Rent To Buy Pitfalls?

senordingdong

Howdy, been looking at houses to rent when I stumbled across a rent to buy property in a nice enough area, decent price etc...

The idea of rent to buy had never entered my head and with the climate being the way it is as of late, I have been giving serious consideration to never buying and renting for the rest of my life.

However, this rent to buy scheme sounds interesting. I have done as much research as the internet can grant a lay person but what I can't find is any info on potential pitfalls. The agent/letter etc... can only tell me good things but they're obviously biased.

Can anybody offer any advice?

jmorrisey

Did you go through with the rent to buy in the end?

ted1

senordingdong wrote: »

Howdy, been looking at houses to rent when I stumbled across a rent to buy property in a nice enough area, decent price etc...

The idea of rent to buy had never entered my head and with the climate being the way it is as of late, I have been giving serious consideration to never buying and renting for the rest of my life.

However, this rent to buy scheme sounds interesting. I have done as much research as the internet can grant a lay person but what I can't find is any info on potential pitfalls. The agent/letter etc... can only tell me good things but they're obviously biased.

Can anybody offer any advice?

Personally I'd steer clear of them, I don't trust them.

senordingdong

jmorrisey wrote: »

Did you go through with the rent to buy in the end?

I didn't.

Long story short, I could not seem to find any positive info or positive accounts from anybody about it. The biggest issue seeming to be that the 'going rate' of rent on these properties often appeared to be inexplicably above the local rent rates.

That said, a remarkable amount of people reckon that renting is a bad idea yet the number of people doing it is clearly on the rise.

I'll keep looking though for now, the affordable housing scheme is taking most of my attention.

killers1

senordingdong wrote: »

I didn't.

Long story short, I could not seem to find any positive info or positive accounts from anybody about it. The biggest issue seeming to be that the 'going rate' of rent on these properties often appeared to be inexplicably above the local rent rates.

That said, a remarkable amount of people reckon that renting is a bad idea yet the number of people doing it is clearly on the rise.

I'll keep looking though for now, the affordable housing scheme is taking most of my attention.

The 'rent' figure is negotiable and the main reason for higher than market rates is that the purchaser is trying to pay off as much of the purchase price as possible. It's a good option for people who would generally qualify for a mortgage based on incomes etc but don't have a deposit saved. It's quite a straightforward process, You agree a purchase price, a period of time you have to actually take out a mortgage to complete the purchase and get a solicitor to draw up a rental agreement with an option to buy clause signed by both parties. I've arranged a number of mortgages for people buying in this manner and each purchase went very smoothly. Most important aspects to it are 1) good solicitor to draw up watertight agreement
2) a good indication that the only hurdle to qualifying for a mortgage is a current lack of deposit.

I certainly wouldn't dismiss this as a viable option for people.

D3PO

killers1 wrote: »

The 'rent' figure is negotiable and the main reason for higher than market rates is that the purchaser is trying to pay off as much of the purchase price as possible. It's a good option for people who would generally qualify for a mortgage based on incomes etc but don't have a deposit saved. It's quite a straightforward process, You agree a purchase price, a period of time you have to actually take out a mortgage to complete the purchase and get a solicitor to draw up a rental agreement with an option to buy clause signed by both parties. I've arranged a number of mortgages for people buying in this manner and each purchase went very smoothly. Most important aspects to it are 1) good solicitor to draw up watertight agreement
2) a good indication that the only hurdle to qualifying for a mortgage is a current lack of deposit.

I certainly wouldn't dismiss this as a viable option for people.

Killers I regularly agree with you but here I do not.

Your logic on what kind of candidate is viable is fine but the very obvious point is why would that level of candidate not pay a normal market rate rent and SAVE the remaining money as a deposit.

These schemes are not geared towards the buyer. None of them that I know of (perhaps you can tell me otherwise) allow for downward negotiation of the purchase price if house prices fall in the interim period.

Thus creating a huge barrier in allowing for the said candidate to get a mortgage based on the purchase price versus the property value.

The fact such schemes didn't exist when house prices were rocketing is a huge indictment to them and their marketing blurb that they are to help the buyer,

killers1

D3PO wrote: »

Killers I regularly agree with you but here I do not.

Your logic on what kind of candidate is viable is fine but the very obvious point is why would that level of candidate not pay a normal market rate rent and SAVE the remaining money as a deposit.

These schemes are not geared towards the buyer. None of them that I know of (perhaps you can tell me otherwise) allow for downward negotiation of the purchase price if house prices fall in the interim period.

Thus creating a huge barrier in allowing for the said candidate to get a mortgage based on the purchase price versus the property value.

The fact such schemes didn't exist when house prices were rocketing is a huge indictment to them and their marketing blurb that they are to help the buyer,

Hi D3PO,

First off I am not suggesting rent to buy is suitable for everyone, it's actually only a viable option for a small minority but that being said it is still a viable option. There are a couple of points I'd make in relation to your post.

'why would that level of candidate not pay a normal market rate rent and SAVE the remaining money as a deposit.

These schemes are not geared towards the buyer. None of them that I know of (perhaps you can tell me otherwise) allow for downward negotiation of the purchase price if house prices fall in the interim period'.

Your statement above includes the one fundamental flaw that people miss when considering these schemes. Do not compare a 'Rent to Buy' purchase with the option of renting and buying at some stage in the future. They are completely different. Compare 'Rent to Buy' with someone who actually buys today. I'll give you an example. 2 identical properties are for sale next door to each other for €180k. House A is sold to a purchaser for €180k who takes out a mortgage and moves in. House B is sold for €180k on a 'Rent to Buy' basis to a purchaser who pays a booking deposit of €2k with agreed monthly rent of €1k and moves in straight away. In both cases, neither party has recourse to a reduction in the price should values drop. The couple who bought on a rent to buy scheme are in good jobs and didn't qualify for a mortgage because either 1 applicant was only with their employer 3 months or they were living the high life, paying rent elsewhere but weren't putting money aside into savings. They are well capable of paying €1k per month in rent and saving the same amount again. At the end of 12 months they have paid €14k off the purchase price (booking dep of €2k + 12X€1k). They have €166,000 left to pay to complete the purchase. The banks Valuer goes out and decides the property is now only worth €170k (as is the next door neighbours!). They can borrow 92% of €170k i.e. €156,400 and will pay a further €9,600 from their €1k per month savings to complete the purchase. Their total spend has been €14k (booking dep + rent) + €156,400 (mtg) + €9,600 (savings) = €180,000. They have paid the exact same as the next door neighbours and both have a property which has dropped by €10k in value. The person who bought outright on day 1 with a 92% mortgage is left with a higher mortgage facility and therefore pays higher interest. The people who use the rent to buy option are effectively getting an interest free period and are financially better off.

Their other alternative is to rent @ €1k per month and buy the house in 12 months time for €170k. Total outlay €182,000.

In relation to your point about these schemes not being available during the boom I would argue that the reason for that was the availability of credit and in particular 100% mortgages which left no demand for a rent to buy option. Your argument is based on the assumption that the applicants are unable to save money and pay rent at the same time which would allow them to complete the purchase even in an era of reducing house price which will overcome the LTV issue.

I'm not advocating Rent to Buy as the way to go for everybody but I hope you can see how it can work for some people. The main element for candidates it that they are confident of securing mortgage approval at some time in the future and are also in a position to save on a monthly basis to cover any shortfall that arises from a loan to value perspective when the time comes to complete the purchase.

The most important thing as I said is to compare Rent to Buy V. buying outright now, as opposed to 'rent for a while and buy later..'

D3PO

killers1 wrote: »

Your statement above includes the one fundamental flaw that people miss when considering these schemes. Do not compare a 'Rent to Buy' purchase with the option of renting and buying at some stage in the future. They are completely different. Compare 'Rent to Buy' with someone who actually buys today. I'll give you an example. 2 identical properties are for sale next door to each other for €180k. House A is sold to a purchaser for €180k who takes out a mortgage and moves in. House B is sold for €180k on a 'Rent to Buy' basis to a purchaser who pays a booking deposit of €2k with agreed monthly rent of €1k and moves in straight away. In both cases, neither party has recourse to a reduction in the price should values drop. The couple who bought on a rent to buy scheme are in good jobs and didn't qualify for a mortgage because either 1 applicant was only with their employer 3 months or they were living the high life, paying rent elsewhere but weren't putting money aside into savings. They are well capable of paying €1k per month in rent and saving the same amount again. At the end of 12 months they have paid €14k off the purchase price (booking dep of €2k + 12X€1k). They have €166,000 left to pay to complete the purchase. The banks Valuer goes out and decides the property is now only worth €170k (as is the next door neighbours!). They can borrow 92% of €170k i.e. €156,400 and will pay a further €9,600 from their €1k per month savings to complete the purchase. Their total spend has been €14k (booking dep + rent) + €156,400 (mtg) + €9,600 (savings) = €180,000. They have paid the exact same as the next door neighbours and both have a property which has dropped by €10k in value. The person who bought outright on day 1 with a 92% mortgage is left with a higher mortgage facility and therefore pays higher interest. The people who use the rent to buy option are effectively getting an interest free period and are financially better off.

Their other alternative is to rent @ €1k per month and buy the house in 12 months time for €170k. Total outlay €182,000.

In relation to your point about these schemes not being available during the boom I would argue that the reason for that was the availability of credit and in particular 100% mortgages which left no demand for a rent to buy option. Your argument is based on the assumption that the applicants are unable to save money and pay rent at the same time which would allow them to complete the purchase even in an era of reducing house price which will overcome the LTV issue.

I'm not advocating Rent to Buy as the way to go for everybody but I hope you can see how it can work for some people. The main element for candidates it that they are confident of securing mortgage approval at some time in the future and are also in a position to save on a monthly basis to cover any shortfall that arises from a loan to value perspective when the time comes to complete the purchase.

The most important thing as I said is to compare Rent to Buy V. buying outright now, as opposed to 'rent for a while and buy later..'

Ive highlighted what i think is the important part. Where do these magical savings come from. Given the target audience is geared at persons who are unable to save but are good mortgage candidates besides this.

I totally take on board everything else your saying though

killers1

D3PO wrote: »

Ive highlighted what i think is the important part. Where do these magical savings come from. Given the target audience is geared at persons who are unable to save but are good mortgage candidates besides this.

I totally take on board everything else your saying though

As I said, it's only a suitable option for very few who either haven't been saving but then decide to knuckle down over a 12 month period or alternatively you can have applicants who are very good savers but their hurdle to getting a mortgage is the length of time they are with their employer. My point is peoples attitude to rent to buy shouldn't be to run a mile, there are a small few for whom it is a suitable option and it should be investigated thoroughly. The most successful ones I've come across have been direct agreements between a purchaser and a private vendor looking to sell their house without the use of an EA as they are not necessary for this type of transaction. I'd also be more wary of large developments offering properties for sale by using this method.

D3PO

killers1 wrote: »

As I said, it's only a suitable option for very few who either haven't been saving but then decide to knuckle down over a 12 month period or alternatively you can have applicants who are very good savers but their hurdle to getting a mortgage is the length of time they are with their employer. My point is peoples attitude to rent to buy shouldn't be to run a mile, there are a small few for whom it is a suitable option and it should be investigated thoroughly. The most successful ones I've come across have been direct agreements between a purchaser and a private vendor looking to sell their house without the use of an EA as they are not necessary for this type of transaction. I'd also be more wary of large developments offering properties for sale by using this method.

your in the business so have first hand knowledge and I respect your reputation on here from previous post so I will accept there is a very small pocket of people this may work for.

My cynicism comes from the fact that a lot of persons who go into a scheme like this do so without somebody if your expertise behind them, meaning bad candidates go in more often than not and the end result is they end up paying over market rent to a landlord for a period of time.

Hell even good candidates like your purporting above would have a heck of a hard time to save that kind of cash in a year if they were not able to put a decent deposit together outside of a scheme of this sort the logic of both just doesn't add up iykwim, and that's without owing to unexpected expense that might crop up for them.

I would suggest that if data was available of the percentage of RTB schemes than ended up in house purchases it would be very very low. Which means in the majority of cases the end result is a landlord getting a windfall of above market rent income.

I personally hate these schemes even if it works for a small number of people because at the end of the day the house always wins.

senordingdong

D3P0 wrote:

at the end of the day the house always wins.

But can't that be said for any kind of house purchasing process?

Except maybe a dowery.

killers1

D3PO wrote: »

your in the business so have first hand knowledge and I respect your reputation on here from previous post so I will accept there is a very small pocket of people this may work for.

My cynicism comes from the fact that a lot of persons who go into a scheme like this do so without somebody if your expertise behind them, meaning bad candidates go in more often than not and the end result is they end up paying over market rent to a landlord for a period of time.

Hell even good candidates like your purporting above would have a heck of a hard time to save that kind of cash in a year if they were not able to put a decent deposit together outside of a scheme of this sort the logic of both just doesn't add up iykwim, and that's without owing to unexpected expense that might crop up for them.

I would suggest that if data was available of the percentage of RTB schemes than ended up in house purchases it would be very very low. Which means in the majority of cases the end result is a landlord getting a windfall of above market rent income.

I personally hate these schemes even if it works for a small number of people because at the end of the day the house always wins.

I agree with you completely that people should only enter into this agreement after taking sound legal & mortgage advice. The one point I'd repeat is that it's not solely for people who can't save, length of time with an employer being the reason a mortgage isn't readily available is another example of why this option may be suitable. I just wanted to give an example of how it can actually work but I agree in a very very small number of cases.

D3PO

killers1 wrote: »

I agree with you completely that people should only enter into this agreement after taking sound legal & mortgage advice. The one point I'd repeat is that it's not solely for people who can't save, length of time with an employer being the reason a mortgage isn't readily available is another example of why this option may be suitable. I just wanted to give an example of how it can actually work but I agree in a very very small number of cases.

Here here. Now where is that ode to Killers thread till I bump it :pac:

senordingdong

Ok, so with that new, and valuable, info in hand, how do you go about finding a 'good' solicitor to back you into one these agreements?>

killers1

senordingdong wrote: »

Ok, so with that new, and valuable, info in hand, how do you go about finding a 'good' solicitor to back you into one these agreements?>

If you want a solicitor recommendation send me a PM