Guelph Rent to Own
Have you ever thought to yourself, “why am I paying rent, when I could have a house of my own for the same money?” If you have, you are not alone. So with this thought you head off to the bank with a skip in your step because you are about to buy a house! After all it makes sense right? With interest rates so low, you can buy your own house and be paying less than your current rent! Sounds exciting.
20 minutes later you slowly walk out of the bank with your head down… you were just informed that your credit isn’t good enough and you do not qualify for a mortgage. Most of you would just stop there and accept the fact that this world is cruel and backwards. That just doesn’t make sense… If you are paying less than you are now then how come you can’t get a mortgage?
There is hope though! “How can this be?” you ask. There are thousands of people out there just like you already living in a home with the same credit problems. They just found a way, which I am going to show you in a second. Maybe your job is good, but you just have a little too much debt, or you have been bankrupt in the past, perhaps you are new to the country. Whatever the situation, you have hope from something called rent-to-own or lease-to-own. Some media present this alternative as a dangerous scheme by business savvy entrepreneurs who feast on unwary helpless victims. There is some merit to these reports, so be ware, but like every profession or business there are crooks and heroes. So having said that, there are more good deals than bad deals. In fact I have access to several trustworthy investors who are willing to help people get a leg up in life. Of course they do make a profit but are more than fair with the terms and have a strong desire to help people build their credit and live in the home they eventually purchase at the same time.
So This is How it Works
The concept is simple really, you see the problem isn’t that you cannot “pay” for the home, it is simply that according to the bank’s preset rules something in that formula doesn’t click. That could be anything from student loans, a car payment, maybe you missed a few payments along the way. I won’t get into the details of why you didn’t “fit the mold,” but will focus on how you can “break the mold.”
In comes the investor. Why would an investor help me, you might ask. Well an investor wants to make money, that is their primary goal and real estate is a proven investment. They have good credit and some cash reserves, so they want to buy a rental property. Most investors will just buy a typical house or student rental and proceed to rent it out and collect cheques. Somewhere down the road they sell it and make more money. The risk in this concept is that not every tenant is guaranteed to take care of the property, or even pay the rent for that matter. Then the sale; that’s not guaranteed either.
Imagine that they could find a renter who is guaranteed to take care of the property and is actually willing to put money into improvements. Why would a renter do this? Because they will eventually own it. They will also make all the payments because if they don’t the contract becomes void. Lastly the problem of ownership is solved because there is an agreement to purchase at a set date for a set price. The banks like to lend money for these types of deals. It is a win, win, win for all.
How Does a Renter Benefit?
A renter will benefit because they will get to live in a house that they will eventually own while building their credit. They will also feel comfortable in adding improvements to the home because they will get to enjoy the results after ownership is achieved. They also have the benefit of knowing what they will pay for the property at a fixed time. If the market goes up really fast, then they can feel comfortable in knowing that they are gaining equity, rather than always being behind the market. (aren’t able to save faster than house prices rise). Sometimes the market does go down, but history has shown somewhere around a 3% annual gain on average.
The greatest benefit for the buyer is that they have special guidance in repairing their credit and have a team of professionals who are guiding them. If your Realtor or Investor is not willing to refer professionals who can build your credit then this is a sign that they are not looking to help you.
How Does a Rent to Own Work?
Good question. A simple answer is better than a long winded and confusing one, but a good conversation with your Realtor after reading this article (I would be this person) is definitely required. So here it goes… Ok, so you start off by meeting with your real estate team which includes the agent, investor and banker to determine what your current situation is. After all you can’t determine how to get where you are going if you don’t know where you are currently at. After you figure out a time frame and how much you can afford at the end of that time frame, you will talk with the real estate agent to determine what you want and what is available. You then set out to find a house. Once you find a house that you love, the Realtor will construct a purchase offer in the name of the investor with a side agreement between you and the investor to lease the property for a period of time (usually 2 years), with an option to purchase at a pre-determined price. Sounds simple, so what’s the catch?
The catch is that the investor needs a guarantee that the property buyout will actually take place, so they will require a non-refundable deposit. This amount will depend on the investor and is usually 5% of the property value but there are some who only require as low as 2%. Often they ask for rent with an extra portion on top which is held in trust and applied to the eventual purchase (a down payment). The reason for the extra amount is to assist in the savings for a down payment. The last part is the purchase price, the investor will require the buyer to agree to an eventual purchase price of at least 2% per annum above the original purchase price.
If a property were purchased foe $200,000 the future purchase price in two years would be