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Rent-to-Buy Agreement in Australia 2022 

What is a Rent-to-Buy Agreement?

Rent-to-buy agreements are leasing agreements that offer renters the right to buy a property at the end of a pre-determined rental period. This kind of agreement makes it easier for renters to get into the property market because it eliminates the need to save up a traditional deposit – something many renters find difficult to achieve.

In a rent-to-buy agreement, tenants and vendors agree to a price for the property to be paid at the end of the lease period, which is usually between three and five years. During their tenancy, renters generally pay well above the average rental price for their area and property size. They also usually pay an additional fee for the ‘option’ to buy at the end of the agreement. This additional fee is usually somewhere around $100 per week. At the end of the contract, the tenant will apply for financing with the lender of their choice to pay the outstanding amount owing on the agreed-upon sale price for the property.

The pros of a rent-to-buy scheme

The price is arranged before the contract is signed

One of the best things about a rent-to-buy agreement is that the eventual sale price is agreed upon when the contract is signed. This is great for buyers as they will be protected from any significant price increases in the future. Although there is a risk that the market will dip, leaving buyers paying more than the property is worth, Australian property prices generally increase over time. Keep in touch with an experienced property conveyancer.

Buyers don’t need to save a traditional deposit

Due to the nature of a rent-to-buy agreement, you won’t need to save up a traditional deposit for a home loan that can cost between 5-20% of a property’s sale price. As many tenants find this difficult to achieve when paying rent, this is a desirable way to get into the property market.

As part of your agreement, you will probably need to pay a small deposit amount to the landlord, though it won’t be anywhere near the figure that a traditional home loan would require. 

The cons of a rent-to-buy scheme

Renters don’t own any part of the property until the final payment

Although you are contracted to buy the property eventually and are making payments towards ownership, no part of the property is yours until you make the final payment. That means you still need to keep it in a condition that your landlord considers to be acceptable. You cannot make any changes without their consent and are subject to regular property inspections.

Missed payments could void the contract

You can’t be evicted from the property unless you break the terms of your lease agreement. However, your rent-to-buy contract could be voided if you break the agreement. In some cases, this might mean a single missed payment. In that case, you would have lost your equity and be left back where you started.

Renters still need to apply for finance at the end of the lease agreement

Although you are committing to a rent-to-buy agreement, you still need to apply for a home loan with a bank or other lender – you are not guaranteed a loan. If you cannot secure a loan by the agreed-upon date, you forfeit everything you have put into the property, including your deposit.

Always seek legal advice before you sign a rent-to-own agreement

Before entering into a rent-to-own agreement, make sure you seek independent legal advice so that you don’t end up getting yourself into debt with no reward at the end of your contract.

Find a conveyancer skilled and experienced in rent-to-buy agreements to look over any documents your landlord presents you with, making sure that they include a clause that clearly outlines how much of your additional rent will go towards building equity in the home.

Jim’s Property Conveyancing Melbourne and Property Conveyancing Brisbane and can provide you with comprehensive advice and assistance moving through your property transaction. Contact Jim’s Property Conveyancing for advice before you enter into a rent-to-buy agreement. Call to book a free consultation today on 13 15 46.

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