How Rent-to-Own Works in Australia

Rent-to-own explained

Rent-to-own is a way to buy a home without saving a deposit first. You find a rental you'd love to buy, the owner agrees to rent it to you on a Rent-to-Own basis, and you move in as the tenant. Each week you pay the rent plus an extra amount that becomes your deposit. From year 4 you can switch to a mortgage and buy the home. It's also known as rent-to-buy or lease-to-own, which all mean the same thing.

With PublicSquare's rent-to-own homes, you pay the listed rent plus an extra 50% of your first-year weekly rent on top, paid together each week into the property manager's trust account. The extra amount never changes. It goes to the owner each week with the rent, and it's credited to you as your deposit when you buy, so you always know exactly how much deposit you have built.

The owner holds the title until you buy, and you hold the exclusive right to buy it. Your arrangement sits on three documents, each reviewed by your own solicitor before you sign:

• A standard tenancy agreement under your state's tenancy law, using the standard REIQ or REINSW templates, the same as any rental.
• A call option deed, which gives you the right, but not the obligation, to buy the home in years 4 to 8.
• A Contract Between Buyer and Seller with the owner, setting out the price schedule, your contributions, the Owner's Sell-Back Guarantee and what happens in each scenario.

When you buy, you sign a standard contract of sale, as you would for any home.

How rent-to-own is regulated in Australia

Rent-to-own is legal and regulated in Australia, though the rules differ from state to state. It earned a mixed reputation from informal vendor-finance deals with no licence, no fixed pricing and no protection if things went wrong.

PublicSquare's program is built to be the opposite. It is run by a licensed real estate agency (Queensland licence 4555627, New South Wales licence 10152702) that has operated since 2021 and acts for you as your buyer's agent. It uses standard legal instruments, a price schedule written into the contract from day one, a published fee list and independent legal advice for both sides. It is available in Queensland and New South Wales, with other states, such as Victoria, planned subject to regulation.

Why people choose rent-to-own

Long-term housing security

For many of our homebuyers, this is the biggest benefit. You have up to eight years in the home, and as long as you keep up your side of the Contract, you won't have to compete for another rental, move house, or worry about a landlord selling the property out from under you. If the owner does sell, the new owner takes over your Contract. Our tenants tell us this matters enormously, given how hard it has become to find and hold on to a long-term rental.

Rent rises capped at 4% a year

Rents in many areas have jumped sharply in recent years, sometimes by far more than 4% in a single year. Under PublicSquare's program that can't happen to you: your rent is reviewed once a year by the property manager's rental appraisal and can rise by no more than 4%, or the legal maximum if that is lower. The extra 50% you pay never rises at all, so you can plan your budget years ahead.

A deposit you build from inside the home

Instead of saving a deposit while you rent somewhere else, part of every weekly payment is credited to you as your deposit. You live in the home you intend to buy while you build it. On average full-time earnings, saving a 20% deposit the usual way now takes more than a decade, as our Australian Housing Crisis Tracker shows.

No ownership costs during the lease

The owner pays the rates, building insurance, maintenance and body corporate until you buy. PublicSquare acts for you as your buyer's agent, dealing with the property manager and owner and preparing the paperwork.

A price schedule written into your contract

Your minimum purchase price for every year you might buy is set before you move in, so you can see exactly what the minimum will be at any point in the lease.

Who rent-to-own suits

Rent-to-own suits people who could service a mortgage but don't have, or don't want to pay, the upfront costs of buying right now: the deposit, Lenders Mortgage Insurance (LMI) and stamp duty.

It tends to suit people who:

• have steady income and can comfortably pay the rent plus the extra 50%;
• want to live in the home they will own, and plan to stay four years or more;
• want to buy in Queensland or New South Wales.

It isn't only for people without a deposit. Many PublicSquare homebuyers are business owners who would rather keep capital working in their business, high earners who prefer to keep cash free for other investments, and disciplined savers who want a set path and a written pricing framework instead of saving into a rising market.

Eligibility

Pre-approval is a few quick questions that you answer yourself:

• It's just you, or you plus one other adult applicant.
• You tell us how many dependants you have. With four or more, this program may not be the right fit.
• Your income is at least the minimum for the area you want to live in.
• You have savings of at least $5,000.
• Debts such as credit cards, car loans, personal loans and buy now pay later are fine for now, as long as you'll clear them before you buy your home.
• You'll need a mortgage to buy, usually 4 to 8 years from now. PublicSquare doesn't arrange mortgages, so if you're 50 or over, or have credit issues, you can still go ahead once you understand a lender will need to approve you then.

In some cases PublicSquare accepts applicants who are building their credit or waiting on permanent residency. Eligibility can differ for non-citizens, pensioners and people with disabilities, so check with a rep.

How rent-to-own works, step by step

Here is the full process with PublicSquare, from signing up to owning the home.

Step 1: Get pre-approved

Sign up on our website and answer the qualifying questions. It takes a few minutes, it's free and it doesn't affect your credit history. Log in to your portal to get your Pre-Approval Results and Rent-to-Own Buyer's Guide, a personalised PDF. It's self-assessed, it isn't a home loan approval and it doesn't guarantee you a home. It's valid for 90 days, and you can renew it in the portal by confirming or updating your signup answers.

You can book a call with a PublicSquare rep at any stage. It's optional, never a required step.

Step 2: Add a photo and a note to owners

This is optional, but it helps. Owners and property managers see your photo, first names and basic household details, along with a short note from you.

Step 3: Find a rental you'd love to buy

Search realestate.com.au for homes listed for rent in Queensland or New South Wales. Only homes listed for rent qualify; homes listed for sale don't. Your portal may also show homes in your area whose owners are open to Rent-to-Own, under Listed by owner and Listed by PublicSquare. The home must be a house, townhouse or apartment on its own title.

Step 4: Submit the property and contact the property manager

In your portal, add the home by pasting the listing link. The portal shows your weekly figures: the listed rent, the extra 50%, our weekly fee and the total, excluding utilities. It then creates a property application for that home, showing the owner exactly what they'd receive each week.

Go to the open home (or book a private inspection) first. Meet the property manager, build rapport and get their details, and since time is limited at inspections, we recommend leaving Rent-to-Own for your application. Then confirm you attended on the home in your portal, which unlocks its property application. Each home then shows recommended next steps: email the application, text the property manager, apply through their usual channel (2Apply, Snug or Ignite), and follow up on day 3 and day 7 if you haven't heard back.

Step 5: The owner is interested, and you appoint PublicSquare

When the owner is interested, choose The owner is interested in your portal. You then appoint PublicSquare as your buyer's agent: choose a package (Standard or Plus), upload your ID, sign your Appointment (a Form 6 buyer's agent appointment in Queensland) and pay the $325 + GST ($357.50) signing fee. Your Appointment is one-off and covers every home. From there we act for you: we deal with the property manager and owner and handle the paperwork. With Plus, we also research and negotiate the price and arrange the building and pest inspection.

Step 6: Get independent legal advice, then sign

You get independent legal advice, then sign the Contract Between Buyer and Seller and Call Option Deed with the owner, then a standard tenancy agreement. The first 12 weeks of our fee are paid when your Contract with the owner is fully signed, less your signing fee credit. You can also ask your solicitor about registering your lease on the title, which can protect you if the home is sold, refinanced, or the owner becomes insolvent.

Step 7: Move in

Before you move in, you pay the rental bond under your standard tenancy agreement, as with any tenancy.

Step 8: Live in the home and build your deposit

Each week you pay three things:

• The listed rent, set by the property manager's rental appraisal. It is reviewed once a year, and rises are capped at 4% or the legal maximum, whichever is lower.
• An extra 50% of your first-year rent on top, which never changes and becomes your deposit. The rent and the extra 50% are paid together by direct debit into the property manager's trust account each Thursday.
• PublicSquare's buyer's agency fee instalments, from move-in until all 260 instalments are paid.

The owner pays the rates, building insurance, maintenance and body corporate. You pay your own electricity, gas, internet, water where lawfully charged and contents insurance, as in any rental.

Pets follow your tenancy agreement and your state's tenancy law, the same as any rental, so ask the property manager about pets when you apply. Repairs follow standard rental law. Subletting isn't generally allowed unless agreed in writing.

Step 9: Buy the home in years 4 to 8

From year 4 until three months before the end of year 8, you can exercise your option and switch to a mortgage with the lender of your choice. You get an independent valuation, which you pay for. The price is the higher of the contracted minimum for that year and the valuation, and your contributions are credited as your deposit. You then sign a contract of sale, with 21 days for finance and settlement 60 days after signing. If you buy before all 260 fee instalments are paid, the remaining balance is paid at settlement.

Most homebuyers plan to buy in year 6, 7 or 8, once their deposit has grown, which puts them in a strong position for a mortgage.

The costs at purchase are the standard ones for any buyer: any extra deposit your lender wants, LMI if your deposit is under 20%, stamp duty, mortgage fees and home insurance. Grants and concessions may reduce these. You can't use the First Home Owner Grant towards your upfront costs to move in, but you may become eligible for grants when you complete your purchase with a mortgage. You don't need to move furniture or change anything about your home, not even your utilities, because you already live there.

Step 10: Or exit through the Sell-Back Guarantee

If you can't get a mortgage, you can keep renting until the end of the lease, or request an open-market sale and receive your contributions back, less any unpaid amounts and any shortfall. If finance falls through, the Contract carries on and you can try again after 6 months. The section on not getting a mortgage below explains exactly how.

Year by year: your deposit and minimum price

On a $750,000 home renting for $650 a week, your extra 50% is $325 a week, or $16,900 a year. Here is how the eight years play out, and what your deposit and minimum price look like if you buy at the end of each year.

To run your own numbers, try the Rent-to-Own Deposit Calculator.

How the purchase price is set

Your price is set by a schedule written into your contract before you move in. When you buy, you pay the higher of the contracted minimum for that year or an independent, certified valuation. There is no maximum. The minimum grows by 8% a year for a year-4 purchase, stepping down by 1% each year to 4% a year for year 8. These rates apply to houses; apartments may have lower rates, because they typically appreciate more slowly. From year 6 it sits below the 25-year long-term house average of 6.8% a year.

The growth rate applies to completed years, not time elapsed

This detail is easy to miss, and it works in your favour. The growth rate for the year you buy is applied to the completed years before that year, not to the exact time you've lived in the home. Buy at any point in year 6, and your minimum is the starting value grown at 6% a year for five years.

That has two benefits:

• Buying later in a year costs no more. The minimum is the same on the first day of year 6 as on the last, while your deposit keeps growing every week.
• Your minimum price can be quoted exactly in advance. There's no daily or monthly recalculation, so you and your lender know the figure for any year you might buy.

Measured over the time you've actually lived in the home, the effective growth rate is lower than the headline rate. Buy in the last months of year 8 and it works out at about 3.6% a year, only a little above the Reserve Bank's 2–3% inflation target and well below the 25-year long-term house average of 6.8%.

A worked example

On the $750,000 example, buying in year 6:

• The contracted minimum is $750,000 grown at 6% a year for five completed years, which is $1,003,669.
• If the home values at $1,100,000, you pay $1,100,000. Your $101,400 deposit leaves a loan of $998,600.
• If the home values at $950,000, you pay the minimum of $1,003,669. Your deposit leaves a loan of $902,269.

Other details that matter

• Growth applies from the day you move in.
• Apartments typically appreciate more slowly than houses, so they may have lower minimum growth rates in the contract. The rates in this guide are for houses.
• If you and the owner disagree on a valuation or rent appraisal, either side can get a second or third opinion, paid for by the side that disagrees. The final figure is the average.

What rent-to-own costs

No deposit, and no PublicSquare fee until you've signed with an owner, apart from the signing fee. Here is every cost in PublicSquare's program, when you pay it, and who it's paid to.

We're not a party to your Contract with the owner, and the owner never pays or deducts our fee. If you buy, or the home is sold under the Sell-Back Guarantee, before all instalments are paid, your solicitor pays the remaining balance to us at settlement from the settlement funds or the amount returned to you; if the Contract ends early any other way after signing, it is payable within 14 days. If you face hardship, talk to us about pausing. There is no stamp duty or LMI to start, because you aren't buying yet. You may pay these when you complete your purchase, typically in year 6, 7 or 8. We compare these costs with every other way to buy in How to Buy a Home With No Deposit in Australia, and you can check your own figures with the Rent-to-Own Calculator: Upfront Cost vs a Mortgage and the Weekly Cost Calculator.

Rent-to-own compared with renting and a mortgage

Rent-to-own costs more each week than renting the same home, because part of every payment is your deposit. You're not just paying rent: you're building up a deposit you'll use when you buy the home. If you already have a 5% deposit, compare the government's option in 5% Deposit Scheme vs Rent-to-Own. For shared equity vs Rent-to-Own, see Help to Buy vs Rent-to-Own.

Your protections

Each of these is a term of your written agreements, not a promise:

• PublicSquare is a licensed agency and acts only for you, as your buyer's agent.
• The minimum price is set before you move in, and you pay the higher of it or an independent valuation.
• Your contributions are your deposit. They are recorded on an Exit Statement, so there is never any doubt about what you have paid.
• You get up to eight years of secure housing. While you keep up your side of the Contract, you stay in the home, and a new owner must take over your Contract.
• Rent can rise by up to 4% a year, or less if tenancy law requires. The extra 50% never rises.
• Our fees are published, and you pay no rates, insurance or maintenance during the lease.
• Owners keep at least 20% equity, give personal guarantees, and must repay all your contributions plus a $10,000 relocation fee if they sell or transfer the home in breach of the Contract.
• The Owner's Sell-Back Guarantee applies if you can't get a mortgage in years 4 to 8.
• Notices, bonds and repairs follow Queensland and New South Wales tenancy law throughout.
• You get the full contract before you commit, and both sides must get legal advice before signing.

If you can't get a mortgage

You have two choices. You can keep living in the home for the rest of the lease while you strengthen your application, or you can use the Owner's Sell-Back Guarantee to request an open-market sale at any time in years 4 to 8. If finance falls through, the Contract carries on and you can try again after 6 months.

The guarantee is provided by the owner under your Contract Between Buyer and Seller. To use it, you give written notice with three formal rejection letters from brokers or lenders, and you must be up to date with your payments. The owner is required to accept. Then:

• The home is sold through the agency nominated in your Contract, aiming for the best price. You pay a fixed $3,300 marketing cost, and the owner pays the sales commission.
• You keep paying rent and contributions until settlement, and move out five days before settlement.
• At settlement you receive your contributions back, less any unpaid amounts and any shortfall if the home sells below the contracted minimum. Any sale proceeds above the minimum belong to the owner.
• The owner can choose to keep the home instead of selling it. If they do, they pay your contributions back to you, without interest, less any unpaid amounts and any shortfall.

Before you decide, PublicSquare can give you an indicative valuation of the home. If values are temporarily below the minimum, you can stay up to the end of year 8 while your deposit grows, the minimum growth rate steps down and your mortgage position improves.

If your circumstances change

If you hit financial hardship

Tell PublicSquare early. We can help you work out what to ask the owner, such as deferring your contributions until things settle. Any change to your payments needs the owner's written agreement. You can also talk to us about pausing our fee instalments. Staying up to date matters, because the Sell-Back Guarantee depends on it.

If you leave early or stop paying

This is the main risk to weigh. If the Contract is ended because you broke it, your contributions stay with the owner. If payments are still owing beyond that, the owner may recover them over a period of at least 60 days. We're not a party to your Contract with the owner, and the owner never pays or deducts our fee. If you buy, or the home is sold under the Sell-Back Guarantee, before all instalments are paid, your solicitor pays the remaining balance to us at settlement from the settlement funds or the amount returned to you; if the Contract ends early any other way after signing, it is payable within 14 days. All notices are issued by licensed property managers under your state's tenancy law.

Compare that with a mortgage: if a lender repossesses and sells a home for less than you owe, you remain liable for the whole shortfall, plus interest, fees and enforcement costs.

If the owner wants to sell

The owner can offer the home to you if you're ready to buy, or sell it to another buyer who takes over your Contract. Your lease and your option carry on unchanged. If an owner sells or transfers the home in breach of the Contract, they must repay all your contributions plus a $10,000 relocation fee, and further damages may apply.

If the owner gets into financial trouble

Owners must keep at least 20% equity in the home, and the extra 50% you pay gives them extra cash flow to stay on track. If an owner is still at risk of insolvency, they must tell PublicSquare and, where possible, sell the home to you early. If that isn't possible, the home must be sold under the Contract, and the owner must pay back all your contributions plus a $10,000 relocation fee. Further damages may also apply.

Registering your lease on the title adds another layer of protection. Your solicitor can arrange it for a small fee, usually $300 to $500 plus GST.

If prices fall

You pay at least the contracted minimum, so a falling market does not lower your price. If a valuation comes in below the minimum, some lenders may still recognise the contract price. If not, you can seek other finance, cover the gap from your contributions, or keep renting until the market recovers, up to the end of year 8.

If you reach the end of year 8 without buying

You have just under five years, from year 4 until three months before the lease ends, to either buy or request a sale. That's plenty of time to get everything in order. However unlikely, if you do neither, the Contract ends and your contributions stay with the owner. So act before then: buy, or request a sale under the Sell-Back Guarantee while the window is open.

Rent-to-buy, rent-to-own and lease-to-own

Rent-to-own, rent-to-buy and lease-to-own are names for the same idea: you rent a home with an option to buy it later.

Vendor finance is different. The seller finances your purchase instead of a bank, usually under an instalment contract, and the terms vary widely from deal to deal. Shared equity is different again: the government or another third party owns part of your home alongside you.

Questions to ask any rent-to-own provider

Terms vary a lot between providers. Before you sign with anyone, including us, get clear written answers to these:

• Is the provider a licensed real estate agency in your state, and who does it act for?
• Who owns the home during the lease, and can you register your interest on the title?
• Is the purchase price, or the way it is set, written into the contract?
• How much of each payment builds your deposit, and how is it recorded?
• How much can the rent rise each year?
• How long can you stay, and what happens to your lease if the owner sells?
• What happens to your money if you can't get a mortgage or need to leave?
• What are all the fees, and when is each one paid?
• Will both you and the owner get independent legal advice before signing?

When rent-to-own isn't the right choice

Rent-to-own is built for people who could service a mortgage but don't have the deposit. It is a poor fit if:

• you have a 20% deposit already, because a mortgage today will usually cost you less;
• you might move before year 4, when your option to buy opens;
• your income may not support a mortgage later, because a lender still has to approve you when you buy, and no one can guarantee that decision years ahead;
• you want the cheapest weekly cost, because the rent plus the extra 50% costs more than renting the same home;
• you want the flexibility of an ordinary rental with no commitment;
• you're 50 or over, or buying outside Queensland and New South Wales, which PublicSquare's program doesn't cover yet.

Written by

Jarrod Wills

Buyer's Agent

Licensed agent · Former mortgage broker

Over 10 years’ experience as a mortgage broker and real estate agent, now a licensed buyer’s agent with PublicSquare since 2021. He has worked on 100+ property transactions and knows the Queensland and New South Wales markets and the Rent-to-Own model well.

Reviewed by

Dean Arnold

Founder & CEO

Licensed real estate agent

I started PublicSquare in 2021 to give homebuyers a real path to ownership without a deposit, and landlords a stronger-cashflow alternative to a standard rental. I hold real estate licences in Queensland and New South Wales and personally review every property that enters the program.

Read more about Rent-to-Own.

This article is general information only and does not take your personal circumstances into account. PublicSquare is a licensed real estate agency, not a financial adviser or credit provider. Consider seeking independent advice before making a decision.