Secure a Home long-term, what can you do to occupy a home to your terms? How to use a lease or fixed tenancy to make long-term plans and reduce housing costs?
Secure a Home Long-term
Lease Options or Longer fixed-Tenancy
Long-term occupancy – is the tenancy law in your favour?
Life is about keeping things in balance like health and work, income and expenses, and fulfilling dreams and making sacrifices. It is when the balance is not right stress takes over, the wheels seem to come off everything and emotions just happen to us, don’t they?
Letting your emotions drive your life is like calling for problems. Advertising is a good example how people get trapped into buying things not needed or signing expensive hire-purchase contracts. My point here is, doing something because of fear to miss out or somebody told you so—that are the most common reasons getting into troubles. That practice is very common when it comes to properties. Remember life is a long-term affair and financial decisions make only sense with a long-term view.
The illustration of paying for a 400k mortgage in 30 years 558k interests makes it very clear who the winner is, as the total payment for house and finance would be more than one million Dollars not included the housing costs for repair, maintenance, rates, levies, insurance etc (another related view about choosing the right finance).
Suffice to say in these two given examples, I am a supporter of home ownership, but the timing for making financial decision must never been made on emotions. Why would you buy into a lifestyle you cannot afford today, live in slavery off the borrowed funds and own finally “something” that is less you have paid for? Yes, hearing you itemising capital gain, land value and alike—well, the answers will differ if you talk about lifestyles, investments or ways to cumulate wealth (check the blog posts library)
Now the question is—what can you do about it, how to bridge the time for making good decisions, rent, lease or buy? Well, it depends on your future plans. You might be focused on career or income and prefer renter’s flexibility to follow job opportunities. Or plan to settle, save for a deposit, or look for securing a home to live in and wait, time will tell.
The tenancy law provides long-term protection if you sign a fixed-term tenancy, which cannot be terminated by one party. That would provide stability to bridge time and circumstances. But if you want to secure a long-term interest in a home you like to live in you might consider an option contract.
Fixed Tenancy or Lease Option Contract?
Both arrangements serve different reasons. A fixed-term tenancy is still a tenancy and the landlord can sell your rental with you as tenant. A new landlord—that is not really a relief if you would consider to stay permanently in this home.
An option contract makes the difference. These types of contracts used in real estate give you the right to control a property for an agreed upon price within an agreed time frame. The “right” means you do not need to, but nobody else can buy the property as long as you hold an option.
If you combine the option contract with a lease agreement (Lease-Option Contract or Lease-Purchase Contract) that would offer you to move into your house on day one but purchase the property only if everything goes to plan during or at the end of the lease. This type of agreement is adaptable to unpredicted changes in life and for both parties a win-win situation.
Quality rentals for lifestyle renters are hard to find and for holding them I would strive for a lease-option agreement to secure a long-term interest with the option whatever you want to do after the term (renewal, purchase, etc). Otherwise, if you don’t have control you take the risk of losing your home under the Residential Tenancy Act by a given 42 or 90 days notice.
Whatever road you choose to go, when it comes to money, make sure you plan and make long-term decisions. Be mindful when signing up for short-term tenancies, which are more expensive because of higher rents (to cover more wear and tear, vacancy rates) and reimbursement and costs for moving households.
Risky Rent-to-Buy Contracts
When searching the Internet for Rent to Buy the sheer volume of information and misinformation coming at you is literally hard to verify unless you actively spend some time for research on it.
Note, different countries like US, UK, AU or NZ have different property laws. Do not make decisions blindly and take legal advice when being not certain.
Many different Rent-to-Own products (similar to hire-purchase) are on the market, they might work in some cases but the general problem is, who can predict the future 10, 15, 20 years ahead? Reports in the media about Rent-to-Buy scheme casted long shadows across the industry but not saying what the faults in these agreements really were.
Option agreement a risk management strategy
A Lease-Option Contract is not a “rent-to-buy” agreement with related potential pitfalls. Use option agreements to meet your objectives in a win-win situation for all parties involved. To make that happen for you be clear about what you offer as consideration fee, time frames and what is the price you would pay to settle or liabilities when walking away.
Regarding the exit strategy be honest with yourself. Not all human uncertainties are covered by any contract, so—have an exit clause in place.
The property owner carries the financial risks. If you have the long-term benefits, you will reimburse the other party for parts of the risks (consideration fee). To keep it in this way I always require a consultation with an attorney to make sure the conditions in the contract are beneficial and understood.
Option contracts in real estate are the most misunderstood products and often confused with rent-to-buy contracts. Media reports show that media commentators tend to be one-sided and lacking on knowledge to differentiate between agreements
Long-term agreements are good practice to manage risks in life. When using a Lease-Option Agreement all terms are negotiable and the limitation of the RTA (Residential Tenancy Act) does not apply. If you found a home and a trustworthy owner who wants to sell in future, Lease-Options could be the perfect way for both parties.
If you think about the benefits of long-term decisions for your lifestyle, you could set up a finance saving plan like paying off a mortgage, re-investing the returns towards your goals—everything is possible when thinking outside the box. Good luck.
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Klauster Properties Ltd - Renter’s Blog
Rent or Own - Decision at some stage in life?
Renter’s Blog lead to a real person, IT professional, investor, landlord and business owner with interests in sharing experiences. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
Confession: I have been a happy renter for more than 25 years before buying a family home and later becoming involved in property investments and developments.
I used to live in apartments or rental homes, worked in many different countries and experienced different housing standards and renting cultures. I would love to see a social and legal frame work around housing policies that supports renters and landlords alike.