R.T.O. (Rent to Own)
R.T.O. (Rent to Own) is when the Property owner agrees to extend / offer the OPTION to convert the rental to a purchase, within a specified period of time. Usually 2 (sometimes more) years.
Details of the concept are :
From the rent the % below would be adjusted, at point you decided to exercise Option to Purchase, & you would have to pay the balance amount (cash, mortgage either is fine), after deducting the proportionate RENT ALREADY PAID, based on % s below.
- Year 1 – 75%
- Year 2 – 60%
- Year 3 – 50% (where applicable)
If either party does not conclude, there would be a penalty on the party not concluding of say 3% to 5% of the Purchase / Sale price.
Basically you enter into a tenancy contract, with the flexibility for the TENANT to exercise an option to purchase the villa at a predefined price, and in such a scenario, 75% of rent paid in Year 1 and 60% of rent paid in Year 2 (or pro rata basis) will be applied towards Sale / Purchase price, if you decide to purchase the villa. If you do not exercise the option, you loose a nominal OPTION fee, usually 3 to 5% of the price for having the OPTION to purchase for 24 months. (Option fee has to be mutually agreed between Landlord / owner and tenant but ranges from 3 to 5% of the Pre agree Sale / Purchase price.
Both rental and Sale prices are asking price below, and negotiable, should the client be interested.
RERA does not have any specific guidelines on the same, but really its a contract between Landlord / seller and tenant / buyer.
Rent-to-own also known as rental-purchase, is a type of transaction under which a ready real estate property is leased in exchange for a yearly payment, with the option to purchase at any point during the agreement.
Advantages to Tenants/Buyers:
- Rent credits are applied towards your purchase price!
- Imperfect credit score? New in Dubai with no local banking record? The lease terms allows tenants to live in the property while taking the necessary steps to secure a mortgage, arrange finance etc
- It also allows tenants to lock-in a price.
- Tenants get to experience a house and its surrounding community first hand without making a huge purchase.
Advantages to Landlords/Sellers:
- Access to a larger segment of home buyers.
- A way to earn income instead of accruing costs keeping the property vacant whilst waiting for a buyer.
- The potential for a higher total sales price.
- Tenants/buyers that have invested in the property are interested in keeping it in good shape.
Paperwork for Secondary market sales :
A normal Tenancy Contract (Ejari), with a Addendum, which states tenant and LL agree to give the tenant to buy the property, within a specified timeline (usually 2 -3 years), and in such a scenario the specified % s above will be applied towards the rent already paid, and adjusted / deducted from the Purchase / Sale consideration (which is pre-agreed at the commencement of the transaction).
For Primary sales, the Ejari / TC, can have an addendum, which states the relevant T&C
For any further question or info, please email with Subject = RTO to firstname.lastname@example.org