4 Reasons that Tenant Buyers LOVE Rent-To-Own

Written by David Pereira

Managing Partner and Co-Founder

May 7, 2023

The rent-to-own concept is designed for people that want to purchase a property but need more flexibility and time to prepare for it. The idea of Rent-To-Own has been around for a long time and in this blog post, we’ll cover 4 of the mains benefits to tenant buyers*.

  1. Credit Improvement
  2. Time to save up down payment
  3. Lock in future purchase price
  4. Predictability removes stress

*Tenant Buyer (TB): Someone that enters the program with the intention of moving into the house immediately as a tenant and then eventually buying the house.

Let’s dive in!

  1. Credit Improvement

In Canada, having a good credit score is essential when it comes to qualifying for a mortgage. Our Rent-to-own program helps our TBs improve their credit score in two ways:

  1. We report rental payments to credit bureaus. If you make your payments on time, your credit score will improve.
  2. We connect our TBs to a credit counselor, and we pay for this service. The job of the credit counselor is to create a credit plan to give you the instructions on what you need to do over the 3 years to improve your credit. The TB and the Credit Counselor meet ever 6 months to ensure the TB is on track with the plan so that when it’s time for the TB to get a mortgage, it should be a straightforward process.
  1. Time to Save for a Down Payment

Saving for a down payment can be difficult. If you’re getting a house for $400,000 and you’re put 5% down, that’s $20,000 needed. Then you need enough for closing costs such as legal and land transfer tax and other little expenses. That can easily add up to $8,000 which means you need at least $28,000 in the bank to close on a house. For many people in Ontario, that’s seems impossible.

Our Rent-To-Own program makes it possible by breaking down the big number in a manageable monthly portion. Let’s assume you need to $28,000 to close on a house. And let’s assume you’re starting with a down payment today of $10,000. That means you need to save an additional $18,000. If we assume a 3-year RTO term, that means you need to save $6,000 a year or $500 a month.

So, in our program, you would pay normal market rent + a $500 option credit. At the end of the 3 years, you would save the additional $18,000 to add to your original $10,000 which would give you a total of $28,000.

  1. Locks in the Future Purchase Price

From 2010-2022, the housing market went in one direction: UP. That all changed in 2022 and prices came down significantly in many Ontario markets. However most real estate experts (realtors, mortgage agents) will tell you that the bottom is in, and prices are starting to rise slowly.

For many people who want to buy and home and need time to improve their credit or down payment, this is scary. They’re worried about bring priced out of the market by the time they’ve fixed their money and credit situation.

In our program, we assume that the market will appreciate 5% each year and lock in that price for our tenant buyer. We chose 5% because this is historically the rate that housing has gone up in the last 20 years.

Let’s walk through an example. Assume our Tenant Buyer is approved for a $400K home today and we assume a 3-year term at 5% appreciation each year. That means the TB will agree to buy the house in 3 years for $463,050 ($400,000 x 1.05 x 1.05 x 1.05).

Even if the market rises to $480,000, $500,000, or even $600,000, the price is contractually locked in $463,050 from the start.

  1. Predictability Reduces Stress

Being a tenant can be tough. You might have to deal with difficult property owners, rental increases, unsafe conditions. Lately, many tenants have had to cope with the lingering threat of the landlord selling or being served an N12 or N13.

There’s lots of uncertainty to manage and each month, you’re giving money to your landlord that you’ll never see again.

Rent-To-Own offers predictability. Here are some of the numbers we know on Day 1.

  • Home price today
  • Home price in 3 years
  • Amount needed to be saved in 3 years
  • Rent for the next 3 years (this number stays the same each year)
  • Starting down payment
  • Monthly Option credit saved towards down payment
  • Total down payment at the end of 3 years

Our Tenant Buyers enjoy peace of mind knowing that they’re in a program where the goalposts don’t keep shifting.

If this sounds appealing to you, check out Tenant Buyer page for more details and fill in the form. I’d be happy to talk with you to see if we can help you earn your way to home ownership.

– David

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