Frequently Asked Questions

Is renting to own legal?

Yes, it’s perfectly legal in Canada, all 50 United States, Australia, the UK, and any other country which has a free-market economy where lease agreements and option agreements are legal.

Why does rent to own get such a bad rap?

Lease to purchase horror stories come from the fact that this industry has operated unregulated for years. It attracts many unlicensed practitioners that are not accountable to any governing body. Many of these deals are not structured in a way that helps the tenant/buyer achieve home ownership and some are outright predatory cash grabs that care only about getting your upfront deposit.

Because we are a licensed brokerage, we are regulated and held accountable at the National, Provincial and local board level, so you can rest assured, we only succeed if you succeed. A Rent to Own deal done the right way is a terrific win-win for buyers and sellers alike.

How much money do I need to start?

In order to qualify for this type of program, a minimum 3.5 percent down payment is required. A starting purchase price of $450,000 equates to a minimum $15,000 down payment.

Due to a high demand for rent to own options, in order to begin the application process, we require proof of the entire down payment. Funds expected but not yet accessible cannot be used to qualify. For example, a gift, an inheritance, a loan, a settlement, or equity in another home. This money will be used towards your agreed purchase price.

How is the monthly payment calculated?

As mentioned above, the monthly payment is modelled after the true cost of home ownership. We take the difference between your purchase price and your down payment and do a mortgage calculation at the same rate you would hope to get at the banks today (typically 3.5%). We then factor in the monthly expenses of property taxes and insurance or strata fees (if condo or townhouse) and this becomes your monthly payment. This will be very close to the payment you will have when you do transfer the home into your name at the end of the term.

How is the monthly option credit calculated?

The monthly option credit per CMHC guidelines is the difference between your total monthly payment and a market value rent appraisal. The mortgage insurers will not consider Rent to Own agreements with option credits that are not over and above the market value rents. We learned this one the hard way. For example if your payment is $3,000 per month and the market value rent of the property is $2,200, then $800 is the maximum allowable credit.

How is the purchase price calculated?

Our program is very fair and we base the list price on today’s market value. This is the price you pay for option agreements up to one year. For agreements that span multiple years, you pay a modest appreciation rate of 3.5% for each year needed. The Kelowna real estate market over the past 30 years has averaged over 5% per year.

What if the market value drops and I can’t get a mortgage due to a low appraisal?

We have a couple of options here. The first and most typical option is to extend the agreement until the values return to the pre agreed option price. The second option, is to split the difference. For example; if the option price was $500 and the value at the end of the term was only $450, the seller could agree to meet in the middle at $475.

What if the market value skyrockets during the term?

The option price must be honoured. The seller cannot back out of the deal. The difference between the option price and the new market value is your windfall, and your reward for making the decision to get into the market when you did.

What is the difference between a lease to purchase, a lease option, and rent to own?

Lease to purchase, lease option, and rent to own all mean the same thing. They refer to an arrangement that contains both a lease contract and an option to purchase contract.

Who carries the property insurance?

The insurance on the home is carried by the owner of the home. The insurance on the contents of the home will be carried by whoever owns the personal property inside, usually the tenant/buyer. This is typically called renter’s insurance.

Who pays the taxes?

The titled homeowner will be responsible to make the property tax payment annually. The total monthly payment of the tenant buyer is inclusive of this expense and is considered when modelling the monthly payment after the true cost of home ownership for the tenant buyer.

What if I cannot close on time?

Unlike the unlicensed competitors in the rent to own business and the source of any horror story you read online about these deals, we don’t set you up for failure. We take steps to ensure you have options to prevent the scenario where a tenant buyer would lose their deposit.

Can I renovate the property?

Yes you are welcome to make improvements to the home provided they are done to a professional standard. All sweat equity will be yours to keep!


Glossary

Amortization

The process of reducing or paying off a debt with regular payments over a period of years. The payback period is typically 25-30 years if a 20% or more deposit is put down.

Appreciation

The increase in the value of a property due to changes in market conditions, inflation, or other causes.

Assignment

When ownership of your mortgage is transferred from one company or individual to another, it is called an assignment.

Down payment

The part of the purchase price of a property that the buyer pays in cash and does not finance with a mortgage.

Equity

A homeowner’s financial interest in a property. Equity is the difference between the fair market value of the property and the amount still owed on its mortgage and other liens.

Free-market economy

An economic system where the government does not interfere in business activity in any way.

Lease option

Also known as rent to own or lease to purchase.

An alternative financing option that allows home buyers to lease a home with an option to buy. Each month’s rent payment may consist of not only the rent but an additional amount which can be applied toward the down payment on an already specified price.

Lease to purchase

Also known as rent to own or lease option.

An alternative financing option that allows home buyers to lease a home with an option to buy. Each month’s rent payment may consist of not only the rent but an additional amount which can be applied toward the down payment on an already specified price.

Property insurance

A series of policies that provide either property protection coverage or liability coverage. Property insurance provides financial reimbursement to the owner or renter of a structure and its contents in case there is damage or theft, and to a person other than the owner or renter if that person is injured on the property.

Property taxes

A real estate ad-valorem tax, calculated by a local government, which is paid by the owner of the property. The tax is usually based on the value of the owned property, including land.

Rent to own

Also known as lease to purchase or lease option.

An alternative financing option that allows home buyers to lease a home with an option to buy. Each month’s rent payment may consist of not only the rent but an additional amount which can be applied toward the down payment on an already specified price.