Let’s go back to talking about the real estate market, this time, however, choosing a theme that we are sure interests many readers looking for a new house to rent and/or buy: if you are trying to understand which option to choose alternatively between rent or mortgage, in this article, we will explain that sometimes the choice of rent does not necessarily affect the possibility of buying the property, but leaves you this opportunity in the future, moreover without the need to take out a mortgage. We are talking about the particular formula of rent with redemption.
Perhaps it has already happened to you, in fact, especially if you have been looking for the first house to buy for some time, that friends and acquaintances have put you in front of this doubt: “Should I propose to the owner a rental contract with redemption?”.
This happens because you do not always have the necessary liquidity to complete the purchase, or because due to banking restrictions, not all potential real estate buyers are able to obtain the much-needed mortgage.
Here then, the contractual formula that we are going to analyze in-depth during this reading could really be a valid way to go.
If you are not yet clear about what we are talking about, do not worry, now let’s take a step back by explaining first what the rent with ransom is, then how it works and then the models available for 2021.
We are sure that both as a homeowner to sell and as a potential buyer interested in buying, the knowledge of rent with redemption is the basis for any decision to be made in the preliminary analysis phase.
Are you ready? So, let’s start by explaining what this particular agreement is between the parties arriving directly from America, but for years already widely used in Italy as an alternative type of real estate contract.
Rent with redemption: what it is and how it works
After a brief introduction to the subject, let’s immediately clear what rent with ransom is, assuming you don’t have the faintest idea of its definition.
For rent with redemption, we mean a particular contractual formula between two interested parties: seller of the property and tenant.
In Italy, this formula, better known as rent to buy, was officially regulated as a purchase formula by the Slocan Italia Decree 133/2014.
Here we are: but how does it work in practice?
The agreement between the parties consists in making the tenant enjoy the right of residence in the real estate property covered by the contract, paying the owner-seller a real fixed monthly fee, and then having the possibility to exercise the purchase option by redeeming the immobile.
It is easy to understand that in order to calculate the balance to complete the operation, all the monthly payments previously paid by the tenant must be reduced during the period of time preceding the deadline.
Naturally, every detail relating to timing and methods must be put in writing in the preliminary phase and agreed by both parties.
There will therefore be no transfer of title until the tenant has paid the full amount for the redemption of the property.
The truth is that this particular formula of a real estate sale is nothing more than the perfect fusion between the typical agreements of a lease and the purchase methods of a regular sale negotiation.
It is also clear that the sale price of the property in question must be established in the contractual phase and cannot undergo future changes based on market changes at the time of redemption; as it is equally clear that the price reserved for the monthly rent by the tenant is generally slightly higher than the classic traditional rents: it generally undergoes a variation between 20% and 30% more.
Admit it: now that everything starts to be clearer, you are already imagining your next real estate purchase using this particular type of operation … and how can you blame yourself?
But what we haven’t revealed to you yet, is that there are different ways to approach renting with redemption. Of course, as also happens with traditional leases, also in this case different models have been developed precisely to be able to meet everyone’s needs.
Rent to buy: 2021 models
Currently in Italy, to access the rent with redemption formula, there are three different types to choose from based on the specific dynamics that affect the parties.
- Lease agreement with the preliminary sale
- Rent with redemption with the option of future purchase
- Purchase with redemption with retention of title
In addition to listing the different types, we have decided to leave you the useful links below to directly download the real estate sales contract model in rent to buy:
- Rent with redemption: download the contract template here
Let’s now analyze each of the three types, to understand which one is best suited to your real estate needs.
Lease agreement with the preliminary sale
Also referred to as a future sale agreement, it is the most used type for rent to buy.
This is a particular formula that provides for the loss of all sums paid by the lessor if at the end of the established period he should then decide not to make the balance to complete the operation.
If this were a common intention, the tenant could continue to pay the rent for the property, thus transforming himself into a traditional tenant and invalidating the rent agreement with redemption.
Rent with redemption with the option of future purchase
With this second mode of rent to buy, a deadline for the contract is established between the parties, beyond which the potential buyer can freely decide whether to proceed with the balance and therefore redeem the property, or not to do so and continue with the lease. .
Purchase with redemption with retention of title
The last type of rent with redemption currently valid in Italy is this particular formula, perhaps more similar to a traditional real estate sale than the first two.
It is in fact a contract that allows the seller to postpone the transfer of ownership only after the buyer has paid the full sale price. It is a real sale contract, as a result of which the taxes are charged to the tenant.
For which type of property is the rent with redemption applied?
One of the questions that arise before approaching this particular contractual formula is precisely the one that affects the various types of properties.
In fact, one wonders if the rent to buy can be chosen for any type of property, or if there are any restrictions on this.
Currently, in Italy, rent to buy can be used for any type of property for sale, be it an apartment, an office, a commercial property, or a property under construction.
The advantages, in the latter case, concern not only the future tenants but also the construction companies for which the rent to buy becomes an excellent tool to pay the instalments of the mortgage contract with the banking institutions for the construction.
The advantages of choosing the rent with redemption formula
After having extensively talked about the more technical and logistical aspects of this contractual formula, let’s now analyze point by point, what are the advantages of buying a house with a rent to buy.
If you have reached this point of reading, you are already thinking of contacting your real estate consultant to understand why he has not yet proposed it to you, first make sure to read the possible advantages … and then, take your smartphone and call your real estate agent of trust!
Advantages for the potential buyer:
- Live in the property immediately.
- Choose freely whether or not to become the new owner. This is fundamental, also because the dynamics of life can change over time. You can decide to change the city, or have the need for a different apartment in terms of sizes and spaces compared to the one initially chosen. It is in fact evident how much easier it is, with rent with redemption, to leave the house. The case is different for an owner who should look for a tenant or a buyer for his property, an operation that certainly requires greater time and costs.
- He does not have to bear the payment of taxes on the property until the redemption and, therefore, the balance.
- At the time of the final balance, the amount to be paid will weigh significantly less on the family economy, as all the amounts previously paid monthly as rent will have in the meantime greatly deflated the final amount.
- If you do not have the economic resources in liquidity to buy your dream home: if the rent with redemption formula is available, it is in fact removed from other hypothetical buyers thanks to the purchase option that it boasts of the property until the expiry of the contract.
- Increase the chances of taking out a mortgage by being able to demonstrate a good payer history to banks and having to finance a much lower amount than the entire starting amount.
- Being able to request a lower amount for the loan, which means saving on management costs and interest to be paid to the banks, and finally paying a lower instalment.
Advantages for the seller owner:
- Obtain a monthly rent higher than a traditional lease.
- Continue to enjoy the right of ownership of the property until the expiry of the agreement and the eventual balance and redemption by the tenant.
- Protection from possible price changes due to the real estate market and therefore presumable write-downs, as the amount that is initially agreed, will be the same that will have to be received at the end of the agreement.
Rent with redemption: who to contact to obtain all the necessary protections
We have reached the end of this guide but, before leaving, we must necessarily give you the last advice.
Since this is a particular real estate practice, it would be advisable not to act “between private individuals” but to be followed and advised by an expert in the real estate sector, such as a licensed real estate agent.
It is essential to fully understand each step of the rent to buy in order to be fully aware of what will happen in the following steps.
In addition to a real estate agent who follows the procedure, it will also be important to have a notary of reference to whom to draw up the initial preliminary deed.
This will serve as further protection for the parties, that is, to make both aware of all that they will have to fulfil.
So, we’ve opened up a new world for you, haven’t we?