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Rent with the right to purchase (in Spanish: alquiler con derecho a compra) is a formula halfway between renting and the acquisition of housing that tends to rise in times of real estate uncertainty. Due to its nature, it is a very interesting option in the face of the doubt of whether to buy or rent and that has its advantages for both the tenant and the owner.

 

What is the right to buy rent?

As its name suggests, this is a formula to buy the house in which you already live in or are going to rent. This type of the contract involves setting a future purchase price at the time of signing the rental contract for the property.

The contract itself includes the price at which you have the option of acquiring the apartment or house in one, two or number of years you have agreed with the property owner in the contract.

 

The money that you pay as monthly rental fee is also subtracted from the future purchase price. When the time comes, or sooner if the contract allows, the tenant is able to exercise the option to buy the house with the price agreed in the contract.

 

What should you take into account before renting with the right to purchase?

Rent with the right to purchase usually grows in times of uncertainty and falls in the real estate market. For the owner it is a way to secure or, at least, approach the sale of the house and for the tenant, to test what it is like to live in the house and to have a purchase price guaranteed in the contract. The fact is that buying is always an option, not an obligation.

There are some peculiarities depending on whether the owner or the tenant is:

In the case of the owner, you will be interested in limiting the purchase option to a certain few years. This is how it is possible to encourage its execution.

 

An initial premium that is delivered as an advance of the purchase might be a part of the deal, which can be between 5% and 10% as optional fee and it is not mandatory to have, or that the rental price is slightly higher than the average in the area. If the tenant has a real intention to buy, he will not care about that little extra effort and thus, again, the purchase is encouraged.

Finally, even if the rental agreement is with the option to purchase, the owner can evaluate whether to include insurance with rental non-payment coverage, which is usual in Spain.

In the case of the tenant, the first thing you should be clear about is that the advance payment or initial premium are not mandatory and depend on your agreement with the owner.

Similarly, if the owner usually is interested in reducing the number of years of the purchase option, the tenant is interested in extending it. So, you need to negotiate and find a sweet spot for a win-win solution where you both are comfortable with.

 

Advantages of renting with option to buy

The contracts with the right to purchase have some advantages for both the owner and the tenant.

As a tenant, the first advantage is that, if you are not interested or not ready for any reason, you do not have to execute that option. The only thing you need to ensure that there are no legal obstacles in the contract and you are free to have no deal.

Deferring the purchase allows you to find out if that property is something you like and want to live in or not. You will be able to check if you like the neighbourhood or many other little things which you only discover when you spend some time living in a house / apartment, like your neighbours or if you fit into the community.

In addition, from a financial point of view, you will have already advanced part of the money from the purchase through the rent. This means that you need less for the entry payment or that you can get a mortgage for less years. In this sense, remember that you can choose the type of mortgage and its duration, among other things.

And as an owner? On the one hand, you are generating an income while waiting for the deal of selling the house and having a tenant of usually a more stable profile. At the end of the day, you can even include a clause to cancel the purchase option in case of a delay. On the other hand, you avoid intermediaries, commission fees and additional expenses in the sale of the house.

 

Disadvantages of rental with option to buy

The negative part of this type of contract is more linked to the contract itself and its clauses. For the tenant, the biggest drawback is the entrance that will often have to be paid to reserve the right of purchase or a slightly higher rental price.

For the owner, the disadvantage is that he does not control the final result - the sell of the property. In other words, as the contract is flexible, meaning that in most of the cases there is no obligation to buy, the tenant may wish not to execute the option and you would need to find another buyer, but depending on the market condition and pricing it might be a good win.

 

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