Rent to own

As Vancouver condos agents, we have experienced so many pros and cons of rent to own we believe we have many things we can share for you folks in the US. In a rent to own the renter pays the habitue rent on the home , but adds a set fee amount for – for a term of about say 4 years – at the end of which the owner grants him a an option to purchase the pad at a set market value . The $300 over 3 years or $10,800 is applied to the purchase price (in most cases the tenant now also qualifies for a 95% mortgage ). If he does not exercise the option, the ‘premium/overage’ of $10,800 is forfeited to the owner (after all he had to wait 3 years to find out). As a seller you should only do such a thing if you do receive an excellent price!

How to structure a rent to own?

There are several ways. One possibility is to have the tenant   sign a complete Contract of Purchase and Sale. There should be an addendum to the contract that states that a definate portion of the rent goes towards the purchase if the renters complete the contract. It also specifies that failure to pay rent or meet other terms such as an increase of deposit will cancel the contract. The rent charged , of course, is much higher than the going rental rate and usually the surcharge credited to the selling price is that amount of the premium . In all cases if the contract is not honored the ‘overage or premium’ is forfeited.

But, never, ever transfer title of your property with ‘no money’ down to anyone – if you are a purchaser yes! But if you are selling NEVER! . Times change, circumstances change. Your renter loses his main job, follows the lures of travels, or rediscovers what its like to sit on the couch and day dream and there you are. To repossess a property where the vendee had no original equity is costly and time consuming.

The most important factor is to have everything in writing. Having things in writing won’t make bad people good and won’t make good people better; all it does is delineate the parameters of any legal action. You never want to take legal action if you can possibly avoid it. But a strong rental agreement allows you to make convincing threats.

Why do it? Owner/Investor benefits:

(This is for Home Buyers – show the seller these benefits )

• Great Market Price in rough real estate markets (perhaps in today’s market in some northern cities ?). Get the property at market value or better. You also have more tenant/buyers who are conformable to pay a premium because of the terms.

• Higher than normal rental income. Increase positive cash flow.

• Positive cash flow : It is one way to make a property have cash flow that otherwise would not.

• Non-refundable option or ‘premium – overage of rent’ up front.

• Avoid a commission: Although there are ways to pay a top Vancouver realtors as well. ( Not much competition…most Realtors don’t understand it – and some lawyers!)

• Lower advertising costs. Run an ad for rent to own in today’s market and see what happens!

• Get a much better tenant : Someone who wants to buy , even if in the end he does not end up buying, will treat your place better . There could be quality people in the recently divorced, self employed or new immigrants.

• Lower costs : Less management. Tenants that feel a “pride of ownership” will pay on time, perform maintenance, and make improvements to your home. You could also write maintenance as a condition into the deal.

• Larger market of buyers: You are disseminating the base from buyers only to renters/investors.

• Fewer Vacancies : Your phone will ring off the hook when you post your home as a lease/rent to own purchase deal.

Write a great contract. Legal documents are far more complex. Have a lawyer/notary or a West Vancouver real estate agent witness it. In a crashing market the tenant WILL want the option price and rental premium back. I guarantee it!

Also , owners should also use the lease to own contract ALWAYS instead of an agreement for sale in properties (out of town) say under $30,000. It is a pain to foreclose on default; it is much easier to cancel the lease.

 Why do it? Tenant/Buyer Benefits:

• Grow equity. Sometimes a family cannot get together a down payment.

• Knowing what you will buy. Checking it out for say 2 or 3 years, having the price fixed.

• Your rental fee is not going down the drain . Each month a portion of rent comes off of the sales price eventually.

• The full option deposit is not lost. This cash will be 100% credited to either the D.P. or the sales price.

• No huge initial capital infustions . With a lease purchase, there is only the first month’s rent and an option deposit to pay; no down payment, no closing costs.

• Low down payment needed The option deposit plus the rental rebates will likely take care of the whole down payment.

• Assign the contract. Wherever possible, get the right to assign the contract. If the market goes up, you could assign the contract for a tidy profit.

• Increased buying power. Your buying power is dramatically increased.

• Fewer credit problems. Qualifying is not as strict as conventional financing.

You will be approved at the sole discretion of the landlord/seller. You will have time to repair your credit, find the best financing available.

 
Check it out! You have full control of the home – and some real time to see the leaks! . 

It is vital to have an ironclad contract. Insist on one. Pay for one. If the market rises fast, the owner WILL try to get out of the deal. I guarantee it! You do have more leverage as a buyer. With a lease purchase contract, you can control properties that ordinarily require 10-30% down for a nominal amount of money without using a lender or going through the loan application process. Yet you will receive the same features.