Rent to Buy Homes and Condos
Toronto Mississauga property investors, who do not want to sell their homes or condos in today’s market, may consider leasing with an option to sell at a later date. A lease to buy option (also called rent to own) allows a qualified tenant (someone with a good credit history and job) to purchase their rented property at the end of the lease.
Newcomers, work permit holders and first-time buyers can benefit from rent to own option
Rent to Own option can work very well for newcomers or work permit holders in the GTA. It allows them to establish a credit history and settle down in their rented property first, before buying it. For work permit holders, Rent to Own can also help them buy time to purchase the property after securing their Permanent Residency status (if they decide to make Canada their home). By doing this, they will be able to save 20% NRST (Non-resident Speculation Tax).
Rent to own option can also help buyers to save for a down payment while renting the same property initially. A lease to purchase or a rent to own contract gives them a chance to come one step closer to home ownership.
Sellers in a buyer’s market can consider this method to sell their homes or condos.
Some developers in the past have even offered a rent to own program in Downtown Toronto to lure first-time buyers by offering this rent to own option. This was done as the new builder condo segment had slowed down and builders were looking for more creative ways to sell condos.
Understanding the lease to own option is very important, advises a prominent real estate lawyer.
“The idea of a rent to own agreement between an informed landlord and tenant, with professional representation, can be a win-win arrangement for both sides. This involves a lease with a separate option to purchase agreement, with appropriate protections for both the landlord and the tenant”.
How does the Rent to Buy option work?
Typically, in a rent to own option, a landlord (seller) extends the offer to buy the property after a period of time (usually one to three years) at a predetermined price; the tenant (buyer) has to pay an upfront option deposit (fee). That fee is generally non-refundable or can sometimes be made partially refundable. A small portion of the monthly rent is applied toward the down payment to purchase the home. Typically, monthly rent can be higher than the market rent in a “Rent to Own program”.
Advantages for the buyer (tenant)
- A portion of your rent is applied towards the down payment that helps tenants save for a down payment
- Tenant has a contract to buy the home when the lease is up
- Tenant can be also allowed to buy the home at any time during the contract
- Tenant can lock in the purchase price and stand to gain in an event prices move up (reverse can also ring true if property prices end up going down in the future)
Advantages for the seller (landlord)
- Immediate cash flow from the tenant and the opportunity to sell property later on
- If the tenant doesn’t buy the property, landlord keeps the up-front fee (or a portion of the fee, depending on the contract)
- Landlords likely get higher-quality tenants who take better care of the home since the tenants may want to buy it in the future
- Peace of mind knowing that tenants will take care of the home like their own
Things to consider when utilizing a lease to own option
There are many considerations whether you are a landlord or a tenant wanting to pursue a rent to own option.
Contact Team Kalia for more information. As a buyer, also ask about our Rent Now-Buy Later program.