On The Streets Of Sydney

Recently I have received an email from a distant relative who came to know that I started a career as a real estate agent in Sydney (and channeling investments to Kuala Lumpur, Malaysia). Here’s the message from Dave Hui from Hong Kong -

Cheng, my parents have been pushing me to buy an apartment for the past two months. They are pretty conservative, I must say. Shall I take the plunge? I can’t really afford to buy, and am renting now in Causeway Bay (a room). What do you think?

Well, here’s my attempt to answer Dave -

Indeed, these days, more and more options are presented to potential home buyers. There are a lot of good choices, houses, apartments, condos like one from KLCC (where I am specializing in). While renting seems like a very temporary option for most people, an outright home purchase can be too heavy for some, especially those who are not earning enough to pay for the high monthly mortgage fees. If Dave, neither of these two options work, there’s always the rent-to-own or lease option for everyone else.

But is it really for everyone else? The rent-to-own option, basically and as its name implies, allows for you to pay in a monthly rent where a portion of the rent fee goes to the equity of the house. That said, your future down payment will likely be in a lesser amount compared to when you purchase a house outright. Think about that, Dave!

Good and Bad Sides… Here’s What To Know

But as with anything, there are good sides and bad sides to it (here’s a good guide from RealtyStore which goes into this topic with depth). And it is with careful consideration that you go through each of its pros and cons before jumping into it. For instance, depending on your agreement with the home seller, you may have to pay for the original price tag of the house, no matter what the market trends are.

Dave, you’d be lucky if the market is bad for buyers then you’d get the house much, much cheaper, but you wouldn’t very much like it if everything else is cheap and you stay with its non-fair market price. And even when you do decide to bail out of the lease option at the end of the contract duration, there is no way you can get back the extra cash you put on the rentals.

So before you dot the I’s and line the t’s on your rent to own contract, here are some pros and cons to the less popular lease option:

PROS

• You get a much longer time to save up for a house without fear of losing it before you can make enough for the down payment.
• You get to actually try out the house and know how it feels to actually live there before you pay for it to become your own.
• Your monthly rents don’t go to waste as it helps you get closer to owning the house month after month.
• If the house’s value appreciates overtime, you don’t have to worry about having to pay it in its appreciated value but only in its original outdated price tag.

CONS

• The house might depreciate in value but you’d still have to pay for it in its much higher original price.
• You may fall out of love with the house and bailing out of it meant not getting back your cash.
• You’d have to pay a much higher rent, and you have very little control on how much of it would go to your lease option fund.
• You’ll lose everything you’ve invested on it on your monthly fee if you start losing the capacity to pay for it, without the option for refinancing since the contract is only between you and the homeowner.

This is my incidentally my first post and I hope everyone will like it (Dave loved it). Please come back often!

Thanks,
Cheng