If you need more advice on condo real estate in the Philippines, check out DMCI Homes Leasing Services for more real estate tips and tricks.