When selling your property, one of the biggest hurdles is to find a buyer with an approved home loan. The same applies for a buyer - finding a bank that is willing to provide a mortgage loan.
“However, an innovative property structure and finance product now makes selling and buying a property much easier,” says attorney Meyer de Waal, creator and architect of Rent2buy.
He says property buyers in Johannesburg and Cape Town can now search for any home priced from R400 000 to R1.8 million in any one of the two cities, contact Rent2buy, and move into their soon-to-be home within six to eight weeks.
This solution is also available to property sellers who want to achieve a faster selling process.
This is all possible thanks to a South African-first financial product in the form of two Rent2buy concepts.
The first is where Rent2buy Finance purchases the home you want to buy, enters into a fixed 24-month rental agreement with you, and allows you to secure finance 24 months later to buy the property. No part of the rental is used as ‘savings towards a deposit’ as the purchase price is frozen for a 24-month period. This may be the preferred route for a property seller, says De Waal.
The second Rent2buy product, Rent2buy Standard, builds in a “forced” deposit on the home into the rental amount.
How does Rent2buy Standard work?
“A Rent2buy Standard tenant pays rental that is equal or close to a bond repayment at prime, based on the value of a property,” says De Waal, who notes that on a R1 million property, the Rent2buy Standard rental would be R9 800 per month. “This is more than one would pay for a ‘normal’ rental on a R1 million property, usually in the region of R7 000.”
“The reason why the Rent2buy Standard purchaser pays almost R2 800 more per month is to get him or her accustomed to a repayment that is close to a bond repayment. It tests their affordability during the Rent2buy, period and is an actual, ‘real-time’ affordability ‘stress test’,” says De Waal.
He says a rental product such as Rent2buy is a breath of fresh air in a market where banks have cut back on granting home loans to anyone who has a less-than-perfect credit record, and no equity to bring to the negotiation table, with the effects of the global credit crunch still fresh in the memories of many financial institutions.
“With about 50% of home loans declined, it means that almost 200 000 people who want to buy a home each year are declined that opportunity,” says De Waal. “It will be great if we can help just 20 000 of them to achieve their dreams.”
“The benefit for the Rent2buy Standard purchaser is that we negotiate with the seller that the extra rent that is paid is credited towards building up a deposit for the buyer,” says De Waal.
But is asking a tenant an ‘inflated’ rental on a home they want to Rent2buy not unfair? De Waal says he doesn’t think so, in fact he believes it’s really the only way to prepare aspirant home buyers for their homeownership journey.
The Rent2buy tenant steps into the shoes of an owner while ‘testing’ homeownership. “We also provide debt and credit scorecard improvement, budget and affordability improvement services, homeownership education, a comprehensive guide to homeownership and budgeting tools during the Rent2buy term,” says De Waal.
“The benefit for the Rent2buy Standard purchaser is that we negotiate with the seller that the extra rent that is paid is credited towards building up a deposit for the buyer,” he says. “If we look at the R1 million repayment of R9 800 per month, and the market-related rental of R7 000, then the difference of R2 800 would go towards the deposit savings account of the purchaser. After 12 months, a deposit of R33 600 would be in the deposit ‘kitty’.”
The seller is far from an afterthought
But what’s in it for the seller? Why would a serious seller take their home off the market for up to 24 months? De Waal says this is why the tenant who enters into the agreement, and pays the higher rental, has to make the agreement worthwhile to the seller.
“We have to dangle a ‘carrot’ in front of the property seller - why would they tie themselves to a Rent2buy agreement and stay out of the property market for a 12- to 24-month period? We have to give the seller a better cash flow incentive - otherwise there is little to no reason for them to enter into a Rent2buy agreement,” says De Waal.
De Waal says he conceptualised the Rent2buy product using existing legislation and a ‘standard’ type of deed of sale agreement, with a two- to three-page Option Agreement and a lease agreement.
“The last document is the one the Rent2buy buyer will sign when exercising the right to buy at the end of the term, again a one-pager document,” says De Waal. “There is no catch, but the uniqueness lies in the support process that follows the signature of the Rent2buy agreement.”
This concept of Rent2buy is great on paper, says De Waal, but “although we have assisted a fair number of property sellers and buyers over the past 11 years on this Rent2buy concept, the problem has always been that most sellers want their money fast - and they are not prepared to wait 12 to 24 months for their money”.
Rent2buy Finance can be a speedier way for property sellers. Buyers now have an easier way to secure their dream home, and sellers no longer have to wait with the introduction of Rent2buy Finance.