A rent-to-own option in Dubai can be a viable and cost-effective option if you have not yet earned enough to buy your own house. Owning your own home allows you to become financially independent, free from the burden of landlords’ monthly rent payments. Renting a home entails you paying rent each month, along with a mortgage or property tax. Despite years of paying, you continue to pay for a property that does not become your own asset. The tenants should also keep their rental payments in mind when making any large-scale financial decisions, including switching jobs, starting a business, getting their children through college, getting married, or other opportunities that would require a substantial amount of money.
The UAE is one of the best places to buy real estate, with Dubai leading the charge with some of the most flexible regulations and the best financing solutions for private property ownership. Property developers offer the best rent-to-own property options in Dubai, while banks offer the most attractive mortgage solutions.
What is Rent to Own in Dubai?
In Dubai, rent-to-own offers are fast becoming very popular; however, not many people understand what they mean. Rent-to-own properties involve buyers paying monthly, quarterly, or annually to purchase property from a developer, as specified in the contract.
The payment will include rent and a portion of the property price. Upon the end of your tenure, you will own the property and enjoy all the perks of owning it. The extra money you pay over the market rental value will be used to buy your equity and one day you will be free of the burden of renting.
What Companies Offer Lease to Own Dubai Solutions
There are many credible property developers in Dubai who produce high-end residential properties. Besides offering the best residential setting, these real estate companies in Dubai also offer mortgage loans and rent-to-own options.
These financing options are the best options for those looking to purchase the property that best suits their needs. You can start living in your own home without paying hefty prices in one go.
Rent-to-own versus mortgage financing
The advantages of mortgage loans also include the convenience they provide for purchasing properties. There are a few basic differences between rent-to-buy offers and mortgage financing.
Down Payment or Upfront Cost
For mortgage loans, you will need to pay at least 15% of the value of the property upfront if you are a United Arab Emirates national, but as an expat you will have to pay a minimum of 20% of the price upfront.
Rent-to-own schemes in Dubai allow you to save considerable money upfront, as you pay around 5-8% of the property price, including all registration charges, real estate agent fees, and other costs. One of the best things about taking a bank loan to pay this initial charge is that you will remain burden-free to the fullest extent possible.
Application Process
The second important aspect where rent to own arrangement differs from a mortgage loan is that the application process is much more simple and easy for the buyer. As with mortgage loans, there is the direct involvement of three parties, i.e. the seller, bank, and buyer, and as lease to own deal is between the property developer and buyer only, there are lesser complications and the application process is very quick.
Flexibility of Commitment
Buying an apartment, a townhouse, or a villa with a mortgage loan entails selecting a property, completing all the procedures, and becoming the owner. As long as you don’t sell the property, you don’t have the right to change your mind at any point in time.
Dubai provides rent-to-own schemes like option-to-purchase schemes that make it easy to change your mind if you don’t want to purchase the property. Hence, you have flexibility with the Dubai rent-to-own scheme.
Two Types of Rent to Own Apartments Agreement
Rent-to-own opportunities can be pursued in multiple ways. In general, the type of contract that the buyer and the seller have determines how flexible, secure, and financially beneficial it is. Here are two types of leases that are common in Dubai’s rent-to-own schemes.
Option to Purchase
With this type, the buyer has the option to opt out of the deal and remain a tenant. An option fee is a fee which the buyer has to pay, which is a cost of having a choice and compensation to the seller in the event the deal isn’t completed. The seller is entitled to keep the option fee when the buyer decides not to proceed with the transaction.
Purchase Agreement
Buyers and sellers agree upon a price, rent, and total monthly payments after taking market trends into consideration while deciding on the price, rent, and monthly payment amount.
Pros & Cons of Rent-to-Own for Buyers
Pros
- Buy with bad credit: For those who cannot qualify for a home loan, a rent-to-own agreement can be used to purchase a house. With time, they can rebuild their credit scores, and once they are finally ready to purchase a home, they can then apply for a loan.
- Lock in a purchase price: Typically, buyers are able to get an agreement on the purchase price of a home today with the purchase occurring several years from now in markets with increasing home prices. If home prices fall, the buyer has the option to walk away, although the financial picture depends on how much they have already paid.
- Test drive: Relocating after a few years is less expensive and inconvenient.
- Before committing to buy a property, buyers can live in it. Hence, they can discover any issues with the house, problems with their neighbors, and other issues before it is too late for them.
- Move less: Those who are committed to home (but unable to purchase) can obtain a rental house that they will eventually purchase. This reduces the cost and inconvenience of moving after a few years.
- Build equity: Unlike homeowners, renters don’t build equity. Payments can, however, add up and provide a considerable amount that can be put towards the purchase of a home.
Cons
- Forfeiting money: All the extra money that you paid you to lose if you are not able to purchase the home. A seller may try to make it difficult or unattractive for you to buy so they can pocket your investment.
- Slow progress: Your plan might be to improve your credit or to earn more so that you’ll qualify for a loan when the option expires, but things might not go as expected.
- Less control: There is no total control over the property because you do not yet own it. If your landlord stops making mortgage payments, you could lose the property through foreclosure, or you might not have authority over major maintenance decisions. You could also lose a judgment or become bankrupt if your landlord fails to pay property taxes. This agreement should address all these scenarios. As long as you have an option on a property, the landlord can’t sell, but having to fight the landlord over the sale can be a major headache.
- Falling prices: You might not be able to renegotiate a lower purchase price if home prices fall. If you lose all your option money, you’re left with the option of buying the home. If your lender won’t approve a large loan, you’ll need extra cash at closing for a down payment.
- Late payments hurt: Your right to purchase may be lost if you fail to pay your rent on time, along with any additional payments. There are cases when you keep your option, but your extra payment does not count, and will not contribute to your eventual purchase.
- Home issues: You may find out about problems with the property only after you try to purchase it-for example, title problems. Rent-to-own purchases should be treated as real purchases. Before buying, get a home inspection and title search.
Pros & Cons of Rent-to-Own for Sellers
Pros
- More buyers: You can market to renters who hope to buy one day if you’re having trouble attracting buyers.
- Earn income: You can earn rental income as you move toward selling a property if you don’t need to sell right away.
- Higher price: When you offer rent-to-own, you can ask for a higher sales price. There is a possibility that people would pay more if they had this opportunity. Renters also have the option of buying a house, which they might never use. However, flexibility always comes at a cost.
- Invested renter: An owner who is planning to buy a property is more likely to maintain it as well as get along with neighbors than the owner of a rental property. It is already in the renter’s/buyer’s interests to maintain the property.
Cons
- No certainty: There’s the possibility that your renter won’t buy, which means you’ll need to start looking for another buyer or renter-but at least the extra cash is yours.
- Slow Money: A big lump sum isn’t given to you, so you can’t use it to buy your next house.
- Missing appreciation: Rent-to-own agreements typically lock in a sales price, but home prices often rise faster than expected. There is no way around this except to accept it or wait a while to offer the option to purchase.
- Falling home prices: If your tenant does not buy, you might have been better off simply selling the property.
- Discovering flaws: Some buyers will discover flaws that you didn’t know about, and they may decide to pass on purchasing your property. As an example, the plumbing may work well for a couple, but not enough for a family of five. You’ll have to disclose or fix this defect to future buyers even though it didn’t occur under the previous arrangement of living.
In a rent-to-own transaction, everything is negotiable. The buyer and seller are both bound by certain terms, and all the terms can be changed to suit everyone’s needs.
