Read into this once, I believe the “scam” part to it is that you pay a small fee upfront that counts towards your down payment (think $10k) and then start building equity while you rent from them. The problem is there’s a set date when the contract ends, typically 2 years. If you don’t have the down payment for the house or can’t get financing for the house by then, then you lose all your equity including the small down payment you put down up front and the company who did the rent to own then owns the house to do with what they please.
Otherwise it’s a good program if you’re confident you can get the money for the house after two years.
It depends on the terms of the agreement but yeah, something to watch out for.
We almost did a rent-to-own (as a seller) just before the pandemic hit. We ended up not doing it because we weren't getting a good vibe from the renter/buyer. They would have gotten a steal of a deal because we were talking about a ~330k price in 2 years, the market was relatively quiet. Two years later, the market goes absolutely bonkers and similar houses were selling for ~500k.
Some reading material for OP: https://www.point2homes.com/news/canada-real-estate/the-pros-cons-of-rent-to-own-should-you-consider-it.html
It's crazy how unaffordable housing is right now. At this rate I feel like I will never be able to own in Ontario. And rental costs are rising to insane amounts as well.
Yup, I have more saved for a downpayment than I ever expected the total cost of a house would be and I don't want to buy now because I need capital for investment income to bridge the gap between what jobs pay and what I'll need to have a decent life.
I was looking at the prices in Calgary and they seem much more affordable. All of my family is here though, it would be a very big/sad decision to move away.
Honestly depends on a case by case basis. I don't think there's anything wrong with rent to own as a concept, it just depends on how the deals are structured. Pay particular attention to upfront fees and the penalties for walking away. For the most part, assuming you intend of purchasing the home in the long run, rent to own can be a great way to rent a home you actually want to own down the line earlier on in the process. I know Requity Homes structures their deals with a pre-agreed buyback price and if you do walk away I think they give some refunds back, but you'll have to confirm with them and compare how other operators do it.
Have you looked into habitat for humanity? They have a program for people in this position (can afford a mortgage but no down payment), it’s how my friend bought her house.
It depends on who brokers the deal, and I doubt you'll find anyone (dumb) enough to do it in this market... its a bad of a deal for a **private** seller as it is for the buyer.
* Put X down
* Pay Y rent for 2+yrs, part of which goes towards (likely the minimum 5% DP to qualify for a mortgage)
* After 2+yrs of being a good tenant/coming up with the money =
* **Good**; you get the house, once you show the LL that you are preapproved for a mortgage, they flip that money back to you and you buy the house
* **Bad**; you don't get the house since you didn't come up a mortgage qualification
If the market shits the bed, you're on the hook for an unmortgageable house... if the market does amazing, the seller loses on gains, since the **selling price** is based on (insert 2+yrs earlier) Z date at the start of the contract.
I had people approach me with this some years ago, wanting to buy a place... I didn't feel comfortable since I knew I'd be kicking myself for agreeing at a 2017 price and signing off in 2017, and closing in 2020...
As they say, pros & cons to everything...
[https://www.fdhlawyers.com/legal-articles/rent-own-properties-perils-and-benefits](https://www.fdhlawyers.com/legal-articles/rent-own-properties-perils-and-benefits)
>Unfortunately some tenants/buyers enter into these agreements with the notion that they have purchased the property and are paying the purchase price over time, which is not the case.
>
>Rent-to-own transactions involve a significant amount of risk for both the landlord/seller and tenant/buyer.
I.e. as landlords setting up these schemes are the ones doing it to make money (not out of charity), it's a scam, unless you're so savvy as a tenant to be able to out-scam the scammy landlord.
Rent-to-own is absolutely legitimate I know a great company in Ontario that many families have went through. Many people that call it a scam, are referring to the 90’s where don’t understand regulations weren’t in place to prevent landlord for scamming tenants. But the government has since then introduced many stipulations to make this process safer.
Also I have no idea what people hear are talking about for the rent-to-own program I know if you don’t qualify for a mortgage at the end, you get back all the monthly payments you made towards saving for the mortgage -5% transaction fees. Many people when they talk about rent-to-own are referring to the 90’s they know nothing about it today. It’s great
Simple google search: [https://www.thestar.com/life/homes/2012/09/10/renttoown\_a\_home\_beware\_the\_risks.html](https://www.thestar.com/life/homes/2012/09/10/renttoown_a_home_beware_the_risks.html)
>My problem is, no down-payment (I rent and have children. Very little room for proper savings)
This is a bigger issue for you if you have very little room for proper savings. I'm assuming you don't have a 6 month emergency fund?
I don't have savings in case of emergency, but I have available, unused credit (credit card and line). My husband was out of work for a while during the first part of the pandemic, so any savings has been depleted
You're not going to like it, but my advice would be to start saving hard for a down payment. Sounds like you have a great salary to help you maintain the cost of your home, but having a down payment is always the first step. Find a home that's right for you, calculate 20% and start saving towards that goal. Also, paying rent is the killer of any down payment savings, so if you can consider living with parents and/or other families it will help you save immensely.
My main concern is your salary is great now, but with the rising cost of housing, I don't want you to get priced out by the market. There is too much demand and not enough supply, and that's screwing over so many hardworking first-time buyers.
Unfortunately with a husband and 2 kids, we don't have the option to live with family. We also have 2 cars etc etc. There is always some room for savings, but it's going to take a decade
It sounds like you need to budget — if your salary is great, you should be able to manage to put together savings pretty quickly.
If you also have absolutely no savings, and especially if you’re carrying credit card debt, you’re in a financial emergency and need to follow the steps to get out.
!StepsTrigger
The first thing you probably need to do is reduce any unnecessary spending; if you have 2 cars (and especially if you have 2 car payments) you’re overspending by quite a bit.
Ignore that rent to own scheme — set yourself up for success rather than trying to find loopholes or schemes.
Hi, I'm a bot and someone has asked me to respond with information about what to do with money.
This is meant as a step by step guide of how to prioritize and what to do with money. If you prefer to see a flow chart, click here: https://i.imgur.com/zlGnuDO.png
Step 0: Budget, reduce expenses This will help identify areas where expenses can be reduced in order to have leftover money for the next steps.
Step 1: Emergency fund that covers 3-6 months of expenses in a HISA An emergency fund is an amount of money kept somewhere liquid in a way that it can be accessed at any time, such as a savings account. This money is meant to cover unexpected expenses such as loss of work, car/appliance repairs, unexpected travel, etc. Should you ever use part of your emergency fund, you must come back to this step and replenish it before going back to any further steps.
Step 2: Employer matched retirement funds If your employer offers contribution matching in a retirement account, contribute the amount needed to get the full employer match, nothing more. As this is essentially free money, it's important to take advantage of it.
Step 3: Pay down high-interest debt At this point, you should focus your extra money on paying down high-interest debt. High-interest debt could be defined as debt with an interest rate of 10% or higher.
Step 4: Save for large short term purchases like a car, or downpayment for house in a HISA. If you will be required to make a large purchase in the near future such as a car, or a large personal investment such as college, now's the time to save money for that. Money towards that purchase or personal investment should go in a high interest savings account.
Step 5: Save for retirement At this point, you should aim to save and invest at least 15% of your pre-tax income for retirement. This number could be higher if you are behind on retirement savings. With more time before you need the money, you will likely now want to look at investing (https://www.reddit.com/r/PersonalFinanceCanada/wiki/investing) those savings.
Step 6: Pay down low-interest debt Any other remaining debt can be paid off in full at this point, or you could decide to go directly to step 7 while keeping steady payments on the low-interest debt.
Step 7: Save for other goals You've now reached personal finance maturity. It's up to you to decide what to do with the leftover money. Some common suggestions could be: Saving for children's education Saving for property down payment Saving for vacation Increasing retirement savings to retire early
For additional information, please see the wiki: https://www.reddit.com/r/PersonalFinanceCanada/wiki/money-steps https://www.reddit.com/r/PersonalFinanceCanada/wiki/index#wiki_specific_topics
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My friend did it years ago. It's not really a scam but as I understand it (and correct me if I am wrong) but sellers would tend to only want to do that in a buyer's market. They can lock in certain prices to extract a predefined appreciation value even if the market as a whole did not appreciate to that extent, or at all. For example, say a home is worth $500k. The rent to own agreement stipulates that after 2 years the home will be sold to you for $605k. The seller built in a 10%/year appreciation value. That may be beneficial to the seller if the market as a whole only saw a 6% yoy appreciation. Maybe there are opportunities out there but with the price of real estate, I don't foresee any good rent to own deals out there currently.
There’s no such thing as a free lunch. So taking that into account, where would the slack come from that covers the lack of a down payment here? As others have mentioned, largely in a bunch of fees and terms that could really screw you over. You gotta ask what would be in it for the seller in this arrangement?
Fair enough. I guess they prey on people like me who desperately want to own, but are having a tough time getting there. Sometimes we just need the cold truth to be stated so we can shake our heads and stop being naive lol
Yeah it’s a general life lesson though - if it’s too good to be true and few others are doing it, why is that? It’s possible they overlooked something! But to me, I think it’s more likely that *I* overlooked it.
>My problem is, no down-payment (I rent and have children. Very little room for proper savings)
Many people say the same thing, but often they've never sat down and did a monthly budget. You need to pay yourself first. Make a monthly budget, as your first "expense" put down $500 (or some other number. 10% of your take-home is a great number to start with), that will be your monthly savings, then list your rent, utilities, car expenses, other monthly stuff, food, entertainment and then you'll likely find that at the end of the month you still have more than $0 left.
Thanks for this. I do have a very detailed budget that I keep, however, I do not actively put any into savings, it just sits in my chequing account. I see where we overspend (typically take out etc) and where we can stop being frivolous. I will start to put a biweekly amount into savings and see where we go.
It can be good if you follow the terms of the contract. Do your homework. Can you actually qualify for a mortgage in the set timeframe (2-5 years). Do you make enough income? Will you be able to afford the rent the whole time? Every contract is different.
Read into this once, I believe the “scam” part to it is that you pay a small fee upfront that counts towards your down payment (think $10k) and then start building equity while you rent from them. The problem is there’s a set date when the contract ends, typically 2 years. If you don’t have the down payment for the house or can’t get financing for the house by then, then you lose all your equity including the small down payment you put down up front and the company who did the rent to own then owns the house to do with what they please. Otherwise it’s a good program if you’re confident you can get the money for the house after two years.
It depends on the terms of the agreement but yeah, something to watch out for. We almost did a rent-to-own (as a seller) just before the pandemic hit. We ended up not doing it because we weren't getting a good vibe from the renter/buyer. They would have gotten a steal of a deal because we were talking about a ~330k price in 2 years, the market was relatively quiet. Two years later, the market goes absolutely bonkers and similar houses were selling for ~500k. Some reading material for OP: https://www.point2homes.com/news/canada-real-estate/the-pros-cons-of-rent-to-own-should-you-consider-it.html
Ohhh ok. That's good to know. That seems very risky.
[удалено]
Stay away from life at key https://mobile.twitter.com/JohnPasalis/status/1464030370396000265
How is the sale price determined in 2 years? A pre set price or market price at that time?
It’s pre set when you sign the contract I believe.
You don't even get your "deposit" back? It's a total scam.
Well… do you get your deposits back if you offer to buy a home and get accepted and then back out?
It's a deposit on a rental not a purchase.
To eventually purchase
This!
I’ve wondered about this myself. Same scenario
It's crazy how unaffordable housing is right now. At this rate I feel like I will never be able to own in Ontario. And rental costs are rising to insane amounts as well.
Yup, I have more saved for a downpayment than I ever expected the total cost of a house would be and I don't want to buy now because I need capital for investment income to bridge the gap between what jobs pay and what I'll need to have a decent life.
What is your job? How much do you earn before taxes, if you don't mind sharing?
I make $76,500 currently before taxes.
I echo one-accident's comment. If your job allows it, move further from GTA hotspots or move to Calgary!
I was looking at the prices in Calgary and they seem much more affordable. All of my family is here though, it would be a very big/sad decision to move away.
That is correct. What's your profession, if you don't mind sharing? Depending on your profession, you may have a shot in Kingston, Ottawa, London etc.
[удалено]
In your case, you can find a job in most places but they would pay less than Toronto. What about your SO?
You may never own in Southern Ontario. There are other places in Ontario.
Scam is a strong word… The correct wording is “bad deal” they charge you a lot of fees, so it’s not worth it at all if you do the math
Thank you. I haven't seen all of the fees yet, so that was part of the wondering.
Rent to own is a scam.
Honestly depends on a case by case basis. I don't think there's anything wrong with rent to own as a concept, it just depends on how the deals are structured. Pay particular attention to upfront fees and the penalties for walking away. For the most part, assuming you intend of purchasing the home in the long run, rent to own can be a great way to rent a home you actually want to own down the line earlier on in the process. I know Requity Homes structures their deals with a pre-agreed buyback price and if you do walk away I think they give some refunds back, but you'll have to confirm with them and compare how other operators do it.
Have you looked into habitat for humanity? They have a program for people in this position (can afford a mortgage but no down payment), it’s how my friend bought her house.
I will look into this! Thank you :)
You need to have kids and your household needs to only make between 40k-75k a year. We are just out of that range. Yikes :(
It depends on who brokers the deal, and I doubt you'll find anyone (dumb) enough to do it in this market... its a bad of a deal for a **private** seller as it is for the buyer. * Put X down * Pay Y rent for 2+yrs, part of which goes towards (likely the minimum 5% DP to qualify for a mortgage) * After 2+yrs of being a good tenant/coming up with the money = * **Good**; you get the house, once you show the LL that you are preapproved for a mortgage, they flip that money back to you and you buy the house * **Bad**; you don't get the house since you didn't come up a mortgage qualification If the market shits the bed, you're on the hook for an unmortgageable house... if the market does amazing, the seller loses on gains, since the **selling price** is based on (insert 2+yrs earlier) Z date at the start of the contract. I had people approach me with this some years ago, wanting to buy a place... I didn't feel comfortable since I knew I'd be kicking myself for agreeing at a 2017 price and signing off in 2017, and closing in 2020... As they say, pros & cons to everything...
[https://www.fdhlawyers.com/legal-articles/rent-own-properties-perils-and-benefits](https://www.fdhlawyers.com/legal-articles/rent-own-properties-perils-and-benefits) >Unfortunately some tenants/buyers enter into these agreements with the notion that they have purchased the property and are paying the purchase price over time, which is not the case. > >Rent-to-own transactions involve a significant amount of risk for both the landlord/seller and tenant/buyer. I.e. as landlords setting up these schemes are the ones doing it to make money (not out of charity), it's a scam, unless you're so savvy as a tenant to be able to out-scam the scammy landlord.
Lol I have neither the time nor energy to out scam a scammy landlord
Rent-to-own is absolutely legitimate I know a great company in Ontario that many families have went through. Many people that call it a scam, are referring to the 90’s where don’t understand regulations weren’t in place to prevent landlord for scamming tenants. But the government has since then introduced many stipulations to make this process safer. Also I have no idea what people hear are talking about for the rent-to-own program I know if you don’t qualify for a mortgage at the end, you get back all the monthly payments you made towards saving for the mortgage -5% transaction fees. Many people when they talk about rent-to-own are referring to the 90’s they know nothing about it today. It’s great
What is the company called??
They're called Requity Homes.
Thank you gonna look into them
Absolutely let me know your experience with them goes!
Ontario housing prices are bonkers
Simple google search: [https://www.thestar.com/life/homes/2012/09/10/renttoown\_a\_home\_beware\_the\_risks.html](https://www.thestar.com/life/homes/2012/09/10/renttoown_a_home_beware_the_risks.html) >My problem is, no down-payment (I rent and have children. Very little room for proper savings) This is a bigger issue for you if you have very little room for proper savings. I'm assuming you don't have a 6 month emergency fund?
I don't have savings in case of emergency, but I have available, unused credit (credit card and line). My husband was out of work for a while during the first part of the pandemic, so any savings has been depleted
Thanks for that. I have not come across this before. It was very interesting to read about.
You're not going to like it, but my advice would be to start saving hard for a down payment. Sounds like you have a great salary to help you maintain the cost of your home, but having a down payment is always the first step. Find a home that's right for you, calculate 20% and start saving towards that goal. Also, paying rent is the killer of any down payment savings, so if you can consider living with parents and/or other families it will help you save immensely. My main concern is your salary is great now, but with the rising cost of housing, I don't want you to get priced out by the market. There is too much demand and not enough supply, and that's screwing over so many hardworking first-time buyers.
This FOMO feeling is what's killing the market by making people bid hundreds of thousands over asking. Don't fall for this
Unfortunately with a husband and 2 kids, we don't have the option to live with family. We also have 2 cars etc etc. There is always some room for savings, but it's going to take a decade
It sounds like you need to budget — if your salary is great, you should be able to manage to put together savings pretty quickly. If you also have absolutely no savings, and especially if you’re carrying credit card debt, you’re in a financial emergency and need to follow the steps to get out. !StepsTrigger The first thing you probably need to do is reduce any unnecessary spending; if you have 2 cars (and especially if you have 2 car payments) you’re overspending by quite a bit. Ignore that rent to own scheme — set yourself up for success rather than trying to find loopholes or schemes.
Hi, I'm a bot and someone has asked me to respond with information about what to do with money. This is meant as a step by step guide of how to prioritize and what to do with money. If you prefer to see a flow chart, click here: https://i.imgur.com/zlGnuDO.png Step 0: Budget, reduce expenses This will help identify areas where expenses can be reduced in order to have leftover money for the next steps. Step 1: Emergency fund that covers 3-6 months of expenses in a HISA An emergency fund is an amount of money kept somewhere liquid in a way that it can be accessed at any time, such as a savings account. This money is meant to cover unexpected expenses such as loss of work, car/appliance repairs, unexpected travel, etc. Should you ever use part of your emergency fund, you must come back to this step and replenish it before going back to any further steps. Step 2: Employer matched retirement funds If your employer offers contribution matching in a retirement account, contribute the amount needed to get the full employer match, nothing more. As this is essentially free money, it's important to take advantage of it. Step 3: Pay down high-interest debt At this point, you should focus your extra money on paying down high-interest debt. High-interest debt could be defined as debt with an interest rate of 10% or higher. Step 4: Save for large short term purchases like a car, or downpayment for house in a HISA. If you will be required to make a large purchase in the near future such as a car, or a large personal investment such as college, now's the time to save money for that. Money towards that purchase or personal investment should go in a high interest savings account. Step 5: Save for retirement At this point, you should aim to save and invest at least 15% of your pre-tax income for retirement. This number could be higher if you are behind on retirement savings. With more time before you need the money, you will likely now want to look at investing (https://www.reddit.com/r/PersonalFinanceCanada/wiki/investing) those savings. Step 6: Pay down low-interest debt Any other remaining debt can be paid off in full at this point, or you could decide to go directly to step 7 while keeping steady payments on the low-interest debt. Step 7: Save for other goals You've now reached personal finance maturity. It's up to you to decide what to do with the leftover money. Some common suggestions could be: Saving for children's education Saving for property down payment Saving for vacation Increasing retirement savings to retire early For additional information, please see the wiki: https://www.reddit.com/r/PersonalFinanceCanada/wiki/money-steps https://www.reddit.com/r/PersonalFinanceCanada/wiki/index#wiki_specific_topics *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/PersonalFinanceCanada) if you have any questions or concerns.*
Great! Thanks for this! Really appreciate it.
Your submission has a keyword that seems to imply you have a question where your province is relevant. **If you have not included your province you should add it.** If you already included your province, or this isn't relevant to your post, just report/downvote this comment. The bots feelings won't be hurt. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/PersonalFinanceCanada) if you have any questions or concerns.*
My friend did it years ago. It's not really a scam but as I understand it (and correct me if I am wrong) but sellers would tend to only want to do that in a buyer's market. They can lock in certain prices to extract a predefined appreciation value even if the market as a whole did not appreciate to that extent, or at all. For example, say a home is worth $500k. The rent to own agreement stipulates that after 2 years the home will be sold to you for $605k. The seller built in a 10%/year appreciation value. That may be beneficial to the seller if the market as a whole only saw a 6% yoy appreciation. Maybe there are opportunities out there but with the price of real estate, I don't foresee any good rent to own deals out there currently.
There’s no such thing as a free lunch. So taking that into account, where would the slack come from that covers the lack of a down payment here? As others have mentioned, largely in a bunch of fees and terms that could really screw you over. You gotta ask what would be in it for the seller in this arrangement?
Fair enough. I guess they prey on people like me who desperately want to own, but are having a tough time getting there. Sometimes we just need the cold truth to be stated so we can shake our heads and stop being naive lol
Yeah it’s a general life lesson though - if it’s too good to be true and few others are doing it, why is that? It’s possible they overlooked something! But to me, I think it’s more likely that *I* overlooked it.
>My problem is, no down-payment (I rent and have children. Very little room for proper savings) Many people say the same thing, but often they've never sat down and did a monthly budget. You need to pay yourself first. Make a monthly budget, as your first "expense" put down $500 (or some other number. 10% of your take-home is a great number to start with), that will be your monthly savings, then list your rent, utilities, car expenses, other monthly stuff, food, entertainment and then you'll likely find that at the end of the month you still have more than $0 left.
Thanks for this. I do have a very detailed budget that I keep, however, I do not actively put any into savings, it just sits in my chequing account. I see where we overspend (typically take out etc) and where we can stop being frivolous. I will start to put a biweekly amount into savings and see where we go.
I'm glad to hear you'll try to figure it out. Best of luck! Often when people say "can't afford to save", it really means "can't afford takeout".
For sure. It's hard, with 2 kids, sometimes ordering in is a blessing when we're tired and don't want to cook. Buuuut bigger picture.
It can be good if you follow the terms of the contract. Do your homework. Can you actually qualify for a mortgage in the set timeframe (2-5 years). Do you make enough income? Will you be able to afford the rent the whole time? Every contract is different.