By Rachel Oliver
Sharon Beane and Nathan Turner started paying attention to rent-to-owns (RTOs) back in 2005 when they were newly engaged and entering the real estate market as first-time homebuyers. They both held high-paying corporate positions as managers but still found it daunting to accumulate $30,000 for a down payment on a house.
Soon, however, they came across a rare opportunity to own a home through a rent-to-own program advertised by an Ontario real estate developer and builder, The Conservatory Group. Given that RTOs were not well-known at the time, the couple sensed they were taking a chance. However, they felt that an RTO was their best chance to own a 1,300-square-foot, two-bedroom, two-bath townhouse in an upscale neighbourhood in Toronto.
Within 24 months, the equity in their townhouse grew to $25,000. In 2007, they exited their RTO and secured a mortgage. As their family grew, so too did their financial needs and aspirations. As Sharon recalls, “We were working for years to save money. We invested in mutual funds and stock options; we spent a lot of time managing investments, buying/selling, tracking transactions for the CRA, and working diligently—all for modest returns. So, we were seeking passive income that yielded better returns on investment.”
From tutoring services to car washes, laundry services to coffee shops, and pizza franchises to breakfast food, Sharon and Nathan researched a plethora of investing opportunities. But nothing seemed to fit their need to generate positive, passive cash flow while making a difference in the community—until they heeded the idea of investing in real estate.
The couple leveraged the increased property value of their townhouse to qualify for a heftier mortgage, purchased a bigger personal residence, and stepped into the role of landlords when they rented out their townhouse. Ownership of another rental property followed swiftly. “Our rental properties were close to break-even, and we were counting on the properties increasing in value over time,” notes Sharon.
As landlords, however, the couple grappled with challenges that came with managing vacancy and dealing with property management. As Nathan explains, “When a tenant moved out, we needed to find another quickly. If we couldn’t rent the house, we were on the hook for the mortgage. When we had remote properties, we were reliant on property management firms. Some were very good, some were okay, others were scamsters.” So, the couple went back to the real estate investment drawing board looking for a decent, hands-off way to earn cash flow.
Through happenstance and some research, as Sharon recalls, “We met Rachel and Neil Oliver at Clover Properties, an accredited RTO company that matches private investors with credit-challenged homebuyers. We weren’t aware that non-builders were eligible to help families rent to own a condo or townhouse or a single-family detached house.” Their perception changed after they became aware of the service provided by Clover Properties.
Sharon describes their reasoning this way: “We made Clover Properties part of our investing journey when we saw evidence of how these RTO specialists serve their community by putting ‘people first and property second.’ If we can help others get started like we did, and earn a decent passive income at the same time, that sounds like a great win-win investment to me.”
Given their lacklustre experience with rentals, Nathan and Sharon favoured Clover Properties’ rent-to-own model because it flips the rental-landlord scenario. They wanted to be investors without being encumbered with rental-property maintenance and vacancy issues.
Today, Nathan and Sharon live with their extended family in a sprawling 3,700-square-foot home in Newmarket, Ontario, and they own six homes, five of which are RTO investment properties. Generating a monthly cash flow of $700–900 from their RTOs, the couple has their sights set on adding four more properties to their RTO portfolio, rounding it off to 10 by the end of 2018. By reaching this goal, they will help 10 struggling families enter homeownership, while generating above-average income and working in their corporate jobs.
Having worked with Clover Properties on RTOs across Ontario, including Ajax, Alliston, Brampton, Milton, and Oakville, Nathan continues to be inspired by how RTOs foster relationships with homebuyers to help them learn financial maturity, earn equity, and successfully move toward ownership within 24, 36, or 48 months. To this end, the couple now has tenants who have annual average household incomes of at least $100,000, have saved upwards of $15,000 for a down payment, display pride of ownership, have investment aspirations of their own, pay their rent on time, resolve maintenance issues on their own. With such tenant profiles, Nathan and Sharon never have to intercede to deal with challenges.
RTOs give aspiring homebuyers a firm ground on which to stand, whether they are new to Canada, have a lower down payment, or are recovering from bankruptcy or consumer proposal. “Banks are set up to help those who don’t need much help, but Clover Properties is set up to help those who can’t really find any help,” Nathan observes.
“There are two ways to approach an RTO investment,” he goes on to explain. “One is the clinical approach to take as much money out of the homebuyers as possible, and the second is to help people become homeowners. The ‘people first’ approach sat well with us. As investors, it was a no-brainer—we want rent-to-owns that help tenants stay the course and exit into homeownership.” sharing his own experience, he says, “Clover keeps track of the tenants and rent cheques. Everyone is happy after the term because the investor gets their money and the tenant gets the house they wanted at a fair market price.”
With an eye on the increasing restrictions being placed on lending rules, including the mortgage stress test, Nathan is convinced that this is the perfect time for millennials and other prospective investors to earn positive cash flow with RTO properties. Per his observations, while the stringent mortgage rules will force many prospective buyers to default to the RTO model, it may take more due diligence to find qualified tenant-buyers from a larger pool of applicants to decrease risk.
Nathan concludes, “For investors like us, the main outcome of the new mortgage rules is the decreased capacity to purchase more properties. Yes, the stress test will reduce borrowing power, but that should not stop millennials or mature investors. If there was ever a time to enter the market, 2018 is it.”