Rent To Own as an Investment


Rent To Own As an Investment

The basic principle is simple, but the annual return on investment is phenomenal, in most cases exceeding 25% or even 30% or more - and a large portion of that income is tax deductible! Furthermore, if the investment is held as part of a balanced portfolio inside a “Tax Deductible Mortgage Plan” or a “Reverse Mortgage” then there are even more benefits to the investor.

Up until the onset of the toxic mortgage debacle in the US, which began in 2008 and has created global financial meltdown, as a mortgage broker I could arrange a mortgage for almost anyone. It didn’t really matter how bad their credit was, there was always a lender somewhere who would find a home for what are now being called “orphan mortgages”. Times have changed however and the government, through their crown owned mortgage default insurer Canada Mortgage and Housing Corp., has considerably tightened the guidelines relating to mortgage approval, so that today it is as difficult to obtain a mortgage as it has ever been.

Life is hard, and sometimes bad things happen to good people. Unforseen occurrences like divorce, business failure, lay-offs, motor accidents and ill health, can all contribute to a poor credit rating, meaning that people with good moral character no longer qualify for a mortgage in today’s restrictive mortgage market. In order to bridge this gap, and never being one to shirk a challenge, I have embraced the age-old concept of Rent To Own, expanding it to provide a means for a renter to obtain the home of their choice today, and for an investor to place their hard-earned savings into a rewarding investment which is solidly protected by bricks and mortar.

Here’s how it works: A renter wishing to obtain his/her own home applies to me and is interviewed as to suitability for the program. If so I approach my investor who, having first exercised the opportunity to meet the tenant and inspect the house, purchases the home of the renter’s choice, agreeing to sell it back to the renter at the end of the contract for a pre-determined price acceptable to both. Investment amounts range from $20,000 to $50,000.

The renter provides the investor with a down payment (usually 5% of the purchase price or more) as if they were obtaining their own mortgage. In addition to an acceptable monthly market rent, the renter also pays an additional amount (usually 20% of the monthly rent amount) which is accumulated and held as security by the investor over the term of the contract and which, combined with the renter’s original down payment, forms a substantial credit towards the final purchase price when the tenant buys the home back form the investor. The home is owned 100% by the investor at all times until transfer of title back to the renter at the end of the term, usually three years. Should the tenant default under the terms of the contract and/or not exercise his/her option to buy the home at contracted price at the end of the term, all additional monies in excess of market rent are defaulted to the investor, who is now free to sell the home, rent it to another tenant or enter into a new Rent To Own arrangement with a different tenant.

Conversely if the tenant performs improvements to the home (with the investor’s permission) the sale price from investor to tenant at the end of the contract will not change from that in the original agreement, whatever prevailing market conditions are at the time. The intervening three years is utilized by the tenant, coached by myself, to correct and repair their credit situation, so that now they will qualify for a mortgage and will be able to buy back the home at the end of the contract. Safeguards are built into the agreements to protect both tenant and investor in a number of eventualities and great care is taken to ensure the arrangement is a win-win proposition for all concerned. 





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