I've been involved in several questions about the option of Renting to Own lately, so I was glad to see that the owner of my brokerage spoke out on it in the following article posted in the Toronto Sun:.
With tighter mortgage lending rules and soaring house prices squeezing more first-time buyers out of the property market, rent-to-own programs could be the next big trend in real estate.
In Canada's hottest condo market, one developer is claiming to be Toronto's only builder offering the option to those seeking to secure a down payment on a home of their own. The Daniels Corporation said it has received an "overwhelming response" for its north-end NY Place rent-to-own suites.
Most rent-to-own programs put a portion of monthly rent toward the eventual purchase of a home, usually for about three years, at which point the renters can opt to buy.
They are marketed as win-win scenarios for sellers and tenants because, unlike cars and appliances, houses tend to gain value over time.
But rent-to-own homes aren't for everybody, according to Roy Singh, a real-estate broker working at Century 21 in Waterloo, Ont.
"This is meant for people who have a slight problem that keeps them from qualifying for a mortgage and need some time," he said.
Under new government lending rules, mortgages can only be provided to bankrupt persons three years after they've started re-building their credit. Self-employed individuals, meanwhile, need at least two years experience running their own business before getting approved.
Singh got involved in his first rent-to-own deal five years ago after meeting a couple who, at the time, had enough for a small down payment but had bad credit.
"Rent-to-own programs would really help these people," Singh said. "Most people don't know it exists."
Singh said he has more investors willing to go in on rent-to-own properties than he has eligible tenants. He personally has 12 income properties and five of them are rent-to-own homes.
"The ones that are rent-to-own have the least problems because the people have a vested interest," he said.
Investors are also protected if tenants decide not exercise their option to buy the property once the option expiry date rolls around by selling the property. Any payments made by the tenant can be used to cover the fees associated with selling a home.
"The seller makes a little money on the rent, but, really, what they make their money on is the appreciation."
The tenant, meanwhile, pays fair market rent but is also working toward owning the property.
To avoid problems, Singh suggests investors screen their tenants carefully. Hopeful homeowners should keep in mind that they may lose all the money they put toward the house if they decide not to stay in it.