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Creative Ways to Buy Bulgarian Property: Part Two

Quest Bulgaria takes a look at a variety of creative options for buying and selling property in Bulgaria in a three part series covering owner financing, lease to buy and house swapping. In this second article we take a look at a more advantageous way to rent a property with a view to buying it outright. This form of financing is often referred to as leasing or rent-to-own and might be just what you are waiting for to speed up the right outcome for you.

What is Leasing?

Leasing a property out would suit anyone who owns their Bulgarian property outright; for example if you own more than one property here and wish to sell one to release some equity. With this type of sale, the property is let for a set period, usually two to three years, during which time the lessee has the option to buy at a pre-determined price. It is a little like renting out your property. The lessee pays an upfront non-refundable option fee of around 1 to 5% of the price, which gives him the option to purchase. The buyer then pays rent during the period which is also credited towards the purchase price. If the purchase option is not exercised then the buyer loses all monies paid to date. Whilst this may sound drastic on first reading it is no different to paying rent except that if you do decide to buy the money you have already paid is deducted from the final purchase price. For buyers this is a great option if you are having difficulty raising finance through traditional routes e.g. if you have a poor credit rating or are self employed and can not prove your income.
Recently Standart Newspaper reported that some Bulgarian developers are offering lease-type schemes whereby a buyer can take a mortgage to cover 40% of the purchase price from a bank and add their own 20% deposit, then pay the remainder of the sale price in instalments to the developer.

The Benefits

There are many benefits to this form of financing. The purchaser gets to try the house out before they buy and to discover any hidden problems with it beforehand.  It also gives them a get out clause should they find something better, decide to move back to the UK or fail to raise the money to make the final payment.  They also have more time to shop around for finance for the final payment as this will be paid at the end of the lease period, yet they can still feel like they are living in their own home and if the agreement allows change it accordingly by re-decorating or adding a new kitchen etc. In a way the down payment and monthly payments are a good way of saving for the buyer who if they were to try and do this independent may be tempted to dip in to their savings every now and again.  In instances where banks require higher deposits, the money paid over the lease period will count towards this. The vendor receives above the market rental price for the property because the lessee has taken on payments, which ultimately will allow him to buy the property so his rent acts as a down payment. Additionally, the vendor will get a good quality tenant with a vested interest in looking after the property should anything go wrong.

The Concerns

If the sale falls through, the seller looses nothing except a buyer and in the process of the lease he will have made money, however the buyer will lose their deposit and all money paid. Realistically they have only lost some the rental money as they would have had to rent a property to live in regardless of whether they leased it or not. The only real downside for the seller is that by negotiating the sales price at the beginning of the lease they may lose out on extra profit if house prices rise over the lease period. In today’s housing market large increases are unlikely to happen, which make the risk minimal. It is wise for the buyer to ensure that the contract gives some leeway for late payments so that an unscrupulous seller cannot cancel the contract just because one payment is late. A sensible agreement would allow for three late payments before the deposit is forfeited.


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Creative Ways to Buy Property in Bulgaria - Part One