Canada is adopting a rent-to-own approach to first-time home ownership. Of a $2 billion investment, $200 million is invested in rent-to-own housing. This model gives renters an incredible opportunity to buy their own homes, but what does this mean for property investors?
Why is rent-to-own ultimately a good thing?
About the housing investment, Prime Minister Justin Trudeau said, “For a lot of renters, saving to buy a home is increasingly difficult. Through this new program, we'll work with housing providers to help families go from renting to owning their home.” This phenomenon is increasingly common in the housing market today. In rent-to-own, the buyers will pay a down payment and then pay rent that goes towards the purchase of the home in a fixed amount of time. Learn more about the process here.
Housing accessibility is great for upwards mobility of low-income or young families, but it is also beneficial for sellers. Sellers have traditionally only been able to sell to a portion of the public with a certain income that allows them to buy a home. With rent-to-own, sellers have a much wider range of people they can sell to, giving them more bargaining power. There are so many aspects of this model, so let's make a pros and cons list.
Pros for sellers
For sellers, there is a myriad of benefits rent-to-own offers. First, it offers a steady revenue to you. Renters are much more motivated to make monthly payments on time when there is an avenue to ownership, which means you earn passive income that is more reliable than traditional renting. Second, most rent-to-own agreements happen independently, so sellers don't incur transaction fees when the sale eventually happens.
This model is especially useful for sellers that are moving suddenly, or the market is just keeping your house up for sale for a long time. You get access to a larger portion of the population who want to buy but may not be able to afford it. You get paid monthly and have an agreement to sell your house at the end of a fixed time.
Cons for sellers
There are some risks associated with selling a home with the rent-to-own model. One of the biggest is that in strong markets, you can decide on a home price before the market peaks. Market changes can result in missing out on appreciation if the timing of your offer is not right. There is also a chance the renter doesn't go through with buying the property. Even in this case, you can keep the money from the down payment.
You should also know that you will not receive a large sum of money immediately. This can be a negative if you are looking to buy another house while you are renting out your property. The last risk you take is that you are ultimately subject to renter-landlord laws. Even if your lease says otherwise, if something breaks, it may be your responsibility to fix it.
If you are interested in renting-to-sell and want to talk to a qualified real estate investment advisor, visit https://www.regalwayhomes.com/book-online.
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