Could rent-to-own make it possible for you to purchase a home?
How does rent-to-own work?
Scenario No. 1
After spending years in university, a young woman is now moving on to the next phase of her life. She has a well-paying job in the field of her expertise. She would like to settle down and buy a home. The problem? She is burdened down with a large student debt from university and has no down payment.
Scenario No. 2
A man lived for 10 years in a home he owned with his wife. Recently he and his wife split up. He has a solid, steady job but no equity after the breakup. After owning his own home for years, he doesn’t want to have to start over by renting.
Scenario No. 3
A young professional person with a good-paying job spends most of his wages on his toys. He pays for almost everything in cash. He wants to buy a home but has no credit rating and no down payment.
What do the three people in the scenarios above have in common? They probably could not get a mortgage from a bank. Yet, all three are more than capable of making payments on a home.
Jessica Curran, owner of Primary Choice Homes in Nelson, found herself in a situation where she had a lot of debt from university and the possibility of saving for a down payment for a house seemed a long way off.
Curran and her husband purchased their first home by rent-to-own. It wasn’t something they had known about; they almost stumbled across the concept. Curran and her husband became friends with the gentleman whom they rented from and talked to him about the possibility of rent-to-own.
“We got him to hold a private mortgage for us,” said Curran. “We paid higher rent and paid down the mortgage. When we were ready, after two years, we went to a bank and bought him out.”
Her own experience made Curran see a need for others who may be struggling as well.
“I was really curious about implementing this strategy,” said Curran. “I have always been fascinated with real estate and working in that field. It just seemed like an interesting niche.”
Primary Choice Homes was born as a result.
What is rent-to-own?
The concept is simple—the tenant-buyer pays a higher rent than the market value. Part of the rent then goes toward a credit fund which is set up as a down payment. At the end of the agreed rent-to-own term—usually about two or three years—the tenant-buyer is able to qualify for a mortgage at a bank, has a down payment and can buy out the home 100 per cent.
Rent-to-own is a win-win for the potential home buyers and sellers. The tenant-buyers will look after the home as if it were their own. Sellers know that the home is getting taken care of and won’t have to worry about upgrades or vacancy.
Another benefit for potential buyers is that they know that any repairs or upgrades they are doing are going towards improving the value of their own home.
Sellers also benefit as they have their rental home occupied. They know that they will sell in the near future. They don’t have to worry about the home being trashed or vacated.
Curran said that rent-to-own only works with diligent planning, and there is a structure in place that must be followed. If the due diligence is done with the financial advisors, bankers, brokers and lawyers, it can be a rewarding experience for both the buyer and seller.
“Your home is often a pillar or building block of your life,” said Curran. “It turns into an asset for you in the future.”