Why Rent-To-Own Buyer Tenants are Less Risky

8 Reasons Rent-To-Own Tenant Buyers are Less Risky.

Written by David Pereira

Managing Partner and Co-Founder

May 1, 2023

I recently spoke to someone who really likes the idea of Rent To Own as an investor because of it’s passive nature and the great ROI. But he expressed to me that he wasn’t totally comfortable with the tenant profile due to their low credit score or savings. What happens if they don’t hold up their part of the arrangement?

His apprehension makes complete sense.

However, I’d argue that our Rent To Grow Homes policies makes our Tenant Buyers (TBs) a less risky proposition to investors compared to standard tenants.

Here’s are 8 reasons to justify this bold claim:

1. Vetting Process: Our TBs are screened very thoroughly by me and our mortgage broker before getting into the program. We check credit score, look at their savings/spending history and verify employment references. Most importantly, we get to know the individual and their motivations. The two most important question I ask myself “is this a family that I feel confident can stick to the plan we’ll given them?” and “Is this a family I would personally invest in?”

2. Buyer Mindset, Not a Tenant Mindset:  TBs are living in the home with the intent of purchasing in 3 years and so they’re more likely to treat it like their own home.  They’re less prone to trashing the place and they’ll even make enhancements to the place, paying for it themselves.

3. They are Responsible for Maintenance: Unlike the standard lease agreement, the Option-To-Purchase contract states that TBs are responsible for all maintenance issues.

4. Quarterly Property Checks: Our team will do a quick quarterly inspection to ensure they’re taking good care of the place.

5. Semi-Annual Credit Checks: TBs meet with their credit counselor once every 6 months to ensure they’re on track with the credit plan we’ve outlined for them. They’ll be providing their tax returns, bank statements and other pertinent information so that we can all feel confident that they’re on track.

6. Skin in the Game: The TB is required to put at least $10,000 as a down-payment upfront.

7. Breach of Contract Stipulation: Our Option-to-Purchase contract states that if the TB breaches the contract for any reason (late payment, not maintaining property etc..) they are at risk of losing up to 90% of their original downpayment + the accumulated option credits. I have no interest in enforcing this, but it does make the contract very investor-friendly.

8. Financial Upside if Tenant leaves: If the tenant does breach the contract or needs to leave, there’s a strong chance that this situation is favourable for the investor financially. This is due to the retained option credit + natural market appreciation + flexibility for a new exit strategy.

If you’re apprehensive about managing tenants because you’ve been burned in the past or you’ve heard some horror stories, reach out to me. I’ve managed tenants for my rentals and I’ve managed tenant-buyers for our Rent-To-Own deals. I’d be happy to share my experiences with you. – David

You May Also Like…

Our Code of Ethics

Our Code of Ethics

Unfortunately, the Rent To Own concept has a bad reputation that’s well-deserved. There are many stories of scam...

What is Passive Investing

What is Passive Investing

“I don’t want to do any of the work. I don’t want to deal with tenant complaints. I don’t want to hear about a leak. I...

0 Comments

Submit a Comment

Your email address will not be published. Required fields are marked *