My role in rent 2 own means I have to put together a lot of different pieces in creating a rent 2 own scenario for qualified clients–things like assessing their qualifying limits, designing a program that will anticipate their success, matching investors with client situations, and timing all of the above to match. Most understand that, and I enjoy doing it.
One piece of the puzzle, though, that seems to mystify a lot of people, is finding suitable properties, and matching them to clients.
This question comes in several variations. Some ask whether I have any suitable rent-2-own properties in _______. For those, I simply explain that we have no inventory of properties anywhere. We start with clients, approve them, and then they go out and search (with our realtor) for a property that is suitable for them, and acceptable to us. The “acceptable to us” provides some restrictions, but, within guidelines, it’s mostly the tenant-buyer’s choice.
Others simply inform me that they are looking for a specific type of property. While, again, we are quite flexible with approving the properties people like, we have to restrict them to those that are good investments. Sometimes clients’ desires are outside our range of acceptability.
Basically, we have to ask ourselves: what if the deal goes sideways (a rare occurrence, but a worst-case scenario we have to consider)? In that scenario, will we be able to do something with the property without taking a financial bath?
Furthermore, we have to take into account the likelihood of getting a mortgage on the property, both at the outset, and for the tenant-buyers at the end.
Some properties are ideal for rent 2 own, others not appropriate.
What are the best properties for rent 2 own?
- BC boxes: basic homes that are not too unique, not too fancy.
- Homes with basement suites. The suite makes them both an attractive investment for us and allows you to collect a sub-rent that helps you with your monthly payments.
- Homes in good neighbourhoods or near downtown, but not in “the hood.” They need to have their value grow, not decline, over the rent-2-own term.
- Strata properties (condos, townhouses) that allow rentals, and are vacant (more on that below).
- Homes in communities that are growing and have a solid economic base.
- Larger communities are preferable to smaller ones.
What properties don’t fit well for rent 2 own?
- Rural properties. These are much more difficult to dispose of, if necessary, and get adequate returns on our investments. Also, it’s much more difficult getting mortgages for rural properties. “Somewhat rural” properties are not a hard NO, but we have to be cautious; extremely rural properties are a hard NO.
- Acreages. Residential mortgages are for homes on land, not just land. Thus, there is a 5-acre limit. However, even smaller acreages are usually out of the affordability range for rent-2-own tenant-buyers.
- Mobile homes in mobile home parks. Because these properties are not on their own land but simply on pad rent, we cannot consider them. However, we can consider mobile homes on their own deeded property, though with some restrictions.
- High-value homes. Anything over a $1 million price tag is a hard NO. Anything between $500,000 and $1 million may work, but the high costs eliminate many tenant-buyers in that price range. Our model works best for property values between $250,000 and $500,000.
- Strata properties that don’t allow rentals. Because you will be renting from us for the lease-option period, we can only consider rentable properties. Then, even if they are rentable, we cannot consider them if they already have a renter living there who is not willing to move because BC law prevents us from evicting an existing renter in favour of our own client.
- Homes in small towns. It’s extremely difficult to get mortgages in small communities, so we have to be cautious.
- Foreclosures. Although these properties are attractive from a values perspective (we can get them under market value), we normally have to make subject-free offers for such properties, and we usually can’t do that with properties we purchase for rent 2 own. Plus, any offer is subject to court approval, which often invites a bidding war for their purchase, again limiting our likelihood of procuring the property.
What it comes down to is that we can approve properties that the banks will also approve, provided they are affordable to our tenant-buyers.