What’s the main difference between Rent-to-Own (RTO) versus affordable homes? Why not just build homes which are below RM200,000 so that most of everyone could afford to buy one? The difference is RM34,000. Okay, for those scratching your heads right now, that difference is the downpayment plus all the other fees. The image shows the calculation. The link in propertypricetag is here. Many of the households in the M40 could not come up with the downpayment necessary to buy a home of RM200,000 because the amount they need to prepare is RM34,000. Who’s the M40? Read here. T20, M40 and B40 This does not yet include all the other creature comforts like air-conditioner units, washing machine, refrigerator and perhaps a L-shaped sofa. There’s more actually. This is where the RTO comes in to fill the gap. So, the first gap it intends to fill would be the downpayment and all other fees which for a RM200,000 home may be RM34,000.
The second gap it intends to fill would be the ‘trust’ part. Banks would usually lend only to buyers whom they trust could repay their borrowings. Sound credit ratings. With RTO, the tenant could start showing the bank that they could pay their rental (mortgage) on a continuous basis without fail. This will build their credit trustworthiness. If the buyer is able to pay without fail for 2-5 years for example, it is quite safe to assume that the buyer would continue to pay for the home after the ‘monthly rental’ becomes a monthly mortgage.
Third gap is the ‘better buy now’ mentality. Well, it’s true in some sense because the cost of producing a home will increase with time. Thus, buyers who takes the RTO route today would secure the property price at today’s price instead of trying to save faster than the property price increase. By the way, there’s nothing to stop us from taking this RTO route and then renting out a room to a relative or colleague. The extra rental will come in extremely handy for renovation later once we convert the RTO into SPA.
In Malaysia, there are a few RTO schemes being offered today. One of it would be Houzkey. Read it here. Another one would be by PRIMA. Please read it here. Should one consider the RTO if one has the downpayment ready? I think one major reason why RTO schemes were made available was because of the downpayment issue. Thus, if one could save sufficient downpayment, one can proceed to buy even from the secondary market and not necessarily just the homes being offered under these RTO schemes. Do note that the most important consideration is whether the home is the one we want Happy renting or buying.
written on 13 May 2018
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