The RENT-TO-OWN approach to buying property

I call this approcah the Rent-to-Own or Lease option.

The beauty about rent-to-own is that it takes care of the challenge of the tenant. The dilemma about tenancy is that you can be a tenant in a house for thirty years, paying your rent as at when due. If by the thirty-first year you lose your job and cannot pay, the landlord does not care. You will get a quit notice.

You can’t get that house if you can’t pay, so all your thirty years of rent payment in that house has come to a waste. Let’s assume you are paying about 400, 000 per annum for thirty years. That’s amounts to 12 million and of course you know that property will increase in price as you go on so you would have paid nothing less than about 15 to 20 million naira.

Ordinarily if you had the 15 to 20 million at the beginning of that thirty years, you would have been able to buy a property. It’s because you didn’t have it, that’s why you would have payed rent. But rent only means that you are paying for nothing other than the daily usage. It is rent, it’s not purchase.

Here therefore lies the beauty of this one. This one is like you are paying for something, not a lump sum but you now can buy it or you are even paying for the ownership. It operates in two ways.

Rent-to-own operates this way: let’s assume the property is 20 million naira; a flat, three bedroom flat somewhere in Lekki. Three bedroom flat, 20 million naira. They may say that pay 1 million naira as down payment and pay 200, 000 naira monthly or however you want to pay it. Meaning if you are not paying monthly, you want to do 2.4 in a year or however. They may say pay this for ten years meaning that if you take this option, you would have bought the property for like 25 million naira. At the end of the ten years, the property is yours but if you are buying it as at that time cash down, pay 20 million. That is one

Lease option is this. You pay an amount as a lease option fee. It could be 1 million as well. They call it lease option fee. It’s not refundable. It is the amount that gives you the right to be able to buy it later. Then they will say that your option to buy will be exercised in five years time meaning that in five years, you will be given the opportunity to buy the property. Sometimes, the price you will buy it in five years would have been discussed and agreed on. Other times, it is when you complete five years that the property will be valued and maybe you will buy it at the valued price or at the first market price or at a percentage; a discounted percentage of the valued price.

You will then be asked to pay rent. Let’s assume the rent for that kind of property ordinarily goes for 1 million naira per annum, you may actually be asked to pay a rent of 1.2 or 1.5 per annum for five years. This rent as well is fixed, it won’t change for that five years. Then when it comes to that five years, you now purchase at the agreed price. Do you see the bit of the difference between them?

It’s still rent in a way but in this case, five years comes, ten years comes, whatever the lease period is then you are able to buy the property. In buying the property, you may now have to use a mortgage bank or whatever, but the aim is that you buy the property by that time.

You may want to ask: The rent that they are paying on the lease option, does it now come into play like the previous case or you have to pay the actual amount. What I’m asking is will it be deducted from the amount of purchase?

Well, all of that could be part of your negotiation of this five year price. You can say that by the fifth year, this rent that I’m paying is actually depleting the amount that I will eventually pay in that five years. That is the normal way to go about it. It depends on the figures here and your agreement because in some cases, what you pay is peanuts; what you pay monthly is peanuts as well. They are just waiting for you for that five years to now pay, but it depends on you, it depends on how it is structured but the lesson is that you can own these properties by way of exercising your right and by way of keeping it here.

Now I must say something, depending on what you’ve agreed, in some instance, if you cannot buy, you forfeit what you’ve paid. What you’ve paid now goes to serve rent in typical rent which would mean that you’ve been rewarded by your stay in the property for that period. That’s the major thing you must note in this type of option.

You would ask, does this exist in Nigeria? It exist everywhere in the world and even in Nigeria. Is it commonly practiced? No! But does it exist? Yes! I’ve seen developers that have even tried to push their products out this way and they’ve gotten buyers. Like I said, if you never ask, you never get. If you see properties that interest you, ask questions.

I will share a recent experience. There’s a property that we’ve been planning to get and we wanted the corner piece of that property and they told us the figure as at when it was selling. We were one of the first people that heard about the property when they started. In fact, as at the time they were telling us, they had five corner pieces and only just one had been sold. The condition was then that you do 20% down payment, after 6 months, you do another 20% and then at the completion of the property, you pay the balance. The project is estimated to take twelve months maximum and they have a record of keeping to time because they’ve done projects like that before.

You know the challenge we had? You have to always be conscious of this thing. We liked the property, we want to have corner piece but guess the mistake we made? Because we didn’t have the 20% right then, we were postponing till we will have 20% even though we knew the corner piece was limited in number and they kept telling us, “It’s going! Somebody else has indicated” until the corner pieces had gone and they were still calling to say, “Look, the corner pieces are gone. We even have about five left in the whole project, not corner pieces anymore. If you are interested, you better just indicate even if you are not getting the 20%. If it is 5%, even if it is 0%, come and talk and let’s see what is possible.” Do you know until they said that before I remembered that, “My God! But you would have told me this when the corner pieces were available!” But they needed not tell me. I should be conscious of it all the time. That’s why I said that if you don’t ask, you won’t know.

You see, when people or companies advertise things, that is their typical rate they are putting out there. Anything is negotiable. At least ask. let them say NO and you will know that it is a NO but there could be other ways they can give you some concession. If you have to ask, ask. I had no business for example losing that corner piece because we could have tied it down with whatever amount we could muster or put together but we didn’t ask.

You see some projects around and they say initial payment, 3 million, spread the balance over 34 months. Don’t be deceived! It’s not everybody that is buying that is keeping to that rate. Some people usually go there to say, “You said we should drop 3 million but what I have is 1 million. I am serious and interested in this property. If you tell me to drop it as I am here now, I will drop it.” And they go on to say, “I can do 100 for four years, I can sign up standing order now as I am here. Are you ready?” You will see that they will be ready and that is the truth so be conscious about those things. Be very conscious but they must be things that you can do and you are doing. That’s another option.

This is the concluding part of this APPROACHES TO BUYING PROPERTIES SERIES. I would love to hear from you.

‘Debo Adejana