Rent-To-Own: Is This A Good Option For You - Real Estate Buyer'S: Fill & Download for Free

In the real estate investing business, rent to own – also known as lease option or lease to own agreement – is a binding agreement between the real estate property owner (seller) and the tenant (buyer) in which the buyer is allowed to keep renting the real estate investment property for a set time period (usually 1-3 years) before actually purchasing the property and claiming ownership.Upon signing the contract, the seller can’t place the real estate property back on the market for sale during the set time period and agrees to sell the investment property to the tenant when the duration of the contract expires.Advantages of this strategy:Option Money Fee: This is a one-time, non-refundable fee that the tenant pays in advance which is beneficial for the investor in case the agreement is broken or potential buyers change their minds. Additionally, this fee allows the property owner to make a profit when the tenant first moves in, then enjoy the monthly rental income (which is higher than in traditional rental properties – another benefit!).A Guaranteed Sale: As sellers benefit from rental income for the duration of the lease option, they also guarantee that the investment property won’t go vacant during that time. Moreover, they are ensured that the property will be sold which gives them a sense of security for their real estate investment.Less Risky: Since tenants are going to purchase the real estate property that they’re renting, naturally, they will start treating it as their own home (because it will be). This means tenants will contribute towards repair and maintenance costs on the investment property, and they’ll be far less likely to cause damages.Real Estate Agent Aren’t NeededA typical rent to own strategy does not require hiring a real estate agent to find a buyer for the real estate investment property, which eliminates the extra fee that would have been otherwise paid to the agent.Disadvantage of this strategy:The only disadvantage is that if the potential buyer decides not to purchase the investment property, then the property owner will have to start over the process of finding someone to sell the property to. However, this also affects the buyer as he/she will lose all money paid until that point.Real estate investors consider a rent to own option a “win-win” if both parties stick to the terms and conditions of the agreement throughout the set time period and the lease option was not broken. For more information on anything real estate related, make sure to visit Mashvisor’s blog section which includes hundreds of blogs, guides, and tips for real estate investors!For more on rent-to-own, read this: What Is Rent to Own? Everything You Need to Know in One Blog

Getting into real estate without any initial capital is not impossible but not easy either! A real estate investor must have a clear vision of what he/she wishes to achieve and therefore take steps to get it done. So, we’ve researched and collected a few ways you can get into real estate investing with little or no money. They are listed below:Real estate partnershipsPartnerships are a great method to start investing in real estate with no money. A real estate investor can find a partner to help him/her through the first few investment properties. partnerships don’t necessarily have to be 50% with each real estate investment properties. A real estate investor and the partner can decide on eachother’s value to the operation to come up with an agreeable figure!LeveragingUsing leverage in real estate is an inescapable fact that real estate investors have o go through. To be exact, leverage is what makes real estate investors go for bigger real estate investors. Basically, when you leverage, you are using the lenders money to make a bigger and higher in return investment.Real estate wholesalingReal estate wholesaling is not the sexiest real estate investment field to go for. On the other hand, for those who are good at it, boy, are they good? A real estate wholesaler gets an undervalued property under contract then spends all the energy in finding a buyer for the property and assigns the contract to the new buyer!Rent-to-own propertiesRent-to-own properties are great for beginner real estate investors with a very limited source of money. By renting a place, you are also buying the right to buy it. In any case, the tenant either gets a mortgage or pays in cash in order to buy the investment property.Seller financingSeller financing is not a very common way to finance investment properties. In recent years, real estate investors are becoming more and more aware of this investment strategy. In this case, a seller is the financier of the deal and the seller typically pays in installments to the seller. Read this blog post to learn more about investment property financing options: Discover the Most Popular Real Estate Financing Methods.

India is currently witnessing a real-estate bubble.A bubble, in economic jargon, is a state where the market price of an asset (property, commodities, etc) is many magnitudes higher than its intrinsic value.Two of the most popular examples of such asset bubbles are:Dot-com bubble: Everyone was hyped over the phenomenal growth of the internet with everyone starting their own internet company,1997 Asian financial crisis: Though the crisis officially started with the collapse of the Thai Baht, the seeds were sown years earlier with the huge inflow of 'hot money' mixed with corruption that led to the accumulation of inefficiencies in the system.The reason there are such bubbles is that markets are never perfectly rational in the real world. A market is the sum total of people in it, and people are irrational - they cannot make perfectly logical decisions, they are bound by fear and insecurities, and are prone to speculation and the Bandwagon effect.Many people still refute the existence of any such asset bubble. However, it can be seen clearly.For example, the flat I have rented is in an area where average price for a 1BHK is around INR 1.5 Cr. The rental cost is around 30k/month i.e. 3.6 L per year. Hence, the owner gets around 2.4% return annually on the property. However, the rate of borrowing (for property loans) is around 10-14%.So, if a person was to take a loan, he would be paying 10-14% while only getting around 2.5%. In case of an market in equilibrium, these two should be almost equal.There are many causes for the "Great Indian Property Bubble" including, but not limited to, high M3 growth rate, growth disparity, indiscriminate lending from banks, tax breaks etc.#1: Increasing M3 money supplyFrom: The Reality of the Indian Housing BubbleIn the Indian context, there is strong evidence of an unprecedented growth in money supply where one has witnessed a double-digit year-on-year growth rate of broad money supply or M3 (see chart).Liquidity has to go somewhere. In the case of India, this liquidity seems to have gone into the real estate market creating a false boom. A closer look at India’s real estate price data makes this more evident.[Note: A 5x–6x increase in housing prices in under a dozen years is nothing short of spectacular when compared to other cities across the world. What is more astounding is that the actual price rise in Indian cities is likely to be higher than the reported figures suggest given that it is widely acknowledged that the official housing prices are under-reported for computation of tax gains – and this is something that the government is attempting to remediate by reforming the stamp duty transactions in states.]We can see clearly that the rise in housing index is closely correlated with the rise in money supply.#2: Tax breaks and the impetus to black moneyFrom: India’s Real Estate Bubble Market set for Stagflation in coming 5 years, if not outright BurstReal estate in India allows retailer to leverage their savings and get tax breaks. This has artificially boosted price along with massive amounts of black money. Most of the corruption money in India (Saradha scam, FTI scam etc.) gets parked into real estate, as it can absorb massive amounts of money without too much scrutiny. Most consumers have almost no right, as the developers have huge power due to political and police patronage. There are one sided agreements and construction quality is quite pathetic. There are a huge host of taxes and duties that buyers have to pay, along with hefty registration amounts. Parking is also an extra payable which beats me. Where would a consumer park his car – on his head? Governments even charge apartment buyers for providing infrastructure (utility, roads etc.). Is that not supposed to be why consumers pay normal taxes.#3: Inequitable growthThe 6 metros of India house around 8-10% of the total Indian population. If you need a job in Finance, you have to be in Mumbai. If you are a software engineer, chances are that you will end up either in Bangalore or Hyderabad.The majority of companies and the largest chunk of start-ups are targeting the metros. As a result, everyone is flocking to these cities. Demand goes up, but there is limited space to develop more houses. Prices go up.I am hoping that when (and if) the "100 smart cities" proposal actually comes to fruition, this disparity will be alleviated, at least to some extent.All of the above, coupled with the fact that loans are easily available and disbursed and that the interest paid on property loan is tax-deductible, made it a hot investment option for people.People didn't mind the astronomical prices nor the fact that the rental revenue would be low. Everyone was of the view that prices would keep rising and that they would finally exit with a huge amount of capital gain. People started buying multiple properties, treating it as a safe haven like Gold.However, the good news is that the bubble is slowly fizzing out, at least in some places.From: Is the real estate market headed for a crash?In the April-June quarter, house prices fell in 22 out of 26 cities tracked by the National Housing Bank's Residex (residential index) compared with the January-March quarter. It is only the short-term scenario. Despite adverse conditions, property prices in most cities have been holding ground for a long time now. For instance, over one- and two-year periods, the index shows a sharp rise in property prices in Delhi, Mumbai and Bangalore.From: Indian Real Estate Bubble is starting to burst - ReportThe Indian Real Estate sector is starting to unravel with prices having fallen 7-18% in India’s large cities over the past year, Ambit Capital said in a report.Indiscriminate construction without much though to demand and its trajectory in most places has led to the accumulation of huge inventory of unsold houses across all major cities.As soon as any announcement is made by the government regarding development, property developers and brokers rush to buy property, construct buildings, and claim ownership over brokering. In the race to finish first, new properties and complexes are springing up like spring bunnies. And due to the inherent red-tape in the administrative machinery, a lot of these initiatives do not see the light of day. Suddenly there are no takers for the newly constructed residential behemoths.Graph from: LivemintThis can also be seen in Mumbai where a lot of people I talked to said that price of real estate is going down to the levels it was at 3-4 years back.P.S. Not a good time to invest in real estate. Hold on till the end of 2016 to allow the market to correct itself.