Rent to buy (affitto con riscatto, in Italian)—called “rent to own” or sometimes—was formally introduced into the Italian legal system in 2014.
It is a concept that is often misunderstood, meaning different things to different people. In order to preempt any possible confusion: rent to buy simply refers to a form of housing possession. It requires a contract between a buyer and a seller like any other housing agreement. It is, for all intents and purposes, the same as a normal rental contract, but the person renting it—if they’ve paid the agreed-upon amount by the end of the contract—becomes the new owner.
Here the buyer and the seller agree on purchase price. That price is locked-in for the term of the tenancy during which time the buyers make regular payments (just as if they were renting), each one including the rental price and an extra fee in exchange for an exclusive right to purchase it at the end of the lease period. That extra fee on the monthly payment is ultimately deducted from the whole property price that was previously agreed on with the seller.
There are two agreements with leasing options involved in buying a house: the first is a normal rental contract with an option contract. This normally happens after 3 to 5 years (now up to a maximum of 10 years), and creates the possibility for the tenant to buy the property. Purchasing a home with rent to buy in Italy is a simple and convenient solution for those wanting to get a house, but there are several benefits for the seller as well, the main one being that even if the renters turn down purchasing the property, the original owner was at least able to earn so profit from rent.
In short: the renter/purchaser buys the property in monthly installments. A large part of that is paid towards the sale price and a lesser part is paid as rent. The specific numbers of those two elements can be negotiated by the parties involved. If you wish to consult the relevant legislation on the issue, see Decree 122/2014, Art 23, which the contract must conform to.
Of course, it’s worth keeping in mind that the buyer can choose to pay out the rest of the contract in advance and gain ownership of the property sooner, called the Buying Option. If the buyer exercises this right, he/she won’t be required to pay any rent which is decidedly more convenient on the financial side.
What Are the Advantages and Disadvantages?
It’s always better to start with the negative news first. The biggest disadvantage here is that, in Italy (and other major cities around the world), the rental market has been growing. People are more hesitant to sell property, realizing that, in the long run, they will earn more money from renting it, so now it has become more difficult to find a property that is actually for sale. A second disadvantage is that, due to inflation and economic trends, both the rental price and the final price of the property may change like any other property. The last one might be off-putting, but it is unlikely that you find an apartment in a good location (the center of Milan, for example) under this scheme because the owner will have no problem selling it, or renting it. This means that you will generally be looking outside of the city, mostly at suburban and rural properties.
Now, rent to buy is a situation where the positives outweigh the negatives, and more so for the renter than the seller. The renter/buyer is not obligated to actually buy the property at the end of the agreement, so in the event of an unforeseen circumstance, you may still back out of the contract. This provides a lot of flexibility for renters who may, in the meantime, find another place to stay or be interested in moving to another city.
There are a number of other smaller advantages as well: reduced initial costs of lower deposit and reduced transaction costs, saving the 2.5% mortgage tax on the amount borrowed, avoiding the administrative cost of the bank’s processing charges and the cost of the compulsory purchase of any bank insurance linked to the loan, convenience and time saving as there is no need to provide an endless list of documents to be translated and notarized in the Italian Consulate, and, always important: simplicity—the only documents needed from the purchaser are: your Italian passport or ID (Carta d’identità) and your Tax Number (Codice fiscale), this, and a 10% down payment, which is considerably lower than the average if you were to go through a bank.
Traditionally for foreigners, those able to buy a home have had to pay almost in full, as it is almost impossible to get a mortgage in Italy if you are not Italian. While Italy itself is open to foreign investment in property and foreigners being able to purchase that property, the banks are not likely to provide a loan to anyone who is not an Italian citizen. All that said, it is something that should be considered. There’s always an element of luck involved in finding a good property in Italy and this might be a good way for you to afford a house or villa in Italy.
Take a look at our other articles related to this subject, such as Non-rented property: IMU and IRPEF rules, Main house: what is it? What benefits?, Rental contracts in Italy: types and options and What to expect with an Italian morgage?