Especially for people with little equity, the lease-purchase sounds very attractive. Nevertheless, there are some disadvantages. We show you the advantages and disadvantages of installment plan and what alternatives you can use.
The most important in short:
An installment plan is comparable to a car lease. At the end of your rental you have the possibility to buy the object at a lower price. you can choose the option of a classic installment plan, or the option model.
Often the offers for an installment plan are comparatively expensive. That is why financing a property with a bank loan is more advantageous.
an alternative of the installment plan is the building savings contract. You also pay into this monthly, but you have greater flexibility and more security.
How installment plan works? The hire-purchase model explained simply!
"owning your own stove is worth its weight in gold" is also how 96 percent of german tenants think and dream of their own four walls. However, not everyone has the necessary financial means for a home of their own.
Young families with children in particular lack equity capital for home ownership. That is why the installment plan concept was developed. In this case, you pay a down payment on the house with the help of the rent, and after an agreed period of time, you have the option to purchase the house at a discounted price.
This concept is similar to leasing a car, where you also have the option to buy the car afterwards at discounted rates.
Option 1 – classic installment plan
As a rule, there are basically two options when renting a vehicle. Thus, in a classic lease-purchase, the buyer must make a down payment of ten to 20 percent of the purchase price. He then moves in first to rent.
Normally the purchase of the property always takes place after a certain period of time. This is usually between 10 to 25 years. In this case, there is a clause in the lease that the tenant buys the property at a later date.
This possibility of financing a real estate is comparable with an installment payment. Should the purchase be obligatory, then you as a potential buyer must absolutely pay attention to the fact whether the paid rents are credited either partly or completely to the purchase price.
Possibility 2 – the option model
A second possibility of the lease-purchase is the option model. In this variant, it is up to the renter to decide whether or not to pay the remaining purchase price after a specified rental period.
If he does not want to continue with the installment plan, then he will of course receive his down payment back. in principle, this possibility sounds very tempting, but in practice it is sometimes different.
Of course, the tenant can express his interest in buying to the owner, but then it depends entirely on the owner whether there is a realistic chance of this happening.
As a rule, a purchase can only be made if the building is also divided into separate units. If this is not the case, then there is no possibility to sell the apartments separately.
It is different if the owner converts a multi-family house into owner-occupied apartments during the rental period with the aim of selling them, then the tenant automatically has a legal right of first refusal.
The renter could then enter on the same terms as the owner offers to a third party. However, a right to lease-purchase is not legally stipulated here.