“Rent to buy” or “Rent to own” is an often-misunderstood real estate term, because it means different things in different places to different people. This is apparent in Italy, where more and more international buyers have entered the property market. The key to preempting the confusion is to remember that it simply refers to a form of housing possession, one that requires a contract between a buyer and a seller. It involves both tenancy and ownership and has advantages and disadvantages for both buyer and seller. ”Rent to buy” is a trend that has been on the rise.
>> Typically, the buyer and the seller agree to a purchase price which is then locked-in for the term of the tenancy during which time the new buyers make regular payments, each one including the rental price and an extra fee in exchange for an exclusive right to purchase its dream home in Italy at the end of the lease period. This latter portion on the amount you pay monthly will be deducted on the whole property price you have previously arranged with the seller. Sometimes the amount you pay monthly will be entirely deducted on the whole price, but in these cases the property price initially arranged is higher.
Moreover the initial down payment is structured to include a non-refundable deposit, generally about 5/10% of the agreed-upon sale price. This provides security for the seller while buyers benefit by being able to take immediate possession of a property.
Rent to buy a property in Italy: An example
Agreed price: € 200,000
Monthly payment: € 600 (€ 300 rental price + € 300 deducted on the whole property price)
Initial down payment (10% of the agreed price): € 20,000
Amount after 5 years: € 30,800 (€ 20,000 down payment + € 18,000 “saved” in 5 years)
Balance: € 169,200
Rent to own a house in Italy: advantages and disadvantages for buyers
• People can immediately live in their dream home with the possibility to have a “trial period” (10 years) during which you could decide to sell the property to a third person;
• Postponement of all costs and taxes related to the mortgage and to the ownership of the real estate;
• With an affordable monthly payment you can save a good amount that at the end will be deducted on the whole property price;
• Potential buyers can utilize the tenancy period to help establish a good “credit history”, making themselves better candidates for future conventional financing options;
• As long as there are “out” from the contract people can try out a property before they are ultimately committed to buying it.
• At the end of the buying process usually you spends a higher amount than a traditional buying formula;
• In case of bankruptcy of the seller, you may run up against some problems;
• Obligation to purchase the property even if you have changed your mind, in any case one has to check carefully the agreement.
Risks and benefits to home owners selling their property in Italy with “rent to buy” formula
• The seller immediately receive the down payment plus the monthly payments;
• Having a tenant is preferable to a vacant home, for security and maintenance reasons;
• The property generates monthly income for the duration of the sales process.
• In case of buyer default, the agreement can be contested and he takes a long time to regain possession of his property;
• The seller do not receive the whole purchase price immediately, as the property generates monthly income, so if you have to make an important financial transaction you cannot relay on the whole purchase price of the house;
• A seller may be willing to wait for payment with a “rent to buy” agreement, but government agencies will want immediate reconciliation of all taxes and fees, as though the purchase agreement had been completed.
Individual situations are unique and will require local professional and legal services. Everybody wants to avoid costly and time-consuming false-starts.
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