20 Feb 2024 | Blog

Unlocking Home Ownership: The Rent-to-Buy Route


Earning the bare minimum and residing with parents, Jared and Nick were puzzled about their path to home ownership in Australia’s daunting property market. Particularly for young individuals embarking on their journey, this market can seem insurmountably discouraging.

Although capable of managing rental expenses, the duo couldn’t fathom accumulating enough for a home down payment. An insightful discussion with their trade school instructor, who had overheard their frustrations about the housing situation, introduced them to the concept of rent-to-buy. This method, which the instructor’s daughter successfully employed to acquire her first home in partnership with her cousin, seemed like a viable route.

Curious, Jared and Nick consulted a mortgage broker to delve into the specifics of rent-to-buy and its feasibility for their situation. Essentially, rent-to-buy is a leasing agreement with an option to buy the property after a certain period.

The process entails:

  1. Identifying a seller open to a rent-to-buy deal, with specialised websites available for such listings.
  2. Getting an independent valuation to ensure the property’s price matches the market rate.
  3. Creating a legal agreement to specify: i. the lease term. ii. the eventual purchase price. iii. the rent portion contributing to the property’s equity. iv. any initial or recurring fees. v. terms for joint purchasers.

Jared and Nick saw potential in this approach, but their broker highlighted both advantages and drawbacks of rent-to-buy schemes.

Advantages include:

  • The purchase price is fixed from the start, aiding financial planning.
  • Buying the property is optional at the lease’s end.
  • Potential accumulation of property equity.
  • The chance to occupy the property before official purchase.
  • Possibility of qualifying for first home buyer incentives.

Disadvantages involve:

  • Market fluctuations could negatively impact the buyers.
  • Tenants might bear the costs of repairs and upkeep.
  • Rent may be higher to encompass additional fees.
  • Acquiring a mortgage is required after renting, with standard approval conditions.
  • Co-buying contracts are intricate, necessitating legal counsel.
  • Rent-to-buy regulations differ by state, so understanding local laws is crucial.
  • Fees paid are non-recoverable.

Despite the challenges, Jared and Nick pursued the rent-to-buy path, leasing a compact 3-bedroom home near educational institutions and public transport, aiming to buy it after their apprenticeships and with increased incomes.

They saw this home as a potential future investment. By seeking advice from legal and financial experts, selecting an appropriate property, and adhering to their plan, Jared and Nick achieved home ownership by 22, illustrating that strategic planning and informed decisions can pave the way for financial success from a young age.

The information contained on this website has been provided as general advice only. The contents have been prepared without taking account of your personal objectives, financial situation or needs. You should, before you make any decision regarding any information, strategies or products mentioned on this website, consult your own financial adviser to consider whether that is appropriate having regard to your own objectives, financial situation and needs.

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