What is Rent-to-Own (RTO)?

Rent-to-own or rental-purchase is relatively less known in Malaysia but has been around overseas for decades. One of the first RTOs in Malaysia was not property related, but instead a business model renting out furniture which started out in the 1950s. Rent-to-own for properties took off in the 1980s until today where millions of customers around the world choose rent-to-own.

A rent-to-own agreement allows the buyer the option to buy the rental property at a future date. In the meantime, the property buyer is also a home renter for the property and makes regular payments to the real estate seller.

Rent-to-Own Pros

• Low or no down payment required for the property.
• Able to start on process towards owning a property even if currently unable to qualify for a home loan.
• Able to stay in the property before deciding on property purchase decision.
• Property purchase price locked in at today’s pricing and enjoying future price appreciation.

Rent-to-Own Cons

• Forfeiting money paid for the “option” of buying the property if you decide not to buy.
• Risk of being unable to qualify for a loan at the time that you want to buy the property.
• You are not the owner of the property (yet) and cannot renovate or make any changes without the owner’s approval.
• Property prices may unexpectedly fall lower than the price locked in at today’s pricing.

Should I Opt for Rent-to-Own?

You should consider rent-to-own if you are unable to get a home loan, or pay for the down payment, but you are confident of having the monthly cashflow for the monthly payments.

The difference between a full property purchase down payment is approximately 10% of the property price versus 1-2% for the property price for 3 months rental down payment.

The choices for rent-to-own properties are limited in Malaysia, but there will be more RTO property projects launching in Malaysia soon.