The Benefits of the Rent-to-Own Strategy in Canada for Landlords and Tenants

This post is written by Trusted Partner, Phipps Real Estate Group. To become a contributing editor, please contact our Real Estate Investor Solutions Specialist, David Maxwell at david@reincanada.com.

The dream of owning a home is a quintessential goal for many Canadians. However, the ever-increasing property prices, interest rates and stringent mortgage requirements can often make this dream seem unattainable. Enter the rent-to-own strategy, a creative and flexible approach that not only benefits landlords but also offers a valuable stepping stone for tenants towards homeownership. In this article, we will delve into the benefits of the rent-to-own strategy in Canada, highlighting how it empowers both landlords and tenants and paves the way for Canadians to become homeowners sooner.

The Basics of Rent-to-Own

Rent-to-own, is an innovative real estate arrangement that merges elements of renting and buying. In a rent-to-own scenario, a tenant agrees to rent a property for a predetermined period, typically around two to five years, with the option to purchase the property at a fixed price at the end of the lease term. A portion of the rent paid by the tenant during the lease period is often allocated towards a down payment on the property.

Benefits for Tenants

1. Path to Homeownership: One of the most significant advantages of the rent-to-own strategy for tenants is that it provides a clear path to homeownership. For individuals who may not have a substantial down payment or are unable to secure a traditional mortgage, this strategy offers an opportunity to gradually work towards owning a home.
2. Locking in Future Purchase Price: In a real estate market characterized by fluctuating prices, this strategy allows tenants to lock in a purchase price at the beginning of the lease agreement. This shields them from potential future price hikes, giving them a sense of stability and predictability.
3. Time to Improve Credit Score: Rent-to-own agreements offer tenants the chance to rebuild their credit scores. By consistently paying rent on time and meeting financial obligations, tenants can demonstrate their financial responsibility, making them more appealing candidates for mortgage lenders once the lease term ends.
4. Trial Period: Rent-to-own arrangements also act as a trial period for tenants to experience living in the property and the neighborhood. This gives them the opportunity to evaluate if the property meets their long-term needs and preferences before committing to its purchase.

Benefits for Landlords

1. Steady Rental Income: From a landlord’s perspective, the rent-to-own strategy ensures a consistent stream of rental income for the duration of the lease term. This provides financial stability and reduces the risks associated with vacant properties.
2. Higher Quality Tenants: Rent-to-own agreements often attract tenants who are more invested in maintaining the property and treating it as their future home. This can lead to better care of the property and fewer maintenance issues as well as no vacancy during the term. 
3. Potential for Higher Selling Price: Landlords can potentially secure a higher selling price for the property by locking in the purchase price at the beginning of the lease term. If property values rise during the lease period, the landlord stands to benefit.
4. Reduced Marketing Costs: With a tenant already in place, landlords can avoid the costs and efforts associated with marketing the property to new renters.

Flexible Exit Strategies: Should the Rent to Own agreement not be completed successfully the landlord still holds title to the property therefore can sell, re-lease to a new Rent to Own tenant or pivot to a long term rental. 

Becoming Homeowners Sooner – Landlords are part of the solution! 

For Canadians aspiring to become homeowners sooner, the rent-to-own strategy presents a practical solution. By providing a structured pathway to homeownership, tenants can gradually accumulate savings for a down payment while improving their creditworthiness. This, in turn, increases their chances of securing a mortgage once the lease term concludes. With the ability to lock in a purchase price and experience living in the property before committing, the rent-to-own strategy empowers tenants to make informed decisions about their future home.

Conclusion

The rent-to-own strategy is a win-win scenario that benefits both landlords and tenants in Canada. Phipps Real Estate Group is here to assist you if you are interested in the Rent to Own strategy with an in house program designed to assist both landlords and tenants alike execute this strategy effectively. 

Written by Natasha Phipps and Andrea Tessier, Phipps Real Estate Group, CIR Realty