1. You pay your normal rent and a part of it goes to the down payment.

I often hear this one. Partly, it is true. You do pay your normal rent when you are in a rent 2 own, but that simply covers the owner’s costs. It is also true that a portion of your rent goes to future down payment (or, technically, is applied to the purchase price at the end.) But this portion is additional to the “basic” (normal) rent.

There are 2 reasons for this. One is that the supplier needs to cover their costs; otherwise, why would they be in the business? The other is that (federally regulated) CMHC requires that no portion of your rent below fair market rental value can be allocated to the purchase. If so, the contract will either be voided or any credit amount deemed to be below market value deducted from your allocated savings, leaving you short on your down payment.

Rent is, therefore, higher than normal market rate during the term of the rent 2 own, but it is no different than if you rented an equivalent property during that time and saved up on the side for a down payment. It simply gets put into the same rental payment.

  1. You can get into a rent 2 own without anything down

The reasoning seems to be that, since part of the rent goes to future down payment, nothing is needed at the start. Not so. Typically, we collect a starting deposit (it’s not, technically, “down payment” but is credited against the purchase of the property at the end of the deal) of about half the amount later needed for a down payment.

There are three reasons for this. First, the amount of savings required to reach 10% for a down payment, plus 1.5% for closing costs (which the lenders also require) is much too daunting to be accumulated within a 2- or 3-year period. You need a good head start in order to make the balance affordable. Second, it is the best way to ensure the commitment of the client. Without “skin in the game,” how can the R2O provider be confident the client will take it seriously? Third, should the deal go sideways, the provider will at least have sufficient funds to deal with the mess they are left with, such as the realtor costs to dispose of the property.

  1. You are allocated a property from one of the suppliers inventory of rentals.

While there are some operators who operate that way (called “property-first rent 2 own,”) most professional rent-2-own providers offer clients the opportunity to choose their own home (“client-first rent 2 own”) from those available on the market, within guidelines and subject to the provider’s approval.

This is done for two reasons: First, the client is likely to be much happier and more committed to a property of their choosing, and therefore more likely to succeed in the end, than one that was allocated to them from a supply inventory. Second, most providers are not big corporations with stocks of inventory. Even if that were the case, the client could be justifiably skeptical as to why the provider had chosen to allocate certain of those properties for rent 2 own and not others.

Client-first rent 2 own has proven to be much more successful than property-first rent 2 own.

  1. You can get a higher valued property than what you might qualify for at the banks.

Absolutely not. Rent-2-own programs only “buy time” for the client to fix their issues to meet lender requirements. They do not circumvent those requirements.

At the end of a rent-2-own program, when the client has fixed the issues that originally prevented them from getting a mortgage, the client still needs to qualify with a traditional lender. They must meet all lender requirements, including the maximum payments associated with their income. If anything, the rent-2-own provider should be more conservative than the banks, to cover the risk of approving the client several years prior to their closing.

  1. You have title to the property you rent 2 own

During the term, you do not have title to the property. If you had qualified for that, you wouldn’t have needed rent 2 own. During the term of the rent-2-own period, you are a renter but with an agreement to purchase the property at the end of the term at a pre-determined price, and a program to help get you qualified for the mortgage you will need at the end.

  1. Your rent goes towards the mortgage on the property, then are left with only the balance at the end.

While it’s true that a good portion of the rent goes to pay the owner’s mortgage, as that is a big portion on their costs, there is no direct connection between the client’s rent payment and the mortgage. In fact, the mortgage that the R2O supplier gets for the property (an “investor” mortgage) is an entirely different kind of mortgage from that which the client will get at the end of the program (an “owner-occupant” mortgage.) The owner will have put down 20% for the investor mortgage; the client will want a mortgage that requires no more than 10% down payment, in rare cases, only 5%.

  1. Rent 2 Own is a risky venture; beware!

Untrue. Over the last two decades, the rent-2-own model has become highly professionalized. While it used to be a bit of a “wild west” in the rent-2-own business, in-depth training courses and the implementation of high standards among rent 2 own operators has led to highly professional operators.

Their professional association, CAROP (the Canadian Association of Rent 2 Own Professionals), assures you are dealing with ethical operators who have been vetted to conduct business according to a professional Code of Conduct, and who put the interests of their clients first. All members operate client-first models. The results are very high rates of success for the clients.

While not all rent 2 own providers fall under the umbrella of CAROP (membership is not legally required), would-be clients can be confident that dealing with any member of CAROP will be according to the highest professional standards. Before getting involved in a rent-2-own program, clients should always confirm that the provider is a vetted member of the Association.