How we started Rent to Grow Homes

Written by Maninder Chauhan

Co-Founder

February 22, 2023

Over the years, I have looked at a number of ways to invest and generate additional income. In 2016, my wife and I purchased a pre-construction townhouse that was built in 2018 and that we rented to a tenant. It was your typical buy-and-hold real estate investment – try to break even on the monthly carrying costs and sell it later for an appreciation. We sold that townhouse in the summer of 2020 and along the way learned a lot about some of the ins and outs of real estate investment:

  • how to place a tenant
  • collecting rent on time
  • property management and is available to fix household problems
  • tenants moving out or refusing to leave on time
  • cleaning and preparing a property to sell
  • the various costs and fees
  • managing all the paperwork

It was a worthwhile experience but there is certainly a great deal of work and travel involved. This wasn’t ideal for our lifestyle since we have 2 young kids.

Real Estate Investing Can be Awesome BUT….

In the summer of 2020, I shared my experience with David who had a real estate investment property that he recently sold. Together, we recounted the amount of time, energy and expense we collectively put into our properties. David had the experience of actually having to incur some large ticket expenses. We both agreed that Real Estate is a sound and solid investment but recognized that there is a great deal of stress and the unexpected expenses do add up.

We thought it would be a good idea to partner on a real estate investment together to combine our collective learnings and capital. We would split the amount needed for a 20% downpayment and one of us would qualify for the mortgage.

All the investment types were on the table. We looked at pre-construction, fix and flips, BRRRs, legal duplexes and a host of other tried and true real estate investment options. Then David wound up listening to a podcast where Erwin Szeto interviewed Rachel Oliver that was focused on Rent to Own and we started to go down that rabbit hole.

Our Introduction to Rent To Own

Rent to Own is a concept that helps a specific group of renters that have a relatively high income but can’t get a traditional mortgage to buy a home due to credit issues. These renters, known as tenant buyers or TB, are matched up with an investor who shares similar interests in terms of location and home price.

The Investor buys the house the TB desires and agrees to sell it to the TB in 3 years at a pre-determined price. The TB provides an up-front amount as an initial option credit which will be ultimately used for their down payment in 3 years. They pay their monthly rent and an incremental amount which accumulates towards their down payment in 3 years. The TB takes care of the property and after 3 years, they qualify for their mortgage and exercise their option to purchase at that pre-determined price point.

What’s in it for the Investor?

As someone looking to invest, my initial reaction was – How is this better for the Investor? We potentially lock ourselves into a price point that’s lower than what the market will be in 3 years. The Ontario housing market is on fire, so this can’t be that smart. Can it?

What David and I realized was that Rent to Own provided some significant positives to us as Investors and had the added benefit of being a program that helped a family looking to purchase a home.

In our case, the way the deal was structured, we had the following benefits:

1. Certainty: We knew who we were renting to and how much rent we would collect before we even purchased the Investment property. There would be no stress on placing a tenant or carrying the property for a month or two while someone moved in

2. The TB is motivated to take care of the home – The Tenant we were placing had the intention of buying the home. This meant that property maintenance wouldn’t be a concern (they were taking care of the property) and they would also be accountable for any and all home care. We would not be expected to respond to the many common questions or home care duties that landlords are accustomed to

3. The TB had skin in the game – The initial option credit actually offset the amount we would need to contribute for the 20% downpayment. This meant our investment was lower.

4. Monthly Cash Flow – Given the certainty of the numbers, we knew we would cash flow positively every month. The monthly expenses were covered and we were secure in that knowledge before we even bought the house.

5. Clear Exit Strategy – There was a clear exit strategy in 3 years, and little to no expense to execute it. We would not need to clean, paint and stage the property to sell. We wouldn’t be paying a realtor a buying/selling commission (up to 5%) to sell the property. We wouldn’t be carrying the monthly expenses on the property for 2-5 months while it sold and closed. We would simply be signing and transferring the title to the tenants that were already living there.

Could we lose out on increased appreciation? Yes, we could, but we knew exactly what all of the numbers would be before we even bought the house – so there wouldn’t be any surprises. We knew exactly what we were getting into and we were pleased with the projected ROI.

Most importantly we knew the effort and stress of this investment. Spoiler: we have had none.

We Jumped In as Investors

David and I worked with Rachel Oliver’s team to place a tenant buyer in a home that we purchased in 2020 and since that time have not had any issues with rent collection, property management or stress with that investment.

We Jumped in Deeper – as an RTO Operator

We were huge fans of the model and as we told some of our friends and family, we noticed some interest. We would have been happy to refer them to Rachel Oliver, however, she and her husband have already accumulated a massive list of investors so getting access to her deals can be challenging.

Thus we decided we could start our own RTO Operating business. We could leverage our business acumen, experience and general know-how to facilitate more of these deals for tenant buyers with our network of friends and family who could be investors.

This led us down the path to creating Rent To Grow Homes and we worked with an RTO coach to help us accelerate our learning curve and to ensure we had all the right processes in place. We also interviewed several other RTO operators to learn how they did things and we’ve cherry-picked aspects that we really liked.

As a result, we feel we have a complete and comprehensive program with a focus on risk management and outcome certainty for all parties involved. In other words, it’s a model that ensures all stakeholders get what they want. The tenant buyers get access to a home they want today with a path to homeownership that doesn’t exist otherwise; the investors and ourselves generate a predictable profit. Truly, a win-win scenario.

Check out our site and reach out to us with any questions you have on Rent to Own from either the perspective of an Investor, Real Estate Agent or Tenant.

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