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Old 11.09.2014, 09:34
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Miet-Kauf [rent to own] - any experiences?

Hi all

We have an option to do a miet-kauf on a house we quite like. Any experiences with using this method of buying a house? Any negatives we should we aware of?

Thanks for your advice.

Tanya
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Old 11.09.2014, 09:38
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Re: Miet-Kauf - any experiences?

Lawyer up!!!

You need to double check every single detail of the contract - including names in the Grundbuch, tax liabilities, maintenance costs etc etc

Properties are given an Eigenmietwert (the amount it could be rented for), this is added to your income (for the purposes of tax). However you can deduct mortgage payments and 20% of non-receipt maintence - or maintenance with receipts.

If you are renting to buy - double check who is liable for maintenance - as you may be lumbered with effectively having to pay it in full rather than pre-tax.
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Old 11.09.2014, 09:55
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Re: Miet-Kauf - any experiences?

Thank you! Do you think its more hassle than its worth? Or can it be a good experience and a good deal?
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Old 11.09.2014, 09:57
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Re: Miet-Kauf - any experiences?

Mietkauf is still fairly rare here in Switzerland within the private market. It has gained popularity in commercial properties. So, while a lawyer is always good, look for one with the appropriate experience..

Basically, it is comparable to leasing a car. You often make a down payment to start with then pay a higher rent of a fixed period of time. A portion of that rent will then go towards the purchase of the house and a portion is calculated as rent. At the end of a set period you have a right of purchase of the house at the agreed price. The house cannot be sold to anyone else. If you withdraw from the purchase after that period, be aware that you will loose the capital investment you made. But any down payment may be reimbursed. This is is dependant on the contract signed so negotiate!

It is important to note, that you must have such a contract notarised so that is an additional cost to consider...

As Dodgyken has said, chances are you will be liable for all repairs on the house and all costs associated with the running. So water, heating, chimney sweeps etc etc etc.

As you are not the registered owner of the property you do not have to pay "Eigenmietwert". But you also cannot make any tax deductions for the costs of running the house. This is something you can do once the house has been purchased..

In short, the advantage is a fixed rent for a defined time which allows you to make some capital investment in a property. Also the purchase price is fixed, should the market improve during the rental part of the agreement then that's very lucky for you. If not, then thats the sellors advantage.
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Old 11.09.2014, 09:57
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Re: Miet-Kauf - any experiences?

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Thank you! Do you think its more hassle than its worth? Or can it be a good experience and a good deal?
You need to understand every detail of the contract - and be fully aware of the financial commitments.
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Old 11.09.2014, 10:58
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Re: Miet-Kauf - any experiences?

Be aware that the purchase price is fixed in advance. Once you make the deal and move in, you cannot negotiate the price again. Depending on market conditions, this could work for you or against you.

A neighbour of mine rented their house for a few years from the owner before they bought it. By the time they purchased it they knew everything about the house, the running costs, the problems, repairs, renovations. Then they negotiated the price.

They also knew the neighbourhood and this was a factor in their decision to buy.

Miet/Kauf is binding. Renting is not. I wonder how many people would not buy the house they are living in if they had the chance to rent it first?

In the case of the Miet/Kauf, the financial situation of the current owner could be a factor. Why is the owner not just renting the house or selling it outright?

A Miet/Kauf for the owner is, the way I see it, a convenient excuse not to carry out repairs.

I have seen new houses which are being sold under Miet/Kauf. As the house is under warranty, this would be less of a risk than an older home.

Lastly, financing could be complicated. If the bank cannot guarantee the deposit (you may need to lock funds) it might be impossible to sign a contract to purchase the house.
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Old 11.09.2014, 11:01
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Re: Miet-Kauf - any experiences?

wow thanks for all your very helpful information!! Much appreciated. Yes it is a new build so hopefully maintenance costs would be lower. We need to think this through. Many thanks again

Tanya
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Old 11.09.2014, 16:03
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Re: Miet-Kauf [rent to own] - any experiences?

Tanya, where do you think housing prices are heading in the area where this house is located?

We seem to be in a time of uncertainty - ask any three experts which way they think prices are heading and you will get five different answers.

One of the (to my mind, many) problems with Miet/Kauf is that you are tying yourself into today's prices. If the bubble bursts, you could well overpay for the property.

I really don't see any upside to Miet/Kauf - you could end up with the liability of ownership but without the benefits.

Why not buy the property outright?
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Old 11.09.2014, 18:32
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Re: Miet-Kauf [rent to own] - any experiences?

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Tanya, where do you think housing prices are heading in the area where this house is located?

We seem to be in a time of uncertainty - ask any three experts which way they think prices are heading and you will get five different answers.

One of the (to my mind, many) problems with Miet/Kauf is that you are tying yourself into today's prices. If the bubble bursts, you could well overpay for the property.

I really don't see any upside to Miet/Kauf - you could end up with the liability of ownership but without the benefits.

Why not buy the property outright?

Thanks the main upside is that you don't have to put down the 20% deposit upfront and the years you pay rent you can deduct from purchase price as I understand? Not sure exactly how this works.. we will meet with agent to find out details and see from there.. definitely will be cautious whichever route we choose.

Tx!
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Old 11.09.2014, 21:38
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Re: Miet-Kauf [rent to own] - any experiences?

Ok so I was intrigued by trying to reason about the risks between rent-to-own (RTO) and outright purchase (OP). Now, I know how mortgages work but have otherwise little to no understanding of property valuation nuances, so take all of the below as just some back of the envelope ramblings.

Some simple scenarios:

If you buy and the house price falls by 30%, you are down 30%. In case you have mortgaged the property, you pray that you are still in positive equity or you'll have to recapitalize the mortgage.

If you rent-to-own and the house price falls by 30%, you will be down 30% once (if) you decide to buy the house at the end of the contract. Until then, you are down only as much as you have paid down so far. In case this is less than what you stand to lose on the purchase, you are better off than buying outright. This means that your loss is equal to the smaller of "loss on the market price" and the "accumulated payments". This is provided that you can either bail out of the contract, or have some/all of the payments reimbursed.

In the end, I think the biggest difference is in the value of optionality offered by the OP. For an RTO, you can only sell your property (and realize any potential gains) when the contract matures. For an OP, you can do so at any time (market liquidity permitting).

For people working in finance, this sounds like the difference between an American and a European option, with the added gnarliness that the potential downside of an RTO keeps increasing with every payment until maturity. The strike price is basically the buyout price to be paid when the RTO contract matures. I won't do the exercise of trying to value these for various scenarios, but let's just say that I'd expect to get some sort of discount on an RTO versus an outright purchase, otherwise it is (naively considering) the worse deal out of the two.

In reality, RTO deals can probably pull off being worse deals purely because they are more accessible and might be the only option for certain buyers.
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Old 11.09.2014, 21:49
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Re: Miet-Kauf [rent to own] - any experiences?

I would ask the question whether the local market is slowing drastically and this deal is not what it seems - you could be lumbered with negative equity at some point and not be realistically able to sell.

You also would want to check what is covered by the guarantee on the newbuild and how long it all lasts.

My gut feeling is that between the planning stage and now, the developer has seen the market change drastically and is taking this approach to make the property more marketable for them.

It's something to be very careful of.
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Old 13.09.2014, 14:14
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Re: Miet-Kauf [rent to own] - any experiences?

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Thanks the main upside is that you don't have to put down the 20% deposit upfront and the years you pay rent you can deduct from purchase price as I understand? Not sure exactly how this works.. we will meet with agent to find out details and see from there.. definitely will be cautious whichever route we choose.

Tx!
In some cases you need to put a deposit down. I know of one such property where the initial deposit is 30,000 sfr and 100% of the monthly rental payment is not applied to the purchase price, only a percentage of the rent.

Miet/kauf is often used for difficult to sell properties. Ask yourself why the property is not being sold outright (or is that an option?) Or if it cannot be rented with a first right of refusal to the tenant to purchase it at a later date. The price in the future could change depending on market conditions so the selling price is not fixed.
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Old 02.05.2018, 17:40
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Re: Miet-Kauf [rent to own] - any experiences?

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In some cases you need to put a deposit down. I know of one such property where the initial deposit is 30,000 sfr and 100% of the monthly rental payment is not applied to the purchase price, only a percentage of the rent.

Miet/kauf is often used for difficult to sell properties. Ask yourself why the property is not being sold outright (or is that an option?) Or if it cannot be rented with a first right of refusal to the tenant to purchase it at a later date. The price in the future could change depending on market conditions so the selling price is not fixed.
May I ask what is the difference between the monthly payment for an RTO property and its "ordinary" monthly rental price?
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Old 03.05.2018, 09:42
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Re: Miet-Kauf [rent to own] - any experiences?

Can't answer your question, higgs, but if you do RTO you probably want to make extra sure your payments are safe in case the owner goes bankrupt. Without taking precautions you're an ordinary creditor, so if the owner goes belly up all your downpayments are probably lost.
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Old 03.05.2018, 09:47
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Re: Miet-Kauf [rent to own] - any experiences?

Thanks. This looks like something you mustn't approach before mastering German/French!

Anyway, it seems I'm terribly naive, but, depending on the difference in monthly payment of course, this RTO thing still looks like a not-bad deal to me :-/
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Old 03.05.2018, 20:41
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Re: Miet-Kauf [rent to own] - any experiences?

Hmm Miet/Kauf seems like the only Islamically acceptable option to buy a house in Switzerland without a mortgage unless one is rich enough to buy their house outright.
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Old 03.05.2018, 22:48
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Re: Miet-Kauf [rent to own] - any experiences?

To me this is something for people who do not have the money to buy so they choose a more expensive method to still be able to purchase a house.

There is a lot you should be aware of, and if this is all new to you find a proper adviser to give you guidance and do not rely on advise giving by the current owner.
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Old 04.05.2018, 09:20
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Re: Miet-Kauf [rent to own] - any experiences?

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Anyway, it seems I'm terribly naive, but, depending on the difference in monthly payment of course, this RTO thing still looks like a not-bad deal to me :-/
It need not be, depending on cost, alternatives available, and your requirements.

Like with every transaction there are pros and cons, it's just that with the huge sum a house costs, errors can be unusually costly. So yes, you do want to inform yourself or get reliable professional support - preferably both. Learning from other people's mistakes can be particularly enlightening, just keep in mind that they're the exception, not the norm.
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Old 04.05.2018, 10:02
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Re: Miet-Kauf [rent to own] - any experiences?

depending on how you structure the deal, another advantage for the seller could be reduced property gain tax at a higher rate by converting it into lower taxed rental income.
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