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Disclaimer: I am going to live in my city with a very low chance of moving somewhere else.

I am currently looking for viable options for buying an apartment. The traditional way is to save up 15% and pay it up front when taking a 30-year mortgage loan.

What I have noticed is that if there are new apartment buildings projects, they offer something like 1-3k euro deposit and rent 2 buy option for paying 15% of the initial payment in 3 year period and after that, you can take the rest of 85% as a loan from a bank.

Is there any kind of risks or hidden facts that this type of offer could not disclose?

Some other facts: The city I live in is Vilnius and such apartments range from 80 to 150k.

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    What are the rules if the market price of the flat changes during those 3 years? Can you buy at the original price if there's an increase in the apartment's market value? If not you might not have 15% so would you be able to get a mortgage? What if the value decreases? Are you committed to paying the old higher price for the 85%? – Robert Longson Mar 15 at 8:17
  • @RobertLongson Valid points, but those are risks, that you also would carry, if you bought right now. – Alexander Kosubek Mar 15 at 9:16
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    @AlexanderKosubek That would require you to have 15% deposit so your circumstances are entirely different. If you actually have the 15% you can get a mortgage right now and you don't need rent to buy at all. – Robert Longson Mar 15 at 9:25
  • @RobertLongson but if you did get a mortgage right now, the value might still rise or fall. Your payments wouldn't. - As I understand these things, the "buy" part is always an option, not a must. - Thus you rent an apartment, but can decide later to buy it, with the rent until then being counted towards the price. - But that may, of course, vary. - But it doesn't change the fact that you might be over- or underpaying on your property... – Alexander Kosubek Mar 15 at 9:36
  • @AlexanderKosubek The point is, you wouldn't have the risk of not being able to get a mortgage at some time in the future because you'd already have one. It's true you might be in negative equity but that would only be of interest if you needed to sell. – Robert Longson Mar 15 at 9:42
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What jumps out to me as a red flag, is that they are acting like a bank. From what I understanding from your post, is that you would pay an extra ~400/month. They would "save" that money for you over a three year period that can be used for a down payment.

There seems to be no benefit in doing this. Why would you just not do this in a bank account?

What happens if change your mind about living in that complex? Do you get back the money paid in?

Does the money increase in value in some way? If you put it in the bank it would earn interest. Towards the end, you would be earning about $25/month at current interest rates.

Can the owner just "keep" your money for some silly clause? This happens frequently, in the US, with privately funded rent-to-own schemes.

If it was me, I would just be disciplined and save for a down payment in a bank account.

  • You start living and pay rent, after 3 years, if you wish, you can buy the apartment and the rent would count as a down payment for a loan in a bank. – Never Lucky Mar 16 at 10:52
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The usual downside with any kind of rent-to-own scheme is what happens if you don't manage to complete the payments. In this case you haven't specified what happens if for some reason you are forced to leave the apartment before the 3 years is up. Do you lose all the money you have paid? That's a substantial amount.

You also don't specify whether you are contractually obliged to buy the property at the end of three years, nor at what price you are going to buy it. If it's a price you agree now, that is a significant plus for you. If it is not, but a market price 3 years from now, who knows if your 15% will actually be 15% of the price (remembering that if it isn't you won't be able to get a mortgage).

  • Well as a general rule of thumb here, if you do not pay up you will get kicked out. And yes, you will lose all your money, since that money was used to rent, not to get some kind of equity. The rent thing is very simple, 15% of the value of an apartment divided over 36 months with NO INTEREST and NO ADDITIONAL costs. Of course the utility bills are covered by you. – Never Lucky Mar 19 at 8:12
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I don't think there are any inherent risks in a rent-to-buy deal. The question would be the particular terms they are offering. Typically in a rent-to-buy you pay more per month than you would for an ordinary rental, and if you decide not to buy, you're just out that extra money. For the deal to be beneficial to the renter, they'd have to be counting more than just that difference toward the purchase.

Like say the market rental price is $1000 per month. They offer you a rent-to-buy deal where you pay $1100 per month for 2 years and then you can take the option to buy. So you've paid an extra $2,400. If they credit you more than $2,400 toward the purchase price, you've come out ahead. Less and you've come out behind. Part of the deal is usually that the price is locked in, so even if they didn't credit you for the full extra payment, you might have some benefit from being protected from price increases.

But all that gets into the details. If the contract says that you get credited less than the extra money you paid, and there is no price lock, it's probably a bad deal.

  • I think this is a familiar case in US, but here all the rent money goes to initial deposit. IF you do not want to buy it, you just walk away as if you were renting an apartment with a bit over average rent. – Never Lucky Mar 16 at 11:05
  • @NeverLucky Hmm, I'm not clear what distinction you're making. As i described it, if you walk away without buying it's just like you were renting with a bit over average rent. Perhaps I'm not understanding you or you're not understanding me. – Jay Mar 16 at 19:38
  • You say that the extra that you pay on rent could go to a purchase, in this scenario the full amount would – Never Lucky Mar 17 at 22:11
  • You're saying that in Europe it's common that the full amount of rent you pay all goes toward the purchase price? Ok. I don't think that invalidates anything I said, it's just a more extreme case. – Jay Mar 18 at 15:25
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I like the rent-to-make-the-down-payment real estate plan. Probably only about half the rent will go on the down payment, but the apartment is lived-in as it is rented. If the price of the apartment were locked-in for the three-year plan then that would be a very good deal.

Also, this plan is not like a bank plan but 15% of the apartment will be paid-for as the buyer then goes to the bank.

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