The ‘Rent To Own’ Dynamic
Bali Property Report
In a Soft Market, Why not Rent to Own?
In the currency market there is always somebody’s “dollar” (Euro, Pound, Yen) that is strong against the rest of the world, particularly against both the USD and the Indonesian Rupiah. For those of us in the Bali property market, this is a very good thing. As our market draws from all four corners of the globe, we have for years enjoyed a steady stream of clients from around the world keen to get their slice of this pie of paradise.
The challenges of 2020 have seriously curtailed foreign investment in our sector. While annual rental contracts – and in many cases the annual rent itself – are at all time highs, the volume of property transfers has fallen off dramatically. Some sellers have covered their expenses for the year by renting to island bound adventurers, while others have not. Some sellers can absorb the costs with no worries, others cannot.
Market savvy management companies and hotels were quick to open their doors to the stranded nomads, and many exceptional villas have been leased out for a fraction of their 2019 market value. This has left hundreds of villa owners between a rock and a hard place. Rent to the late comers and take your chances or lock it up and come back in 6 months or more?
Why not rent to own?
A tenant who enters into a “rent to own” (RTO) agreement will have the option to purchase the property, applying the cost of the annual rent to the payment of the agreed upon Purchase Price. The seller enjoys the benefit of covering expenses (or more) for 12 months with the knowledge that his property is being properly looked after.
We have modeled our contracts based on the work of a firm called Divvy out of Silicon Valley. Divvy is a very much a buyer/tenant friendly company which has elevated the standards of this niche in the industry to a level where the very necessary WIN-WIN is standard operating procedure. In a nutshell, full due diligence is done to determine the legal structure of the current ownership and to verify the enforceability of all contracts going forward. There are a range of terms and conditions beyond price and payment terms to be agreed upon, and this is where we separate the good deals from the bad ones. Historically tenants have received the short end of the stick as they were generally the more financially vulnerable party and the contracts traditionally exploited that fact.
Successful RTO – particularly in today’s market – is such a huge WIN-WIN-WIN for everyone. I add the third WIN to reflect a WIN for Bali as well. If you are looking to buy but are unsure of which area you want to settle in or you haven’t got the full Purchase Price handy, RTO can spare you the feeling of choosing the wrong village/gang/style, or the feeling of losing money on rent and any repairs/upgrades you’ve made. If you are looking to sell, RTO can give you the financial security you want – albeit with a bit of delayed gratification – and the knowledge that the people you care most about in Bali are back to work at full tilt, elevating families all over the island.
Would you like to learn more?
Contact Patrick for a chat today on Whatsapp +62 817 973 3031; [email protected]