Tuesday, July 30, 2013

Rent to Own

Landlord and Tenants is this an option?

In a Rent-to-Own contract the Landlord will make a deal with the tenant, for a fee the tenant will have the right to buy the home within an agreed upon time (usually 2 or 3 years). In return the tenant will pay their rent each month, with 2-2.5% of the purchase price on top of their regular rent (ie the tenant may pay a couple hundred dollars each month on top of their rent to eventually have enough for the downpayment). By the end of the term, if all goes well the tenant will have improved their credit score and be in good standings to be approved with an insured mortgage under CMHC. tenants can secure their purchase price a few years in advance.

Landlords can benefit from this as well, as their tenant will hopefully take better care of the property, if they intend to own the unit.

Here are a couple of points to remember:

-Deposits toward the sale of the home should be held in trust to a third party and not be paid directly to the Landlord until the deal closes.

-Ensure your landlord has title to the property. Visit the land registry to check on the title and any mortgages/liens on the property that could affect the sale.

-Register the lease and option agreement against title. The will protect the tenant with their future sale of the property. Tenant will have to pay land transfer tax, but at this point they will only be paying land transfer on the option, as long at it is kept separate from the lease (not the full sale of the property until closing) which should only be about $100.

-Always consult your lawyer to ensure everyone is protected in the deal.

Read more from Mark Weisleder's article