How does the Rent-to-Buy Scheme work in Tenerife?

[sandra]

Hi can any forum member give me any advice on how the rent to buy scheme works

Do I have to put an amount upfront or just pay rent.

Cheers

Sandra x

[YOUNG GOLFER]

Some will ask for a Initial deposit (non refundable in a lot of cases): 5.000€ 10,000€ or even more.....just be careful what you sign if unsure of anything then please ask on here.

But please remember if you need a job to get a mortgage then you will know it's tough right now to find one with a contract.....again please be careful.

But just by putting in the words (rent to buy in Tenerife) in google will bring up some sites to read.

Good luck.

[CIM]

As YG says above and he has seen some people do this the wrong way...!
There are some legitimate offers around but you really need to be careful.
Most people simply dont do their sums when it come to rent to buy - here´s an example assuming a buyer has 5,000€ to start with:

Purchase price: 200,000€
Costs on top (around 11%) of purchase: 22,000€
Mortgage availability for fiscal residents: 80% of purchase price or valuation, whichever is the lower so in this case: 160,000€
Total cash required to complete purchase: 62,000€ (40,000€ for the 20% deposit and 22,000€ for the costs.)

So, you sign up, pay 5,000€ and start paying the rent of 800€ per month over a 2 year contract. At the end of the two years you have accrued 19,200€ in rent towards the deposit plus the 5,000€. Total = 24,200€.

Hmm, problem is that the bank are only going to give you 160,000€. Total cash required was 62,000€ and you have only paid 24,200€. A total shortfall of 37,800€!!
If you want to save up the shortfall over 24 months then you need to put away another 1,575€ per month - thats in addition to paying the 800€ rent.

The major problem with most of these types of offers is that the term of the contract is is woefully short. I would be more than happy to market these sorts of deals if owners were happy to offer longer terms but they rarely are.

Other things to watch out for:
Ensure the deposit (if any) is 100% attributed to to the purchase
Ensure that 100% (or very close to 100%) of the rent is attributed to the purchase. I have seen them as low as 50% meaning in this example only 400€ a month would be coming off the price.
The issue with doing these over the longer term though (5 years for example) is that you simply dont know what your situation will be so far as employment/earnings and therefore dont know if you would get a mortgage when you need one. Or whether the property will still be worth what you are paying - if not, then the valuation will be too low and the bank wont lend you enough money.

In this market, very, very few residents actually qualify for borrowing as they either have a 16 hour a week contract meaning their earnings aren't high enough, have most of their earnings paid in cash, or work without a contract and are paid all in cash (same with a lot of autonomos - they usually dont declare much.)

If you have a good nomina/la renta, an indefinido contract (or your own business) and a decent sized deposit then it can be a good option but only if the numbers are going to work for you.

[YOUNG GOLFER]

Thanks for the PM Sandra just can't reply my end but stick on here and give more details we will try and give you some good advice.

YG.

[timmylish]

Surprised that in this sort of thread that no-one has mentioned the Government backed Viviendas Social. A company by the name of Visocan handle a couple of such properties (new builds always) here in San Isidro, Los Abrigos and elsewhere.tel.no. 922 101 701 in Santa Cruz. Very good Spanish is normally required when enquiring as NO English or other foreign languages are spoken at all.

[Cruise]

Normally rent to buy....

eg Selling price 150,000E

You rent for 1 year at 750E per month = 750E X12 = 9000E

So after one year to buy the property, all the rent you paid is deducted from the selling price.

Selling price after 1 year is 150,000 minus 9000E = 141,000E

[fonica]

As YG says above and he has seen some people do this the wrong way...!
There are some legitimate offers around but you really need to be careful.
Most people simply dont do their sums when it come to rent to buy - here´s an example assuming a buyer has 5,000€ to start with:

Purchase price: 200,000€
Costs on top (around 11%) of purchase: 22,000€
Mortgage availability for fiscal residents: 80% of purchase price or valuation, whichever is the lower so in this case: 160,000€
Total cash required to complete purchase: 62,000€ (40,000€ for the 20% deposit and 22,000€ for the costs.)

So, you sign up, pay 5,000€ and start paying the rent of 800€ per month over a 2 year contract. At the end of the two years you have accrued 19,200€ in rent towards the deposit plus the 5,000€. Total = 24,200€.

Hmm, problem is that the bank are only going to give you 160,000€. Total cash required was 62,000€ and you have only paid 24,200€. A total shortfall of 37,800€!!
If you want to save up the shortfall over 24 months then you need to put away another 1,575€ per month - thats in addition to paying the 800€ rent.

The major problem with most of these types of offers is that the term of the contract is is woefully short. I would be more than happy to market these sorts of deals if owners were happy to offer longer terms but they rarely are.

Other things to watch out for:
Ensure the deposit (if any) is 100% attributed to to the purchase
Ensure that 100% (or very close to 100%) of the rent is attributed to the purchase. I have seen them as low as 50% meaning in this example only 400€ a month would be coming off the price.
The issue with doing these over the longer term though (5 years for example) is that you simply dont know what your situation will be so far as employment/earnings and therefore dont know if you would get a mortgage when you need one. Or whether the property will still be worth what you are paying - if not, then the valuation will be too low and the bank wont lend you enough money.

In this market, very, very few residents actually qualify for borrowing as they either have a 16 hour a week contract meaning their earnings aren't high enough, have most of their earnings paid in cash, or work without a contract and are paid all in cash (same with a lot of autonomos - they usually dont declare much.)

If you have a good nomina/la renta, an indefinido contract (or your own business) and a decent sized deposit then it can be a good option but only if the numbers are going to work for you.
Most important;make sure the seller owns the property and it isn't mortgaged as you could find yourself having paid a deposit and some years rent while the bank takes the property from under you!!!!

[Balcony]

In many ways these sort of scheme shoud be crying out "Don't do it, you can't afford it". I didn't know about the scheme mentioned by Timmylish and would have thought a government backed scheme has a legitimacy that a consumer needs. Obviously there may be conditions that cause difficulties in themselves.