RENT-TO-OWN FREQUENTLY ASKED QUESTIONS
Welcome to Creative Selling and Buying!
Rent-to-buy, means that you can rent a property either new or second hand with an option to buy it within a given deadline of normally 2 to 5 years. The sale price is usually fixed beforehand as part of the original agreement and the amount given in rent is generally deducted from the final price.
THERE IS A DEPOSIT REQUIRED
Advantages for the seller:
For sellers, rent to buy is a far better alternative than leaving a property empty. You have a potential buyer and are collecting rent in the meantime.
There are benefits in having someone who is ultimately interested in buying the property as the tenant. With the best will in the world, tenants do not always take care of the properties they rent. Someone with a vested interest in it is more likely to maintain it well and keep up with payments.
In the current market offering this option is likely to attract more interest as possible purchasers can dip their toe in before taking the plunge. However, be aware that if house prices continue to fall you could find that your prospective purchaser decides to opt out and secure something cheaper.
Advantages for the buyer:
One advantage for those wishing to rent to buy properties in Spain is that the money you have paid whilst you are renting the property is not lost but is deducted from the agreed price. You can also withdraw from the contract as if it were a normal Tenancy Agreement.
As the potential buyer of the property you are more likely to feel that it is worthwhile investing your time and energy in settling in, getting to know the neighbourhood and really being a part of the community. At the same time you are establishing whether this is the place for you or not.
Some websites have set up specific pages dedicated to rent-to-buy properties in Spain. Others indicate if the owner would be willing to consider offering a rent-to-buy option alongside that of a direct sale.
When looking on rent-to-buy websites just be aware that there are a number of variations in exactly how it works. Some arrangements take on the form of the ‘tenant’ paying a ‘mortgage’ to the landlord. The buyer/ renter pays a substantial deposit and then pays a monthly payment in a similar way to a mortgage payment.
In other cases the arrangement simply takes the form of a deferred sale. A sales contract is drawn up with an extended period for completion of say 12 months or more. It includes a fixed sales price, a completion date, a deposit and monthly rental payment. This rental payment will be higher than normal.
When the completion date arrives all the payments that have been made are deducted from the agreed sale price and the balance is paid as usual with the sale completed at the Spanish Notary.
Points to consider:
However, as with all legal and financial arrangements, you should be cautious if you wish to rent to buy properties in Spain. Here is a list of things for you to consider:
- Just because you are renting and there is a longer period of time during which you can raise your Spanish mortgage – don’t get carried away with the size or value of the property you have in mind – it will still need paying for in the long run.
- Be absolutely sure about the terms and conditions of the arrangements.
- Make sure you are clear about what happens if you should change your mind.
- Do keep in mind that you will have an agreed sale price that will hold over the period of the let but that mortgage interest rates, currency exchange rates (if your income comes from abroad) and even house prices are imponderables over that period of time. You might find the economic environment less favourable when it comes to buy than when you first moved in.
- An additional deposit might be required by the seller as well as the usual deposit requested when renting a property in Spain. This is in order to demonstrate the real commitment of the purchaser.
- Over a long-term arrangement you are vulnerable to the financial viability of the landlord. For example, if the landlord has a mortgage and is not able to meet the payment, the property might be repossessed. This may not affect your right to let but would remove the right to buy.
- From the seller’s point of view, once the contract is entered into then it must be followed through even if a cash buyer suddenly emerged, anxious to buy the property.
Rent to buy properties in Spain is a good alternative in the current economic climate. Just make sure you take the same precautions when entering into this type of contract as you would with a more conventional purchase.
Why would anyone want to sell in this way?
Lots of reasons, people often sell in this way because there is a huge over supply of properties right now overseas and REAL cash buyers can take the pick of what they want and will rarely pay full value for something.
Perhaps you want to move on but cannot sell and feel stuck, this will facilitate a move.
With a payment plan it’s your chance to get what you paid for it or more, ok you have to wait longer to get paid but it’s worth the wait.
Also if the property is in negative equity these payment plans are ideal.
What if I have a mortgage on my property?
As long as you can provide full details of the mortgage and any loans this can be factored in, But YOU MUST PROVIDE REGULAR BANK STATEMENTS TO THE BUYER SHOWING THAT YOU ARE PAYING THE MORTGAGE/LOANS
Is this Legal?
Yes it is all done with solicitors in the area where the property is located, you will get the relevant paperwork which outlines both parties’ responsibilities and more importantly you will be covered by the laws in that country.
How am I protected as the seller?
You retain the Deeds until the last payment is made, also you have a legal agreement with the buyer and they are also financially committed as they pay a deposit (usually 10-20%) which means they are financially committed to the transaction.
What happens if the buyer fails to me ?
If the buyer misses several payments you can take the property back in the same way as if you had a tenant that wasn’t paying, so it’s simple, plus you also still have the deeds to the house so you are fully protected.
You will of course have to go through the appropriate channels to claim the property back but any payments received to that point are yours to keep.
Responsibilities buyer and seller?
Buyer: To pay the seller the agreed monthly payments until paid off
To maintain the property and carry out repairs when needed
To pay any charges associated with the property.
Seller: To let the buyer enjoy the property including letting the property out.
Seller must not secure any loans of any kind against the property or try and sell the property during the payment term unless the buyer agrees a deal to do so.
Why have I not heard of this type of transaction before?
Payment plans are commonplace in the property industry where experienced investors use this instrument (payment plan contracts) frequently, however most estate agents don’t know how to structure these transactions so just stick to what they know.
The downside to this is that buyers can take their pick of property as there is more property out there for sale than buyers. (simple supply and demand) with payment plans you get full value, in some cases more!
What happens if I change my mind?
Once the contracts are signed then you must allow the buyer to purchase the property on the agreed terms.
What do buyers usually do with the property?
They can use as a holiday home or rent it out or both most buyers are international business owners and want a bolt hole abroad that they can enjoy, or some people may choose to reside there.
How long does it take to complete the legal side of things?
This depends on you and the buyer as to how quickly you can get documents back to the lawyers. As a general guide its around 4 weeks
Can the buyer pay the balance before the term is up? Or make over payments to pay off sooner?
Yes they can and often do as many of our investors make money from businesses so they come into large amounts of money and may clear the balance early. The buyers want to get the deeds in their name as quickly as possible so will generally clear the balance early by the way of another mortgage or cash.
What is the benefit of a long payment term?
It keeps monthly payments low and affordable, again these are flexible and you can determine what term you will allow.
Why should I consider selling on a payment plan after all house prices double every 7-10 years!?
You may have bought at the peak of the market or be struggling to pay the mortgage and so on…. There’s a massive oversupply of properties in Spain right now and whilst house prices in the Europe have historically doubled every 7-10 years the same cannot be said for Spanish properties due to inflated prices by greedy developers.
It’s all about supply and demand.
Spain is complex country but the overall trend is that the oversupply means there’s a shortage of buyers and lack of demand, in order to help people who need to sell in this market we use payment plans, no banks, no finance, no problem!
Making things Win/Win
We have noticed a lot of people wanting to buy and sell on payment plans as they can be a great way to own/sell property quickly without the need of banks etc…. also it can allow someone to get back what they paid for the property over a period rather than lose out by selling at a discount for cash.
You must be honest and disclose full information to the solicitors regarding your property, you must not hide anything such as condition of property etc… you will be liable if you misuse any monthly installments i.e not pay mortgages or loans and may face prosecution. You must communicate fully with the buyer as and when required
What safeguards are put in place to protect me as the buyer?
We get asked this a lot and we have various ways to protect you and your new asset. We will not entertain doing direct deals without using solicitors, this is to protect both parties and to make sure that contracts are fully compliant with the law.
What’s to stop the seller mis-spending your money and not paying the mortgage you may well ask?
1. Regular mortgage statements showing they are paying the mortgage every month which you must request for the seller
2. Deeds are kept in the current owners name until paid for in full this is to protect the seller, You will have a legally binding contract with the seller stating the terms clearly.
3. You may also further protect your position as the buyer by lodging the contracts at land registry which can be costly and you need to decide with the solicitor if this is viable.
4. Many of our properties do not have mortgages
Can I make overpayments or do I have to pay a set amount?
You can make overpayments and it is encouraged actually, as the sooner it is paid off the sooner you own it! You may want to apply for a mortgage or pay it off cash at any time during the payment term and that is fine.
Can I let the property out?
Usually yes unless the owner has a specific reason not to, generally most of our sellers allow this and again it’s a good way of paying your property off.
Do I pay the bills?
Yes you are responsible for the property including any repairs, etc. & all bills
What if I don’t want the property anymore?
You can sell it on in the same way you purchased it THROUGH US or by your own efforts.
You can give notice and walk away (not advised as you lose any money up to that point), or you can outright sell through an estate agent.
If values rise in the future can I sell on for more than my set purchase price?
Yes absolutely this is a big benefit to these plans
What are the risks involved with these?
With any ‘creative’ deals we put together their will always be an element of risk attached this is the trade off for not putting in massive deposits and qualifying for bank finance.
The seller needs to be in good financial standing as if they go bankrupt it may affect the property (you can credit check sellers at your own request and cost)
You are responsible for the property and any tenants so there is a potential risk
If the seller die’s you will need to cover this aspect with the solicitor to see if you can put a power of attorney in place to cover this.
These property deals do have some risk attached to them so make sure you speak to your solicitor before you proceed. We will not be held responsible in any way for losses now nor in the future.