Selling Home; Rent to Own

[finboy]

Downside, if you accept that offer, other potential buyers can’t do much to come up with a better offer to buy the place outright as the house is considered sold under conditions.

[firebane]

This quote is hidden because you are ignoring this member. Show Quote

People who will probably a) not make the payments and b) probably not go away peacefully when they default on the payments.

Honestly there is no chance in hell I would ever have the chance to get a mortgage from a bank so if a good opportunity for a Rent-To-Own came up that i feel was justifiable I would jump all over it.

Doesn't mean that I wouldn't make the payments or go away peacefully, it just means that I was never fortunate to have an opportunity to get a mortgage in my life.

Not everyone who can't get a mortgage from a bank is bad with money or a scummy person.

[arcticcat522]

This quote is hidden because you are ignoring this member. Show Quote

The biggest risk is if the market starts to boom. As the renter, that’s the only time there is an advantage. If you want to sell and you don’t see prices ever recovering, why not? Get an inflated purchase price now, don’t pay a realtor. Win.

But as someone who secures lending for homebuyers... its pointless

1. Being a private sale, there will be an appraisal condition on any sort of lending. If your PP is too high, the LTV will be based off the lower appraisal amount. Chances are high that there will not be enough DP to satisfy the loan.

2. There is no reason for this for people lacking funds with the new home buyer incentives coming out next month.

3. If people have funds, but shitty qualifying characteristics (which is most likely if someone can afford rent, plus forced savings) there are a ton of alternative lending solutions. Yes the rates are higher... but still cheaper than rent plus DP that rent to own has

If the OP was holding the mortgage, wouldn't that take care of #1 and he would become #3? Not sure what #2 is, but believe, still not everyone will be able to follow the typical bank route.

[msommers]

This quote is hidden because you are ignoring this member. Show Quote

Honestly there is no chance in hell I would ever have the chance to get a mortgage from a bank so if a good opportunity for a Rent-To-Own came up that i feel was justifiable I would jump all over it.

Doesn't mean that I wouldn't make the payments or go away peacefully, it just means that I was never fortunate to have an opportunity to get a mortgage in my life.

Not everyone who can't get a mortgage from a bank is bad with money or a scummy person.

But it sounds like you're the exception not the rule for those who can't get a mortgage.

[arcticcat522]

This quote is hidden because you are ignoring this member. Show Quote

But it sounds like you're the exception not the rule for those who can't get a mortgage.

Isn't anyone who is self employed be in the same boat?

[Xtrema]

This quote is hidden because you are ignoring this member. Show Quote

Isn't anyone who is self employed be in the same boat?

Until the stress test came along, the bar is quite low to get a mortgage.

Here are some examples in 2015:

Newly landed immigrant, 1 year work history at min wage, PR status, qualified $300K on 20% down mortgage before stress test.

Self employed O&G contractor, 30% down, qualified for $500K, also before the stress test.

So while rent to own scheme was common in the 90s and early 2000s, there are way fewer cases now. But I assume stress test increase the pool of people who will benefit from rent to own. That pool is usually not someone you would usually want as tenant.

Now to the set price. Rent to own always have buyout price set. If that price is set too low, landlord loses any potential gains. If that price is set too high, you risk your tenant not getting a mortgage approved to take it off your hands. I think it's too complicated of a set up for my taste, especially if it comes to eviction. And mortgage assumption is also a no-no unless it's a very close family member.

BTW, if you guys think real estate is bad right now, wait til next year once Kenney is done cutting everything and EI starts to run out for former government employees and contractors.

[ExtraSlow]

What renter who can't qualify for a mortgage CAN afford an extra $1000/mo for a rent to own?
And even in 24 months, that's a weak down payment.

Not saying they are scum, just saying the risks are high, and not high likelihood that the renter will turn thier finances around while paying extra.

[you&me]

This quote is hidden because you are ignoring this member. Show Quote

...
So while rent to own scheme was common in the 90s and early 2000s, there are way fewer cases now...

I think the rent to own was far more common back then due to mortgage assumptions.

This quote is hidden because you are ignoring this member. Show Quote

What renter who can't qualify for a mortgage CAN afford an extra $1000/mo for a rent to own?
And even in 24 months, that's a weak down payment.

Not saying they are scum, just saying the risks are high, and not high likelihood that the renter will turn thier finances around while paying extra.

The $1,000 per month was simply an example I pulled from my rear.

Besides that, the "extra" payment is not meant to be the downpayment; it's more of a hedge for the seller incase the buyer doesn't close and they've taken their house off the market for the period of the rent to own agreement.

[Xtrema]

This quote is hidden because you are ignoring this member. Show Quote

What renter who can't qualify for a mortgage CAN afford an extra $1000/mo for a rent to own?
And even in 24 months, that's a weak down payment.

Not saying they are scum, just saying the risks are high, and not high likelihood that the renter will turn thier finances around while paying extra.

I have heard most rent to own program requires 4-5% down. Then you pay a 20% premium on your rent that will increase upon that down payment.

So $300K place, tenant will need $15K to get in, then you would pay $1700/mth instead of $1400/mth for it where $300/mth will continue to go to down payment. When 24 months is up, you would have $22K in down payment to start the purchasing process. Now assuming the house is yours, tenant will probably in charge of maintenance of the place instead of landlord. I assume if the deal falls out at the end, contract is probably structured that not all of the $22K will be refundable to tenant.

That's purely my guess, or in my head what makes it palatable as a landlord. I won't mind someone teaches me how this really works.

[Manhattan]

This quote is hidden because you are ignoring this member. Show Quote

BTW, if you guys think real estate is bad right now, wait til next year once Kenney is done cutting everything and EI starts to run out for former government employees and contractors.

Bring it on.

[Buster]

This quote is hidden because you are ignoring this member. Show Quote

BTW, if you guys think real estate is bad right now, wait til next year once Kenney is done cutting everything and EI starts to run out for former government employees and contractors.

Great, because I'm happy if government waste on the back of my tax dollars is what is propping up my home value.

[ercchry]

If you have 20-35% down ANYONE can get a mortgage

This quote is hidden because you are ignoring this member. Show Quote

If the OP was holding the mortgage, wouldn't that take care of #1 and he would become #3? Not sure what #2 is, but believe, still not everyone will be able to follow the typical bank route.

Rent to own means you don’t own shit till you have your own mortgage. Banks are useless, brokers have access to so many options it’s pretty tough not to get a loan... unless you have absolutely nothing going for you... which in that case rent to own isn’t going to change that. Just add extra strain to monthly cash flow and probably make your credit even worse. You can’t assume mortgages like you use to so it’s really not a workaround to home ownership

[arcticcat522]

People who rent to own, don't have 20+% to use as a down payment and would most likely never save that amount. If they want to own a home, this is an option. I'm not saying it's a great "deal" for the renter, but it gets them into the market. I wouldn't rent to own. I would, if I was selling a rental property, be open to a rent to own situation. As I don't see the downside out weighing the up

[ExtraSlow]

I suppose if you are already renting the property and dealing with all those negatives AND you've tried to do a conventional sale already without success. Maybe then.

[ercchry]

This quote is hidden because you are ignoring this member. Show Quote

People who rent to own, don't have 20+% to use as a down payment and would most likely never save that amount. If they want to own a home, this is an option. I'm not saying it's a great "deal" for the renter, but it gets them into the market. I wouldn't rent to own. I would, if I was selling a rental property, be open to a rent to own situation. As I don't see the downside out weighing the up

If you don’t have 20%, you’re not saving it up doing a rent to own either... it would take you a decade with how most are structured. That means you need provable income, 600+ credit and the ratios have to workout... if this is the case you really don’t need much cash at all thanks to the liberal’s new first time home buyer program being launched next month... which again, makes rent to own pointless. If you’re NOT that type of client it also makes rent to own super risky if there is a clause in the contract that forfeits the accumulated DP if you’re unable to qualify by a certain date. Not to mention if the market continues to erode and the appraisal comes in low, and now you don’t even have 5% down on the inflated purchase price

You also don’t NEED 20% in cash... you just have to be able to service the payments for the lacking funds

[you&me]

This quote is hidden because you are ignoring this member. Show Quote

If you don’t have 20%, you’re not saving it up doing a rent to own either... it would take you a decade with how most are structured. That means you need provable income, 600+ credit and the ratios have to workout... if this is the case you really don’t need much cash at all thanks to the liberal’s new first time home buyer program being launched next month... which again, makes rent to own pointless. If you’re NOT that type of client it also makes rent to own super risky if there is a clause in the contract that forfeits the accumulated DP if you’re unable to qualify by a certain date. Not to mention if the market continues to erode and the appraisal comes in low, and now you don’t even have 5% down on the inflated purchase price

You also don’t NEED 20% in cash... you just have to be able to service the payments for the lacking funds

These are all great points, when looking at the rent to own scenario from the perspective of the purchaser.

But... the OP is a seller and has been asked by a potential buyer to do a rent-to-own. I'm bearish as fuck on the Calgary real estate market, so I can't say either way if I would do it (too many variables for the OP to consider that we don't know), but if the stars aligned and the numbers made sense, I would have no reservations being the seller in a rent to own arrangement.

[S-FLY]

The renter doesn't always have to lose the DP either. There's creative ways to get part of that money back. As an example, getting a private mortgage can be done if there's enough equity in the place. After buying out the home, sell the home to pay off the mortgage and get your DP back instead of giving it up to the landlord.

[ercchry]

This quote is hidden because you are ignoring this member. Show Quote

These are all great points, when looking at the rent to own scenario from the perspective of the purchaser.

But... the OP is a seller and has been asked by a potential buyer to do a rent-to-own. I'm bearish as fuck on the Calgary real estate market, so I can't say either way if I would do it (too many variables for the OP to consider that we don't know), but if the stars aligned and the numbers made sense, I would have no reservations being the seller in a rent to own arrangement.

But those issues will also be seller issues if it falls apart and they just wasted 2 years not selling, and also having subpar repairs done by cash strapped tenants

EDIT: oh, and if it does fall through? ...I think you can expect at least a couple bags of cement poured down the drain at a minimum when you remind them you’re keeping the DP they built up

This quote is hidden because you are ignoring this member. Show Quote

The renter doesn't always have to lose the DP either. There's creative ways to get part of that money back. As an example, getting a private mortgage can be done if there's enough equity in the place. After buying out the home, sell the home to pay off the mortgage and get your DP back instead of giving it up to the landlord.

I’m finding more and more privates not willing to go over 75%, the ones that will still do 85% are charging $$$$$ .... IF you had that sort of equity it would be eroded pretty quick with fees and interest, and realtor costs.

[Buster]

This quote is hidden because you are ignoring this member. Show Quote

But those issues will also be seller issues if it falls apart and they just wasted 2 years not selling, and also having subpar repairs done by cash strapped tenants

EDIT: oh, and if it does fall through? ...I think you can expect at least a couple bags of cement poured down the drain at a minimum when you remind them you’re keeping the DP they built up



I’m finding more and more privates not willing to go over 75%, the ones that will still do 85% are charging $$$$$ .... IF you had that sort of equity it would be eroded pretty quick with fees and interest, and realtor costs.

you just need to incentivize them to leave quietly, just like any other rental.

[S-FLY]

This quote is hidden because you are ignoring this member. Show Quote

But those issues will also be seller issues if it falls apart and they just wasted 2 years not selling, and also having subpar repairs done by cash strapped tenants

EDIT: oh, and if it does fall through? ...I think you can expect at least a couple bags of cement poured down the drain at a minimum when you remind them you’re keeping the DP they built up



I’m finding more and more privates not willing to go over 75%, the ones that will still do 85% are charging $$$$$ .... IF you had that sort of equity it would be eroded pretty quick with fees and interest, and realtor costs.

Agreed. There could still be the rare case when someone locked in a decent purchase price on their rent-to-own from 10 years ago where the home could have appreciated since then. Other ways to mitigate the fees would also be using one of the flat fee real estate outfits to sell the home. Just a thought.