When it comes to renting a property, there are a few different options available to tenants. One option is to enter into a rent-to-own contract. This type of agreement can be beneficial for both the tenant and the landlord, as it allows the tenant to eventually own the property while the landlord receives a higher rent amount.
If you're considering entering a rent-to-own contract for a property in Kenya, it's essential to understand how these agreements work. This guide will provide an overview of what you need to know about rent-to-own contracts in Kenya.
There are a few things to consider before signing a rent-to-own contract, so make sure you read this guide carefully.
What is a Rent-to-Own Contract in Kenya?
A rent-to-own contract, also known as a lease-to-own contract, is an agreement between a tenant and a landlord in which the tenant agrees to rent the property for a set period.
During the term of the agreement, the tenant will make monthly rental payments. A portion of each payment will go towards the eventual purchase price of the property.
Rent-to-own contracts are becoming more popular in Kenya as a way to buy property. The recent development of rent-to-own is the government residential house plan in most counties.
How Rent-to-Own Works in Kenya
This type of contract allows you to rent a property for a set period, with the option to buy it at the end of the lease. This criterion is a great way to get on the property ladder if you can't afford to buy outright. Or if you need clarification on whether you want to commit to a property for the long term.
The property seller quotes the price before the buyer agrees to sign the contract. In addition, the contract entails the monthly payments of rent and how long the buyer should pay before they own the property entirely.
Buyers should do market research to compare if the current market favors them or the seller. They should also compare rent-to-own prices and mortgage loans.
At the end of the contract term, the tenant can purchase the property for the agreed-upon purchase price.
The Benefits of a Rent-to-Own Contract in Kenya
To the buyer
A rent-to-own contract can be a great way to get into a home without putting down a large amount of money upfront.
This type of contract can also help to build up your credit score as long as you make your payments on time.
Another benefit of a rent-to-own contract is that you may have the opportunity to purchase the home at a lower price than the current market value.
You eventually become a homeowner without taking a mortgage loan. And it's a great way if you have a lousy credit score.
The flexibility of payments helps you in managing your monthly budget. In addition, if you don't want the home again, you can edit the rent-to-own contract since it's flexible in nature.
You grow your home equity faster, and with a clear record, you can take a loan against your home equity.
You also move into your dream home faster. And you can customize it the way you wish it to, like, adding extra rooms, boards, or a kitchen garden.
To the seller
A benefit to the seller is that the tenant will take good care of the house because they are the end owner after completing payments.
The seller enjoys a lump sum monthly rent income from their rent-to-own tenant. They can use it to pay their mortgage and build their credit score.
The Disadvantages of a Rent-to-Own Contract
A rent-to-own contract can be a great way to get into a property with a smaller up-front investment, but there are some potential disadvantages to be aware of.
First, the monthly payments during the lease period are typically higher than they would be for a traditional rental since a portion of the payment goes toward the eventual purchase price. This can make it challenging to save up for the down payment on the property.
Additionally, if you decide not to purchase the property at the end of the lease period, you may forfeit any money that you have already paid toward the purchase price.
Finally, it is essential to be aware of any potential hidden costs in a rent-to-own contract, such as maintenance or repairs that may be the responsibility of the tenant. In a typical rental property, sellers are responsible for maintenance costs, which change in a rent-to-own property. The buyer usually foots all costs involved in maintaining the property, which will eventually add to the purchase price.
How to Create a Rent-to-Own Contract in Kenya
A rent-to-own contract in Kenya is a contract between a landlord and tenant that gives the tenant the option to purchase the property at a set price within a specified period of time.
The contract should outline the purchase price, the rental terms, and the length of the option period. It is important to have a lawyer review the contract before signing it to ensure that it is fair and legally binding.
Both seller and buyer should have an attorney and witnesses during the contract signing.
The Bottom Line
Renting to own contracts is a great way to own property in the most lenient ways possible. You don't have to take a loan to finance your first property. And that's a good way to stay debt-free and build your net worth.
However, ensure you follow legal procedure to draft the contract that can be presented in court.
Frequently Asked Questions
Is rent-to-own a good idea?
Yes. Since the contract is flexible, you can give it a try to own a home using this method. It's good since you don't need a mortgage loan to buy a home.
What do I need to participate in a rent-to-own agreement?
The most important part is the ability to pay both rent and the monthly capital payment. Remember that skipping payments teaches the contract, and the seller can evict you from the house.
Who caters to the maintenance costs of a rent-to-own property?
In most cases, the buyer foots all bills related to the house. And that's the greatest limitation of these properties.