Rent to Own
Who is it for?
If you are in the market to buy a home, you are probably aware of the advantages home ownership provides (tax shelter, appreciation, security, etc). If you are actively seeking homes for sale on a Lease 2 Purchase agreement, you are either (1) a very smart renter, (2) a very smart real estate investor, (3) not ready to make a commitment, (4) cannot yet purchase a home through conventional means or (5) any combination of the aforementioned. Here are the most common scenarios:
First time Buyers- The absolute easiest way to penetrate the real estate market
Landed Immigrants- People that need a year or two to get their citizenship before applying for a mortgage.
Anyone who needs a leg up- whether your credit needs a little time to repair itself or you are just short on a down payment. This provides you with the answer to either challenge.
Investors- Great way to maximize your buying power and build equity and cash flow
Why Rent to Own?
Without a doubt, the Lease 2 Purchase contract is the quickest, easiest and least expensive way to buy, sell and invest in real estate.
It replaces the typical adversarial relationship that usually exists between buyers and sellers with a win-win method of transferring real estate ownership.
Specifically (if you're the buyer), you will have minimum cash out of pocket, credit problems are okay, faster equity growth, increased buying power, time to kick the tires and peace of mind.
Specifically (if you're the seller), you will have a top sales price -- even if demand is low, positive cash flow, the largest market of buyers, minimum risk, no maintenance, no landlording and (my favorite) a non-refundable option deposit.
Tenant/Buyer Benefits
Rent money is working towards purchase: Every month a portion of your rental payment (typically $500-$1500) is credited towards your down payment or off of the sales price.
Minimum cash out of pocket: When you purchase a home the conventional way, you must pay at least 5% down plus closing costs and other fees. When you buy with a Rent to own, you only pay first month's rent and a small option deposit.
Often no down payment at close: Since you have given the seller an option deposit and you have been receiving monthly rent credits, there will frequently be very little or nothing left to pay for a down payment at closing.
Profits from appreciation: Since the sales price is locked in before closing (as specified in your agreement), any increase in property value will mean that your equity (what you owe minus what it's worth) is increasing in the home.
Possible sale for a profit: If you are allowed to sell (assign) your option (it will be in your agreement), you may sell it to a third party for a profit.
Credit problems okay: Qualification restrictions simply do not exist. You will be approved at the sole discretion of the landlord/seller.
Control of the home: You will be put in full legal control of the home for a specified period of time without actually having to own it.
No taxes, less liability: Since you do not own the home (yet), you will not have to pay property taxes and your liability exposure will be dramatically reduced.
Quick move in time: You can typically take possession of the home in a week or less, instead of conventional move in times of one to three months, after your offer was accepted.
Maximum leverage: You are spending very little (or zero) money to control a potentially very expensive, and very profitable, piece of real estate.
Time: Before you actually buy the home, you will have 3-24 months (depending on your agreement) to repair your credit, find the best interest rates, investigate the home and research the neighborhood and/or schools.
Minimal maintenance: Large maintenance problems or any maintenance problems that exceed a certain amount of money can be delegated to the landlord/seller.
Peace of mind: You will have full control of the home and can maintain or improve it however you wish.
Landlord/Seller Benefits
Top sales price, even if demand is low: You attract more buyers who are willing to pay a premium because of the exclusive financing terms and value you're offering.
Higher than usual rent: Since you are flexible on your financing terms and are offering a tremendous value, you can demand a higher than usual rent.
Positive cash flow: Since you can demand a higher than usual rent, your positive cash flow will increase.
Non-refundable option money: When a tenant/buyer executes (signs) a Lease 2 Purchase contract, you receive an non-refundable option deposit that is yours to keep should they default or decide not to buy. Because you are renting to tenants who have a vested interest in your home, they think like homeowners and tend to take good care of it. Tenants who have a vested interest and believe they are a homeowner may feel a "pride of ownership" that encourages them to pay on time, perform routine maintenance and make improvements to your home.
Highest quality tenants, minimum risk:
No maintenance, no landlording headaches:
Tax shelter is held intact: Because you remain on the title until the option is exercised, you maintain all of the tax benefits of ownership. You are marketing your home not only to traditional buyers, but also to renters and investors. These three groups make up over 95% of people whom buy real estate. Currently this is the only segment of the market that is weighted in favour of the seller.
Largest market of buyers:
Peace of mind: It is safer than conventional rentals because of the quality of the tenants and their vested interest in your home. It also means that someone is living on-site who will watch and guard your home against fire, theft, vandalism, etc.
FAQ’s
Is it legal?
Yes, it's perfectly legal in Canada, all 50 United States, Australia, the UK and any other country which has a free-market economy where lease agreements and option agreements are legal.
How much money do I need to start?
Technically, there is no set amount. it would be to your benefit to have $5000 - $10,000 in the bank. This money will be used for your option deposit, it goes towards your agreed purchase price 100%.
What is the difference between a Lease 2 Purchase, a lease option and a rent-to-own?
None! There is absolutely no difference between a Lease 2 Purchase, a Lease Option or a rent-to own. All are referring to an arrangement that contains both a lease contract and an option to purchase contract. They are all exactly the same! Don't let anyone tell you otherwise.
Who carries the insurance?
The insurance on the home is carried by the owner of the home. The insurance on the contents of the home will be carried by whomever owns the personal property inside, usually the tenant/buyer. This is typically called renter's insurance.
Who pays the taxes?
The person whose name is on title pays the taxes.