Looking for a flexible and more accessible path towards home ownership in the Philippines? Consider going for a rent-to-own (RTO) condo for your next successful real estate investment.
Rent-to-own is an excellent path to ownership for eager property investors who don’t have the immediate means to buy the home of their dreams. With its long-term process of rental to ownership, RTO offers time for prospective buyers like you to understand the ins and outs of your own dream property.
Of course, this property ownership path comes with its own set of speed bumps and unique shortcuts. Before you consider this homebuying opportunity, take time to understand it comprehensively so that you can make informed decisions throughout this upcoming real estate investment journey.
In need of a map to help you navigate through the winding paths of rent-to-own in the Philippines? Then take a look at this extensive guide prepared by the leasing experts at DMCI Homes.
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Understanding rent-to-own in the Philippines
In the Philippines, a rent-to-own (RTO) agreement is a contract where you rent and live in a property like a condo. What makes this agreement unique, however, is that you rent the unit with the intent to fully purchase it from its owner by the end of your rental period.
In this type of agreement, both you and the owner settle on key components within the contract. These key components and important steps include:
- Determining the agreement type - As a renter and future owner, you can negotiate for a lease-option or lease-purchase agreement. For the former you have a right, but not an obligation, to purchase your home at the end of your lease. For the latter, you’re obligated by contract to purchase the condo at the end of your rental period.
- Settling the sales price - With this type of agreement, you also negotiate a final sales price with the current owner before you live in the property. Depending on the price of the unit at the time of settlement, you can end up buying it for less than its actual market value at the end of your rental period.
- Finalizing the contract - Additional components for your final contract should include things like your monthly rent and the date of your final purchase. Once you figure out how your RTO will work, you can finalize the contract and sign it.
Once you finalize and sign the contract, you can move into your new condo unit and live in it for the agreed upon rental period. Once your lease ends, you can purchase the property and you’ll get to own it entirely.
Of course, there are other challenges to RTO that you need to understand. From maintaining the home to ensuring you’re financially stable enough for it, there are many opportunities and threats to this home ownership path that you need to consider first.
To understand the pros and cons of this rental agreement type, check out the next section of this handy guide.
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The pros of rent-to-own homes
There are many reasons why RTO is so attractive to prospective homeowners. Some of the pros of this real estate investment path include:
- Better financial planning - Home ownership can be more attainable with RTO because it allows for more financial strategizing over time. You set a long-term purchasing goal with this contract, and thus have the opportunity to save up and plan out your finances over several years.
- Opportunity to build equity - You also get the opportunity to build equity with this real estate ownership path. Depending on your contract, you could begin paying off the cost of the condo alongside your monthly rent, thus building up equity throughout your lease period.
- Time to build your credit score - RTO contracts give you the time to become more financially stable while anticipating the incoming property purchase. So you can use your time to improve your credit score for a future loan for this investment.
- Locking in the purchase price - Because you lock in your purchase price prior to your lease period, you also protect yourself from future market instability and price increases. You get a chance to purchase the property at a potentially lower price than its actual market value at the end of your lease.
- Test living in the property - The biggest draw of RTO in the metro is that you get to live in the property before you even own it. This provides you with time to understand the home and the neighborhood, so that you can acclimate to the lifestyle without buying right off the bat.
These pros are excellent drivers for people seeking accessible home ownership paths beyond purchasing on the spot. But in the spirit of making an informed real estate decision, let’s get into some of the cons of this contract type too.
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The cons of rent-to-own in Metro Manila
You need to fully understand the concept of RTO to be prepared for the challenges you may face with this home ownership path. Here are some cons to RTO that you should be ready to confront:
- Complexity of contracts - If you’re not used to this type of contract, you might overlook or misunderstand complex clauses in your RTO agreement. This could lead to disputes in the future, putting your ownership goals at risk. Avoid a faulty contract by having a broker or qualified real estate agent review your agreement. This will ensure your interests are protected as a renter and future homeowner.
- Unexpected costs - Make sure to clarify with the current owner if down payment crediting, tax fees, maintenance dues, and other financial obligations are included in the monthly payments throughout your lease. If you forget to do this, you may incur unexpected costs that can mess with your financial planning for this long-term agreement.
- Limited control over property - While you’re renting the property, you may have limited control over renovations and modifications. If you’re hoping to entirely redecorate the home upon move-in, you might have to negotiate with the current owner and wait until you fully pay off all costs to personalize your condo.
- Risk of default - If you experience any financial difficulties or life challenges during your lease period, you may run the risk of defaulting on the property. Coordinate with the real estate developer or the current owner to set up contingency plans for these scenarios.
Though the threats of these disadvantages are very real, there are many ways to mitigate such risks and ensure a smooth rent-to-own condo experience. To learn more about these techniques, check out the next section for a quick list of legal and financial RTO tips.
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How does rent-to-own work legally and financially
Navigating the path towards homeownership can be a lot simpler than you think. As long as you have great legal and financial tips, you can enjoy a smooth ride from renting to ownership over the span of your lease period.
Here are some legal frameworks and financial tips to make use of for this type of real estate investment:
- Legal frameworks - Your contract is your bible for this long-term relationship with the current owner or real estate developer. Make sure to go over the agreement multiple times and to have a third party broker review it to ensure your rights as a Philippine tenant are protected by the contract.
- Financial planning - To ensure a smooth RTO process, analyze your finances prior to committing to the contract. Will you have a stable or increasing income throughout the duration of your lease? Will you have to save up to pay off your monthly rent, down payment, and future mortgage dues? Plan for your incoming fees as early as possible to avoid financial difficulties and the risk of defaulting.
- Importance of credit scores - You may need to take out a loan in order to pay off the cost of the property at the end of your lease. In order to qualify for this mortgage, you need to have a healthy credit score. So make sure to plan for a higher credit score alongside your other financial plans to secure that crucial property loan in the future.
If you think you’re prepared to commit to this type of homeownership path, then all you need to do is to find the right rent-to-own property for you. Continue on to the next section of this guide to find the best RTO property for your lifestyle needs.
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Finding the right properties with DMCI Home Ready
There are tons of RTO opportunities available out there across various real estate websites and listings. But the simplest and best way to find the right property for your needs is to connect with DMCI Homes and check out its established Home Ready™ program.
The Home Ready™ program by DMCI Homes is the safest and most effective way to do RTO. With this program, you can find and evaluate the luxury condo unit of your choice, ensure your contract is expertly drafted and negotiated, and move into your dream home right away.
You’ll also get to enjoy premier client support, in-house financing options, and flexible payment schemes, along with the wide array of condo options available across their participating developments. Here are just some of the many lifestyle perks you can enjoy across all the RTO properties by DMCI Homes:
- Tons of modern amenities - From swimming pools and lounges to full-service gyms and study halls, you can experience a luxurious range of amenities at all of the participating Home Ready™ properties.
- Green living spaces - Each development is designed with green living in mind, from their sprawling garden areas to their purposeful use of their proprietary Lumiventt® Design Technology.
- A safe living environment - With their gated entrances, 24/7 CCTV, and trained security, you can expect to enjoy a safe and serene lifestyle throughout the duration of your lease and future home ownership experience.
Can’t wait to move in and enjoy your brand new RTO condo? Find the perfect home for your future self when you check out the Home Ready™ properties by DMCI Homes today.
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