Moje finance – June 2014

15.09.2018 / Matija Tomšič
A young couple tries out Lojze's house before purchasing itDejan wishes to test out an apartment before putting in an offer by renting it for a few years, but he cannot seem to find owners willing to agree to such conditions. However, we found Lojze, who has rented out his house to a young couple before selling it to them. This concept, called rent-to-buy, has revived the real estate market in various countries. Could it do the same for Slovenia?

Legal safety and possible traps of the rent-to-own concept

The rent-to-buy concept has become very interesting because of the lower number of sales of real estate due to the recession. Roni nepremičnine warns that the legal safety of both clients is extremely important in such sales.

These are the potential traps and dangers of the rent-to-buy concept:

  • the financial stability of the buyer must be checked,
  • the legal background and the physical state of the real estate must be in order,
  • all dates for the execution of the business must be set,
  • the amount of monthly rent, the percentage of rent subtracted from the listed price of the real estate, the final listed price must be set and written down,
  • due to the longer time of the execution process, the seller or the buyer is more likely to bail out.

An opportunity for sellers

We see various adds online where sellers are searching for potential buyers or renters at the same time for the same real estate. They go by the system: first come, first served. Such cases are particularly risky for renters because they would have to move out instantly if a potential buyer became interested in the real estate they were renting. Nina Hudnik from Roni nepremičnine believes that the »rent-to-buy« concept is a good opportunity for sellers who have been selling their real estate unsuccessfully for a longer period of time. The aforementioned agency helped Lojze get out of a mess a few years ago. »The seller gets to cut their expenses of the upkeep of the real estate in half, which lowers the risk of the real estate decaying and collapsing after buying empty for longer periods of time. The owner also has regular monthly inflows of capital,« adds the agency. Of course, there is always a chance that the renter will not be able to purchase the real estate or that they might do damage to the property, not pay their utility bills, etc.,« they warn.

Is the security deposit put down in advance?

If the buyer already has a developed financial plan, they can close the deal by putting down the deposit. In such cases, the deposit counts as a part of the final set price of the real estate, together with the percentage of paid monthly rents. The renting period in such cases should not exceed one year, explains Roni nepremičnine. We also found out that the renter loses the deposit if they pay ten percent of the deposit in advance and then step down from the deal.

How does one legally become the owner of a real estate?

»The legal standing for dealing with such businesses depends on the financial situation of the buyer, the prior conditions set together with the owner, the period of renting, etc. Sometimes it is best to only sign a lease with all reached agreements about the later purchase written in it,« says the agency Roni nepremičnine.

Which expenses pertain to the buyer/renter?

It is the buyer's/renter's responsibility to pay utility bills (electricity, water, heating, communal spaces usage, the estate manager, the property tax …) and a monthly commission fee to the real estate agency in the height of ten percent of the monthly rent (+ 22% VAT) each month, says /.../. Of course, the conditions differ between different agencies. In Roni nepremičnine, you pay one monthly rent (+22% VAT) when you sign the contract. If the buyer/renter steps down from the contract, there are no consequences.

For the first time in 1933

This concept was established in Great Britain with purchases of new builds, where the buyers had to fit certain criteria. It had to be their first time buying a real estate, their yearly income had to be between 21 and 60 thousand pounds and they were able to rent the real estate for five years maximum. »The real estate market in Britain has flourished and this concept is no longer necessary, nor popular. The banks are very careful with their involvement in real estate purchases and give out their credits with massive interest,« says Roni nepremičnine. Slovenia's market is only half alive and perhaps this concept has the power to revive it. It represents a challenge for the tired sellers and buyers with the lack of financial means.