Rent-to-own schemes are agreements that afford you the right to buy a home at the end of a pre-determined rental period, at an agreed price.
Rent-to-own schemes are agreements that afford you the right to buy a home at the end of a pre-determined rental period, at a price agreed before signing the agreement. In this scheme, you pay rent for a set period, with the option to purchase the property at the end.
You will then be paying a higher monthly rent than usual with the additional contribution going towards buying the house. For instance, if the usual rent is Ksh 50,000, a tenant with a rent-to-own scheme may pay Ksh 80,000 with the additional Ksh 30,000 going towards the payment of the house.
Rent-to-Own Schemes in Kenya have been around for a while. However, these schemes have historically been the preserve of Government Agencies such as Housing Finance Group, the National Social Security Fund (NSSF) & the National Housing Corporation (NHC). The models used by these institutions tend to favor civil servants.
Are you wondering if there are any Rent-to-Own Schemes in Kenya and if they are worth it?
If yes, let’s dive into the details.
1) First, are rent-to-own schemes the right option for you?
The scheme will work if you already know where you want to live. If you are already settled, then this is fine.
Consider if you have a reliable income stream as you will need to commit to paying a monthly amount for a long time. If your income is irregular, you might want to save a few months’ worth of rent before you sign a rent-to-own agreement.
2) Why are Rent to Own Schemes so Risky?
Rent-to-own schemes are not always beneficial, so you should be careful when you are considering this option.
The major downside of taking rent-to-own schemes is that you do not own any part of the home until you have made the final payment. As you do not have a title, if you’re unable to complete all payments, you can lose your hard-earned money already paid.
With rent-to-own schemes, the costs and risks are very high with very little legal recourse available if something does go wrong. Not only will you be paying an additional 25%-50% on your rent, but you might lose everything saved towards your deposit if something goes wrong.
Additionally, even if you pay the rent plus option-to-buy fees diligently, you shall need to secure a mortgage at the end of the rental term. If you're not approved, you might not get any payments back.
3) If you can lose your money, why choose a Rent-To-Own scheme in the first place?
There are several advantages of owning a home using the rent-to-own scheme
Benefits of Rent-to-Own Schemes
a) If you agree on the future purchase price when signing the agreement, you benefit as the house may be worth more than the agreed purchase price. This is because the purchase price remains the same even if the house appreciates.
b) Rent-to-own schemes allow you to live in a home and neighborhood before committing to buying. This allows you to learn about any potential issues before it’s too late.
c) If you are unable to get a bank-approved mortgage, it’s easier to still get your dream house due to easier requirements to join.
Disadvantages of Rent-to-Own Schemes
a) You may lose out on money if you choose not to buy the house.
b) If you are unable to obtain a mortgage, then you may not be able to buy the house. You also lose your right to buy the property if you can't get a loan.
c) As you do not own the house yet, you have little control over any modifications to the house.
d) If the landlord/seller of the property has their assets seized, you may not be able to get any of the money already paid.
e) If your plans or circumstances change during the Rent to Buy period, you may be unable to move or risk losing money. This is because Rent to own comes with a long-term commitment.
f) Rent to Buy isn’t available on every property on the market.
g) If you buy a property as a rent to buy it may not always be easy to sell compared to a property that you buy outright.
h) You will have no legal claim on the property until you have successfully purchased it in full.
4) Thinking that rent to buy is a good option for you? These are some of the ongoing rent-to-own apartments in Kenya.
a) The Crystal Rivers Development by Safaricom Pension Fund rent-to-own financing allows potential homeowners to live in their houses as they pay over 15 to 20 years without taking up a mortgage.
b) The Green Zone is a residential complex with 1, 2, and 3 bedroom exclusive units in the serene area of Thindigua, Kiambu road. Approximately 5KM from UN Avenue.
c) Kenpipe Gardens, Kitengela, developed by The Kenya Pipeline Company Limited Retirement Benefits Scheme (KPCRBS) with a maximum of 20 years repayment period as you occupy your preferred house.
d) Nalani homes have Rent-To-Own 2 bedroom Apartments with an ensuite master in Ruaka
e) Rama homes provide you with a Rent-to-own Ksh.75,000 per month with a 6-year payment plan at 0% interest. Deirah Heights 1st Parklands is currently at the 1st-floor level. Book a unit in our newest project Gateway Park in Syokimau.
5) How to start the rent-to-own process
Rent-to-own schemes come with lots of risks. If after careful consideration, you are convinced they're the right option for you, bear in mind that you will sign one of two types of legal agreements.
a) Right to Buy Agreement
Right to Buy Agreement require you to pay the homeowner an initial fee and then continue to pay rent every month. These fees are paid throughout your lease and go toward your down payment (if you decide to buy the home). The fees give you the right to buy the house.
With this agreement, you do not have to buy the house. However, you will lose the money that you paid over and above the rent.
b) Lease-Purchase Agreement
A lease-purchase agreement works in almost the same way as a right-to-buy agreement. You still lease the home for a few years and put a certain percentage of your rent toward a down payment to buy the home.
However, when you enter a lease-purchase agreement, you must buy the home at the end of the lease.
When it’s time for you to purchase your home, you’ll apply for a mortgage just like any other home buyer.
Start by finding houses that have been offered for sale using this option. Given there are several things that can go wrong for both renter and seller, the supply of rent-to-buy properties is fairly limited. This is why finding a suitable scheme may take longer than a traditional house hunt.
II. Conduct Due Diligence
This step is important because entering into a rent-to-own agreement effectively ties your future living arrangements to your seller's financial circumstances. If they default on their mortgage, the bank could repossess the home, leaving you out of pocket and without a place to live.
Do detailed research on the seller or developer and find out everything you need to know about the development before you commit to signing the contract.
III. Sign an Agreement
Before entering into a rent-to-own agreement, make sure you seek independent legal and financial advice. Ask a legal expert to draft or review your contract so that the right terms are included.
A lawyer will help you understand your rights and obligations. You need to negotiate on some points before signing or avoid the deal if it’s not favorable enough.
IV. Keep up with your rental payments
Once you've signed on the dotted line, the onus is on you to keep the deal alive. Draw up a budget and stick to it, as missing a payment could see you and your family turfed out on the street.
V. Secure a Mortgage
After the end of the rental period, you'll need to take out a mortgage so that you have enough money to pay for the home. Once you have paid all the costs, congratulations on becoming a homeowner.
Rent-to-own schemes can be a good avenue for home ownership. However, there are several risks and disadvantages to this approach. You need to have a good plan and make proper planning before you sign a rent-to-own lease. If you don’t do this you might lose money. If you are not sure where you intend to live in the next 10 years or settle down, you might want to avoid rent-to-own leases.