Rent to buy homes otherwise known as Vendor terms finance homes has been around for many centuries in England. It came to Australia at the first settlement and has been a concept used in the purchase of housing and property for many years until the banks were de-regulated in the 1970s. This method of purchasing houses is still widely used in board room and corporate biddings for properties (hotels, resorts, industrial, etc) in Australia, especially in the higher echelon of the business system.Unfortunately for the general public, very little of what is known as Rent to Own homes or rent to buy homes is understood. Many have been led to believe that the only way in which one can purchase property is by getting a loan from a bank, which has its downside of high interest and costing extra hundreds of thousands of dollars in interest over 30 years, etc. In the old days (Actually not quite that long ago) farms were all bought and sold using Vendor Finance terms (rent to buy), in fact, farms are still being sold in this manner throughout Australia.
Rent to Buy or Rent to Own houses in Perth Western Australia as well as in the rest of Australia has regained in popularity with over 20% of all house sales in the Eastern States of Australia being Rent to Buy. It is fast gaining popularity in Western Australia, as an easier and more friendly method of getting into the Property Market since the financial collapse of the GFC 2009.
IMMIGRATION
Rent to own your home can be helpful for folk who are not able to purchase a home outright in Australia until they have gained Australian residency or citizenship, let alone qualify for a bank loan. By Renting to buy your home the person is able to begin the down payments using a lease with an option to buy agreement for five years. After they have completed their qualifying time for residency, they may then begin to officially own the property.
NEGATIVE GEARING VS POSITIVE GEARING?
Unfortunately, many investors have been led to believe that negatively geared property is the best way to handle their investment portfolio. However, due to the current cycle of events of the financial crisis, this is now proving to be a serious handicap for the Mum and Dad investors, as well as regular investors, who now have to take on third jobs to keep up with the payments which rentals do not bring in. By turning the negatively geared property into a positively geared property you will be making life a lot easier as you continue with your retirement plans. Having the assurance that you will have a positive income to retire on makes this option an enticing one. Waiting for your rental properties to sell can be a viscous cycle of home opens, false alarms etc. If you have plans to start living now, Rent to Buy is the attractive way to move.
Please note: If you are struggling with your home mortgage payments or investment rental properties, don't wait until it is too late. Look into this option at your earliest.
CREDIT RATING BAD?
The positive aspect of using this system is that potential home owners may not have to have a clear credit rating. Unlike the banks, although thorough checks are done on applicants, applicants need not fear applying for a Vendor home.
Banks are now very tight at releasing any funds for financing of properties which has made it very difficult for the average person to buy their own house. The rent cycle is a tedious existence when families are forced to uproot their possessions and move to another house because the landlord has to sell. Unfortunately, houses are being sold at a rapid rate since the GFC which is causing an upheaval in rental properties being available for rent.
WHAT IS RENT TO BUY?
Basically, a property owner chooses to sell his property for many reasons. The Property owner may simply wish to receive his/ her property payments on a fortnightly basis for 5 years rather than as a lump sum payment for various reasons (some mentioned above) or may / may not be facing a personal crisis and needs to sell his/her house quickly and is willing to receive the payments on a monthly basis over a period of 4-5 years instead of waiting for their house to sell which could take many months and in many cases now, years, at a possible loss.
At the end of the three - five year period, the tenant can then take up the Option to Buy property at which time, he/she then approaches their bank to payout the owner of the property. However, during the time of the tenancy, the tenant can earn rent credits to also help to pay down the amount of the end price of the property, as well as improving the property value with their improvements to the property ( with owner and council approval first applied for) thus ensuring that there will be near to sufficient equity in the property to allow their bank to give you a loan.
By improving the value of the property, as well as maintaining rent credits, as appropriate, the incoming tenant/buyer can make improvements to the property to increase the equity of the property for when it is time to take out their own loan. It is up to the incoming buyer to work at it! That is why using the old fashioned Rent to Buy method is so user friendly.
WHAT ARE THE BENEFITS?
For the SELLER - will be able to achieve the price that he/she would need for the sale of the property which can be slightly more than current market yield in some cases and in a slumped market can make sure that he/she is getting a positive income rather than await a buyer which may take months and years to find. It allows the property owner to maintain his/her credit status without default thus allowing him/her to begin a new life, while receiving POSITIVELY GEARED down payments on a monthly basis. It is also another way of looking at it as an investment over 4-5 years achieving more than the current sale of the property.
For the BUYER, this is a great way to begin to immediately buy your property without the high interest rates that banks put in. With the owner's permission, the buyer can improve the value of the property by improving landscaping, painting, repairs and even renovations (council approval is required). By doing this, it enables the buyer to have a greater opportunity to achieve possibly more than the 20% requirement of the bank to eventually pay off the owner of the property. Strict conditions apply.
The overall journey with purchasing tenants is a very exciting one. It means, that for the first time, perhaps in their entire lives, someone is willing to give them a chance to break the cycle of renting and paying dead money, breaking the cycle of continual upheaval from their friends and family, etc.
Article Source: http://EzineArticles.com/6184474
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