Rent-to-own
schemes are agreements that afford you the right to buy a home at the end of a
pre-determined rental period, at a price agreed before signing the
agreement. In this scheme, you pay rent for a set period, with the option
to purchase the property at the end.
You will then be
paying a higher monthly rent than usual with the additional contribution going
towards buying the house. For instance, if the usual rent is Ksh 50,000, a
tenant with a rent-to-own scheme may pay Ksh 80,000 with the additional Ksh
30,000 going towards the payment of the house.
Rent-to-Own
Schemes in Kenya have been around for a while. However, these schemes
have historically been the preserve of Government Agencies such as Housing
Finance Group, the National Social Security Fund (NSSF) & the National
Housing Corporation (NHC). The models used by these institutions tend to favor
civil servants.
Are you wondering
if there are any Rent-to-Own Schemes in Kenya and if they are worth it?
If yes, let’s
dive into the details.
1)First, are rent-to-own schemes the right option for you?
The scheme will
work if you already know where you want to live. If you are already settled,
then this is fine.
Consider if you
have a reliable income stream as you will need to commit to paying a monthly
amount for a long time. If your income is irregular, you might want to save a
few months’ worth of rent before you sign a rent-to-own agreement.
2)Why are Rent to Own Schemes so Risky?
Rent-to-own
schemes are not always beneficial, so you should be careful when you are
considering this option.
The major
downside of taking rent-to-own schemes is that you do not own any part of the
home until you have made the final payment. As you do not have a title, if
you’re unable to complete all payments, you can lose your hard-earned money
already paid.
With rent-to-own
schemes, the costs and risks are very high with very little legal recourse
available if something does go wrong. Not only will you be paying an additional
25%-50% on your rent, but you might lose everything saved towards your deposit
if something goes wrong.
Additionally,
even if you pay the rent plus option-to-buy fees diligently, you shall need to
secure a mortgage at the end of the rental term. If you're not approved, you
might not get any payments back.
3)If you can lose your money, why choose a Rent-To-Own
scheme in the first place?
There are several
advantages of owning a home using the rent-to-own scheme
Benefits of
Rent-to-Own Schemes
a) If you agree on the future purchase
price when signing the agreement, you benefit as the house may be worth more
than the agreed purchase price. This is because the purchase price remains the
same even if the house appreciates.
b) Rent-to-own schemes allow you to live
in a home and neighborhood before committing to buying. This allows you to
learn about any potential issues before it’s too late.
c) If you are unable to get a
bank-approved mortgage, it’s easier to still get your dream house due to easier
requirements to join.
Disadvantages of
Rent-to-Own Schemes
a) You may lose out on money if you choose
not to buy the house.
b) If you are unable to obtain a mortgage,
then you may not be able to buy the house. You also lose your right to buy the
property if you can't get a loan.
c) As you do not own the house yet, you
have little control over any modifications to the house.
d) If the landlord/seller of the property
has their assets seized, you may not be able to get any of the money already
paid.
e) If your plans or circumstances change
during the Rent to Buy period, you may be unable to move or risk losing money.
This is because Rent to own comes with a long-term commitment.
f) Rent to Buy isn’t available on every
property on the market.
g) If you buy a property as a rent to buy
it may not always be easy to sell compared to a property that you buy outright.
h) You will have no legal claim on the
property until you have successfully purchased it in full.
4)Thinking that rent to buy is a good option for you?
These are some of the ongoing rent-to-own apartments in Kenya.
a) The Crystal
Rivers Development by Safaricom Pension Fund rent-to-own financing
allows potential homeowners to live in their houses as they pay over 15 to 20
years without taking up a mortgage.
b) The Green
Zone is a residential complex with 1-, 2-, and 3-bedroom exclusive
units in the serene area of Thindigua, Kiambu road. Approximately 5KM from UN
Avenue.
c) Kenpipe
Gardens, Kitengela, developed by The Kenya Pipeline Company Limited
Retirement Benefits Scheme (KPCRBS) with a maximum of 20 years repayment period
as you occupy your preferred house.
d) Nalani
homes have Rent-To-Own
2 bedroom Apartments with an ensuite master in Ruaka
e) Rama
homes provide you with a Rent-to-own Ksh.75,000 per month with a
6-year payment plan at 0% interest. Deirah Heights 1st Parklands is
currently at the 1st-floor level. Book a unit in our newest project Gateway
Park in Syokimau.
5) How to start the rent-to-own process
Rent-to-own
schemes come with lots of risks. If after careful consideration, you are
convinced they're the right option for you, bear in mind that you will sign one
of two types of legal agreements.
a) Right to Buy Agreement
Right to Buy
Agreement require you to pay the homeowner an initial fee and then continue to
pay rent every month. These fees are paid throughout your lease and go toward
your down payment (if you decide to buy the home). The fees give you the
right to buy the house.
With this agreement,
you do not have to buy the house. However, you will lose the money that you
paid over and above the rent.
b) Lease-Purchase Agreement
A lease-purchase
agreement works in almost the same way as a right-to-buy agreement. You still
lease the home for a few years and put a certain percentage of your rent toward
a down payment to buy the home.
However, when you
enter a lease-purchase agreement, you must buy the home at the end of the
lease.
When it’s time
for you to purchase your home, you’ll apply for a mortgage just like any other
home buyer.
I. Find a
property
Start by finding
houses that have been offered for sale using this option. Given there
are several things that can go wrong for both renter and seller, the
supply of rent-to-buy properties is fairly limited. This is why
finding a suitable scheme may take longer than a traditional house hunt.
II. Conduct
Due Diligence
This step is
important because entering into a rent-to-own agreement effectively ties your
future living arrangements to your seller's financial circumstances. If they
default on their mortgage, the bank could repossess the home, leaving you out
of pocket and without a place to live.
Do detailed
research on the seller or developer and find out everything you
need to know about the development before you commit to signing the contract.
III. Sign
an Agreement
Before entering
into a rent-to-own agreement, make sure you seek independent legal and
financial advice. Ask a legal expert to draft or
review your contract so that the right terms are included.
A lawyer will
help you understand your rights and obligations. You need to negotiate on
some points before signing or avoid the deal if it’s not favorable enough.
IV. Keep
up with your rental payments
Once you've
signed on the dotted line, the onus is on you to keep the deal alive. Draw up a
budget and stick to it, as missing a payment could see you and your family
turfed out on the street.
V. Secure
a Mortgage
After the end of
the rental period, you'll need to take out a mortgage so that you
have enough money to pay for the home. Once you have paid all the
costs, congratulations on becoming a homeowner.
Bottom Line
Rent-to-own
schemes can be a good avenue for home ownership. However, there are several
risks and disadvantages to this approach. You need to have a good plan and make
proper planning before you sign a rent-to-own lease. If you don’t do this you
might lose money. If you are not sure where you intend to live in the next 10
years or settle down, you might want to avoid rent-to-own leases.
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