What is Rent-to-Own (RTO)?
A Rent-to-Own agreement is a contract between owners and tenants who agree to rent a home for a set amount of time before they may exercise an option to purchase the property from the owners at an agreed upon price when or before the RTO contract term expires.
Who can qualify?
In order to qualify, a prospective client needs to:
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Provide a cash down payment (usually 5% but in some cases we have down payment programs)
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Demonstrate the ability to make payments*
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Pass normal tenant screening (landlord references, etc.)
*The banks assess ability to pay based largely on current credit rating and job income reflected on T4s, but if clients have bruised credit adn other income that is not reflected in a T4 we can also consider this, for example family or friend assistance.
How does RTO work?
The RTO process consists of the following main steps:
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Check out our Available Properties and lots to see if there is a property (existing home or new build) you are interested in.
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Get in touch with us to discuss options and view properties. If we don't currently have what you are looking for, Contact Us to be added to our e-mail list to be notified of future RTO opportunities.
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To pre-qualify for RTO financing on one of our homes, complete our online Application Form.
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If client, property and program are a good match and client meets qualification requirements, a RTO proposal is prepared.
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If parties agree to a suitable arrangement, a legally-binding RTO contract is put into place, the down payment is made and the acquisition process for your Rent-to-Own home has started.
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Clients are engaged with our team throughout the acquisition and upon completion, clients move into their own RTO home (renting while building equity).
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At or before the end of the RTO term, once clients secure bank financing, they execute their purchase option, using savings and accumulated equity towards their down payment and take ownership of their home!
How long does the RTO process take?
The amount of time required for this process will vary on a case-by-case basis, depending on a number of factors (e.g. location, complexity of property acquisition process, time needed to repair credit, etc.). The acquisition process (Steps 2-6) may take anywhere from several weeks for existing homes to several months or more for new homes, and typically another 18-24 months for Step 7.
What are some of the risks of Rent-to-Own?
As with a conventional home purchase, Rent-to-Own programs are best suited to clients looking for long term, stable living arrangements. As with any contract, all parties are advised to seek independent legal advice and are responsible for any due diligence needed to ensure they are satisfied before entering into an agreement. In general, the risks are similar as those faced by all home buyers and are not unique to Rent-to-Own, and include:
Interest rate risk – If rates are up at the end of a 2-year term, payments will go up.
Income security – If you lose your job or are otherwise unable to pay your bills you may lose your home.
Market price risk – As with any home purchase, there is always the potential risk that market value of a home can decrease over a given time period.
Maintenance cost – Maintenance cost are the responsibility of the client. With newly built homes there is a 12-month builder warranty and a 7-year Atlantic New Home warranty, and in all cases, there is some protection provided by insurance.
Breakout costs – As with fixed rate, closed term mortgages offered through banks, there are costs to the client if they decide to break out of an RTO agreement.
What are some advantages of Rent-to-Own?
From a cashflow perspective, Rent-to-Own is usually more expensive than straight rent, so why choose Rent-to-Own? Some of the advantages are:
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Approval – The approval process is simpler than the process for bank mortgages.
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Stability – As long as the client pays their bills and looks after the house they are guaranteed the right to live there. Tenants in standard rentals often find themselves getting asked to leave because the life situation of the landlord changes (e.g. landlord decides to sell, move in, rent to family members, etc.). Rent-to-Own creates stability.
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Equity – The rent-to-own client builds equity in the property (dependant on market fluctuations) which makes buying the house at the end easier as this equity contributes toward the down payment.
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Locked-in price – House prices change over time. RTO contracts specify the purchase price at the onset of the agreement, affording more certainty and potential for profit if prices increase.
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Pride of ownership – The client has a guaranteed right of ownership, therefore there is incentive for small things like lawn care and cosmetic improvements, and security for big things like adding a basement apartment or building a detached garage.
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Added value - With a straight rental the landlord receives the benefit of any work that a tenant puts into the property. With Rent-to-Own the tenant receives the reward.
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Financial security – Straight rental is cheaper month-to-month but Rent-to-Own offers clients an opportunity to increase their wealth by accelerating home ownership and offering the potential for long term appreciation of your home value.
