To Rent or Rent-to-Own: Which is Right for You?

Deciding whether to rent or own a home is an important decision that can greatly impact your financial future. As more and more properties are developed and more individuals seek to purchase their own house or buy an affordable condo for sale, some property sellers and developers now offer rent-to-own schemes to get competitive and make owning more accessible. For some, a rent-to-own scheme is ideal—if you are renting anyway, might as well put that monthly rent towards ownership, right?

However, both options have their own set of considerations, addressing different financial situations and long-term objectives. Understanding the pros and cons between renting or renting to own can help you make important decisions that match your financial situation, needs, and goals.

There are several factors to weigh when deciding if you will opt to rent or rent-to-own a property. Here is a breakdown that will help you make an informed decision.

Renting or Leasing

Deciding between renting or leasing is a significant financial decision that requires careful consideration of the pros and cons. These are essential to think about as you make a choice that aligns with your lifestyle, budget, and future goals.

Explore the following key factors to consider when renting or leasing to ensure you’re getting the best value for your investment.

Pros

• Flexibility. Renting provides flexibility because you are restricted to a long-term commitment. When your lease expires, you will be free to relocate.
• Maintenance. Landlords usually handle maintenance and repairs, which saves you time and money.
• Lower initial payments. Renting usually has a lower initial cost than buying a property.

Cons

• No equity. Rent payments do not increase equity in the property. You will not benefit from any potential increase in property value.
• Limited control. You may have restrictions on customization or renovations, as you are living in a property you do not own.
• Rental fee increases. Landlords can raise rent, making the cost increase over time.
• No pets or children allowed. There are houses for rent that prohibit children or pets. If you own one or both, this is a disadvantage.

Renting is ideal for those who lean towards chargeability, whether for professional reasons, personal circumstances, or the desire to explore different neighborhoods before settling down.

Rent-to-Own

Exploring rent-to-own options is an essential step for those seeking a flexible path to homeownership. This arrangement allows you to rent a property with the opportunity to purchase it later, combining the benefits of renting and buying.

Rent-to-own is especially appealing if you’re not ready for a full down payment or need time to improve your credit. As you consider the terms carefully and understand how it aligns with your financial goals, you can determine if this option is right for you.

Discover why rent-to-own could be the stepping stone to achieving your dream of owning a home.

Pros:

• Ownership. Rent-to-own agreements allow you to work towards homeownership while living on the property.
• Lock-in purchase price. Some agreements let you lock in a purchase price at the beginning, protecting you from potential increases in property value.
• Stability. Having a home of your own allows you to feel secure in the knowledge that you can stay there for however long you would like. If the time comes when you need or want to move somewhere else, you can even decide to sell it or rent it out.
• Investment. A house is an investment that may appreciate in value over time.

Cons:

• Higher costs. A rent-to-own framework often comes with higher monthly payments compared to traditional renting.
• Risk of non-ownership. If you fail to meet the terms of the agreement, you may lose the option to purchase the property as well as a significant portion of your previous payments, depending on the contract.
• Limited Inventory. Rent-to-own properties may be limited in selection, as not all landlords or property developers offer this option.

Rent-to-own arrangements can be advantageous for individuals who aspire to own a home but require time to improve their credit score, save for a down payment, or stabilize their finances.

Considerations for Choosing a Rent-to-Own Property

While paying towards owning a home through a rent-to-own scheme is a huge commitment, it can be a valuable opportunity, even if you don’t have a large down payment.

But before entering into a rent-to-own agreement, it’s crucial to carefully consider several important factors. Here are key steps you should take when planning to pursue a rent-to-own property:

• Research and explore the neighborhood to make sure it’s safe, accessible, and accommodating to your lifestyle and needs.
• Compare and consider the total lifetime value of the property under a traditional financing scheme versus the total cost of a rent-to-own scheme. There is often a significant difference between the total costs of different payment schemes.
  • Traditional financing scheme: percent down payment + monthly payments with financing interest rate × number of months
  • Rent-to-own scheme: monthly payments × number of months
• Carefully review the terms of the agreement, including the purchase price, rent credits, and potential penalties for noncompliance.
• Ensure that the property is in good condition and free of any legal issues before signing a contract.

Key Takeaway

In the end, your financial readiness, long-term goals, and preferences will guide you to the right decision. If homeownership is important to you and you have the resources, purchasing a home outright may be the best option. However, if you prefer flexibility, a rent-to-own agreement may be a more viable option.

Looking for a home you can rent or rent-to-own? Explore Nobleland properties in La Nobleza Terrazas in Malate, Manila and The Exchange Regency in Ortigas, and check out our condo units for sale in the Philippines.