When buying an apartment or a house, the buyer should find a reliable developer in the UAE. The situation is different when you want to rent a property. In the UAE, there is a rent-to-own scheme. It is a special type of real estate purchase, when payments for the rental of housing are a substitute for the initial payment. The use of this payment type allows investors to avoid the need to make an initial payment, which in Dubai is equal to 25% of the price for real estate. An undeniable advantage is that the new owner begins to live in his house even before the actual payment of the purchase.
Rent-to-own: how does it work
Both parties, the buyer and the seller, conclude an agreement under which the renter gets the right to buy an apartment (or house) for several years at the current market value. At the same time, the renter becomes the recipient of the right of residence during the term of the agreement. The parties conclude a rent agreement, which indicates the value of the property at the time of conclusion. This cost will ultimately be the price for real estate when buying and cannot be revised.
It happens that the lease agreement is concluded for 3-4 years, after which the renter can buy a property or refuse to buy it. If the purchase takes place, then all previously paid rental payments will be considered an initial payment for the apartment.
When using a rent-to-own scheme, the amount of rental payments goes above the market average. Besides, a new resident must deposit 3-5% of the market value of the apartment.
Two types of documents are used to execute the transaction:
- Purchase option. The investor must pay the option price in exchange for the right to buy a property at a fixed price after a certain number of years. Until the end of the option period, the buyer can rent this apartment. If the option holder refuses to buy it after the appointed date, the option price and the payments made will not be refunded.
- Purchase and sale agreement. This type of arrangement allows you to apply more flexible conditions. For instance, additional conditions for refusal of rent and the possibility of partial refund of the payments made can be added to the agreement of sale, and the real estate price is recalculated in accordance with changes in the market.
After the end of the rent term, the financing of the real estate purchase can be carried out at the expense of cash, applying for installments to the developer or getting a mortgage. In addition, the renter can extend the agreement.
The pros of this scheme include:
- Actual purchase without down payment. Instead of paying 25% at once, a real estate buyer can extend payments for several years by renting a property.
- There is no need to have a perfect credit score. The credit rating in Dubai is an important factor according to which a mortgage decision is made. It also affects the amount of the down payment, and if your financial situation is considered insufficiently satisfactory, there is a risk of getting a mortgage on less favorable terms, including a large percentage for the down payment.
- 3. The most efficient use of the lease. There is no need to spend money on rent and simultaneously save money for future real estate: this scheme combines immediately comfortable living in a future apartment and saving money.
Our assistance in buying real estate in the UAE
Find out as much as possible about all the possibilities of buying real estate in the UAE and get professional help in finding housing in Dubai. There are details on the official website – https://emirates.estate/.