While they are still not as popular in Canada as they are in the US, rent to own housing agreements are becoming more common on this side of the border. Rent to own agreements essentially work in the following way. A landlord owner purchases a home which is then rented out by a tenant who has the intention to purchase the home after a specified timeframe. An agreement between the landlord and tenant will be signed with guarantees a certain price on the home and gives the tenant the first right to purchase the home after that timeframe.
Some people are cautious when it comes to rent to own agreements because on the landlord side, there is a risk that the tenant may not qualify for a mortgage at the end of the agreement; and on the tenant side, the rent is usually higher than market rates as a portion of that rent is going toward a down payment – a portion the tenant will lose if they are unable to purchase the home at the end of the agreement.
So how can you ensure that you get the best possible ROI if you decide to enter into a rent to own agreement? To do this it is important to ensure that it is a win-win deal for both the tenant and the landlord.
Tips for landlords to get the best ROI on rent to own agreements
Work with a mortgage broker who is experienced in drafting rent to own agreements.
Consider the value of the home and how easy or difficult it might be to sell if the tenant is unable to purchase it at the end of the agreement.
Do the math. Will the tenant’s payments minus mortgage interest and property tax make this a good investment?
Tips for tenants to get the best ROI on rent to own agreements
Work with a professional mortgage broker who is knowledgeable in rent to own agreements.
Consider the cost of the agreement compared to regular renting – don’t forget to include maintenance which you will likely be responsible for.
Consider the benefit of building equity in a home that you will eventually own.
Be realistic about whether you will be able to repair your credit and qualify for a mortgage at the end of your rent to own term.
Are you interested in entering into a rent to own agreement either as a landlord or a tenant? Contact Akal Mortgages today to speak to a member of our team.
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