I keep getting asked how rent 2 own is going. From my standpoint, just fine, except . . .
1 . . . there are so many people wanting to get into housing that we cannot nearly accommodate them all. With few exceptions, it is still better to own than to rent, in the long-run. People tell me all the time:
– “I just want to get something I can own, rather than spending my money on my landlord’s mortgage,”
– “I’m tired of having to move all the time. I want something permanent,”
– “I can’t find rentals that will accept my pets.”
Many who have these legitimate dreams simply aren’t in position to get into home ownership now, nor even into a rent 2 own program yet. Even so, we get many applications from those who are ready, many more than we can accommodate.
2 . . . there are many people who don’t understand rent 2 own; they’re just kicking tires.
– they don’t understand that they need a deposit, or
– they think we can work miracles, doing for them what the banks never would.
Ultimately, rent 2 own clients need to meet bank qualifications. What we can do is “buy time,” providing them a period in which to improve their circumstances to meet bank qualifications. But they have to be, as I often say “within shouting distance of that” at the beginning. We won’t accept clients who have no chance of reaching bank qualification within the lease-option period. That would be setting them up for failure and would be unethical.
- . . . the market has run away from too many average people.
– “What? I make $80,000 a year and that won’t qualify me for a single-family home!?!”
Nope! We can qualify clients for about 4 times their gross annual income. That’s based on a federally regulated guideline. Which means that $80,000 will qualify you for a property of about $320,000, based on getting a 90% mortgage at the end. Where can you still find a single-family home for $320,000? Not in the Lower Mainland, maybe not even in the extended Fraser Valley. Unless, of course, you’d settle for a condo.
The alternative is buying further up country. Some can consider that; others can’t. It’s not surprising, then, that most of the rent 2 owns that we have done in the last two years are in places like Merritt, Logan Lake, Kamloops and Salmon Arm.
4 . . . we can’t accommodate the higher valued homes that some of our clients might otherwise qualify for.
Our model works best in the $250,000 – $400,000 range, for several reasons:
- a) Our costs are directly proportional to the value of the property. That means we need to charge the same amount of rent for every $100,000 of value in the property. At lower levels, the rent is about market value. But rents typically are not proportional to property values, gradually levelling off as values increase. So, at half a million dollars and higher, our rents have to be too high for most people to afford. But even for those who can afford them, there is a second issue:
- b) For every deal we need an investor to contribute about 22% of the property value for down payment and closing costs. (Because we are buying an “investment” property, we need 20% down, not just 10% like an owner-occupant). That’s a lot of money, and our network of investors is typically not up to pitching more than $100,000 into a deal.
That said, we get many good applications and are able to accommodate some of them. And when our clients achieve success at the end, getting a mortgage and owning the home we bought for them three years earlier, it’s a happy dance for everyone.
In the past two months we’ve had two such clients who became happy homeowners after completing our program, one in the $335,000 range and one in the $545,000 range.
We’ve also had new clients begin their lease-option program in a home we bought for them in Logan Lake ($230,000 range) and are in the process of buying a home for clients in the Shuswap area ($350,000 range).
Rent 2 own continues to be an attractive option for many who would like to become home-owners but don’t yet qualify. House prices have stabilized in the Lower Mainland and Fraser Valley, some even coming down a little, so it is a good time to get into the market.
Maybe we can help you this summer.
Award-winning* Fraser Valley Rent 2 Own is a founding member of the Canadian Association of Rent to Own Professionals (www.CAROP.ca)
* winner of all-star awards, 2012, 2014, 2015 at the Rent 2 Own Summit.
