Rent-To-Own (RTO) properties

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Rent-To-Own (RTO) properties

Post: # 47679Post Flipping4Profit.ca
Sun Apr 07, 2019 9:50 am

Rent-To-Own (RTO) properties

Rent-to-own can be a very effective way for a home buyer who does not have enough of a down payment,
or the right credit score, to buy a home. It allows you to make the purchase over time at a set price.

But you have to be careful. Without proper due diligence, problems can occur for everyone involved.

Rent-to-own real estate transaction, the owner and tenant sign an Option to Purchase agreement,
where, for a fee, the tenant acquires the right to buy the home two or three years later,
at a set price. The fee is usually 2 to 2.5 per cent of the purchase price.

The tenant pays the rent each month, plus another amount towards the down payment

When the savings of down payment comes up to 5 to 20% of the purchase price by the end of the contract.
Hopefully, by then the tenant has improved his credit score of at least 680 or above
and qualifies for an insured CMHC mortgage, and the deal closes.

A benefit for the landlord is that most tenants who have this option will take better care of the home,
since they expect to become the owners.

Here are some recommendations

Any deposit sum paid towards the final purchase price by the tenant should be held in trust,
similar to a normal real estate deal. It should not be paid to the landlord or a third party,
until the deal closes or terminates.

•Do your homework. For a small fee, go to the land registry office (LRO) and get a copy of the owner’s title records,
showing who actually owns the property and the amount of any mortgages registered against title.
Now you know you are dealing with the correct owner.

•You should also ask for a mortgage statement showing how much is owing on the property.

•Register the lease and option agreement against title.
This will protect the tenant from future dealings by the owner with the property.

•In most cases, the tenant will have to pay land transfer tax in order to do this,
but it should not be more than $100, so long as the option agreement is kept separate from the lease,
since land transfer tax is only payable on the price paid for the option, not the final purchase price.

•Always use a real estatelawyer to protect everyone involved by doing the proper due diligence in advance.

Rent-to-own can work for landlords and tenants, if everyone is properly prepared before signing anything

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