Category Archives: rent to own

Investors eye rent-to-own strategies as Canadians look for more ways to home ownership

Rent-to-own is becoming an increasingly attractive option for investors. While the practice isn’t as popular with our neighbours south of the border, here in Canada it is a great option to consider especially with tightening regulations, a complex market and new mortgage rules.

With more than 11 billion people across the country renting, and housing prices becoming more unattainable, tenants are looking for more options and investor interest is brewing on what opportunities are out there.

A rent-to-own strategy is an alternative route to home ownership for buyers who aren’t quite able to purchase their new home but are interested in eventually attaining ownership. It could be a great option for someone who is self-employed, new to Canada or has a damaged credit. The tenant would pay a monthly fee similar to rent, but a portion of that goes toward a down payment for that home. In addition, at the end of the agreed -upon term, the tenant would be in a position to qualify for a mortgage through traditional lending institutions and the property title will transfer to their name.

“There are many people across the country who are so close to getting their own home but need someone on their team like Homeowners Now and our partners that can support them through those last few steps,” said Conrad Field, VP Partnership at rent-to-own company, Homeowners Now.

From an investor’s perspective, rent-to-own is a low risk option that can maximize cash flow, target areas with high appreciation and allow for turnkey operations to occur. “Rent-to-own models have the ability to both grow wealth in strong markets, as well as protect it in a correction,” said Field.

According to him, rent-to-own is like a cross between shorter-term development projects and longer-term buy-and-hold properties. You get the benefit of receiving your capital back with profit in a relatively short time period like a development project, but also the security of monthly rent revenue like with a buy-and-hold. “There are benefits for everyone in the eco-system, from our partners, tenants and the rent-to-own company. As a wealth-building vehicle for our partners, some of those benefits include the security of substantial deposits, additional revenue streams under contract, minimal ongoing management, reduced expenses and more,” he added.

Homeowners Now has partnered with some of the most experienced professionals in the real estate industry to put systems and processes in place to maximize the success of tenants and provide security for their partners. The tenant-first approach is a key aspect of that, according to Field. “We find the tenant, qualify them for our program based on a set of financial criteria and then they pick their dream home on the market that is within the price range they can afford. What’s great about this is the tenant truly gets the house of their choice instead of having to select from a potentially very small list of available properties,” said Field. This means the tenant is more motivated to follow through with the program and likely to have years of happiness in their home. Homeowners Now uses a deferred purchase agreement, rather than a lease option, which is able to provide additional security for investors.

In a new whitepaper, Field shares more detailed information on how to maximize return on investments this year through a rent-to-own strategy. “A lot of people don’t have the time to put these pieces in place and are looking for a hands-off way to get involved. They want their money working for them so they can focus on other priorities,” said Field.

Source: Canadian Real Estate Magazine – by Kasi Johnston 30 Jan 2020

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Is rent-to-own the future of housing?

For rent sign large

With rising rents making it more difficult for many to even save the 3% down paymentthey now need to buy a home, and with some borrowers still struggling to get a mortgage, a new option is emerging as an avenue for consumers to live in the home they want and save money to buy it at the same time – rent-to-own.

A new report from Moody’s Investors Service highlights Home Partners of America and its“unique” blueprint for property acquisition.

Home Partners of America then rents the property to the consumer with a goal of selling the property to the tenant at some point down the road.

Home Partners of America purchase philosophy runs counter to many companies that have seen success in single-family rentals, buying distressed properties, renovating them, and then renting them out.

Home Partners of America purchases properties chosen by the tenant, with the consumer-selected properties more likely to be “higher quality and in more desirable locations (such as those with better school districts)” than properties purchased through bulk foreclosure sales, Moody’s said in its report.

So here’s how Home Partners of America’s program works, from the Moody’s report:

Under its Right to Purchase Program, HPA leases single-family properties to people who are looking to buy a property but have limited access to mortgage credit. The prospective homeowner chooses a property that he would like to eventually buy, and if the property fits HPA’s criteria and the tenant qualifies, HPA buys the property and the tenant enters into a lease and Right to Purchase Agreement that allows the tenant to buy the property at a pre-determined price during the term of the lease, which is typically between three to five years. The purchase price typically increases by 3.5-5% per year throughout the term of the lease.

According to Moody’s, Home Partners of America isn’t simply buying whichever house a consumer chooses. Moody’s states that Home Partners of America has its own underwriting and investment criteria that must be met before a purchase is made, including only in select communities whose school districts achieve high average test scores, for example.

And according to Moody’s, this program has advantages for the consumer, Home Partners of America, and investors alike, especially considering that Home Partners of America just went to market with its first single-family rental securitization.

Moody’s said that the securitization, Home Partners of America 2016-1, should be attractive to borrowers because of Home Partners of America’s model.

“HPA acquired the properties backing the transaction based on requests from prospective homeowners who desired to rent the properties with eventual options to purchase,” Moody’s writes in its report.

“As a result, the transaction is likely to delever faster than will other single-borrower SFR transactions because HPA will prepay the loan at a premium to release the properties from the transaction if and when renters exercise their options,” Moody’s continues. “Furthermore, the strategy could benefit property recovery values because renters with purchase options are incentivized to maintain their properties well.”

The properties that Home Partners of America purchases also tend to be higher quality than other single-family rental operators, requiring lower rehab costs, but also requiring more money to be laid out initially.

By comparison, Moody’s states the average value of the 2,232 homes that make up Home Partners of America’s securitization is $247,483, while the average value in recent securitizations from Invitation Homes and American Homes 4 Rent was $167,631 and $143,066, respectively.

On the other hand, the average rehab cost for Home Partners of America is $6,669, while the average rehab cost for Invitation Homes was $22,984 and the average rehab cost for American Homes 4 Rent was $15,209.

If a borrower exercises their option to purchase the property, Home Partners of America must purchase it out of the securitization at a premium, which represents a “credit positive” for investors, Moody’s said, adding that it expects some tenants to do just that, using their time as a renter to build credit and save up money for a down payment.

And that turns renters into buyers, which is still advantageous for consumers in much of the country.

Source: Housing Wire January 14, 2016 Ben Lane

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Invest in real estate and in your kids

“I had originally shared this article back in spring of 2010, but I think it certainly deserves a reshare.” – The Ray C. McMillan Mortgage Team

Here’s one way to tackle the red-hot Canadian housing market: Get someone to buy you a home.

That someone would be your parents. According to a new survey from TD Canada Trust, 10% of Canadians are considering buying a condominium for their adult children. A year ago, only 5% of parents thought about buying the kids a condo.

“It could be something that the parents are looking at as a long-term source of income, letting their children live it in for now,” says Chris Wisniewski, associate vice-president of real estate and secured lending with TD.

It could also be that parents know condominium prices, like detached homes, have climbed to unprecedented levels, making it difficult for adult children to come up with a minimum 5% down payment, let alone the 20% needed to avoid costly mortgage default insurance.

Toronto condo research firm Urbanation Inc. says the average existing condominium in the city sold for $331,000 in the first quarter of 2010. Based on an average $369-per-square-foot price, that’s a 900-square-foot unit.

For a new one, prices averaged $443 per square foot in the first quarter, so about $400,000 for that same-sized condo.

Ms. Wisniewski says low interest rates are convincing parents to step up and buy their children homes. The condominium represents an attractive alternative to those parents because the costs are stable.

“They know what the maintenance costs will be,” she says. “[Parents] are thinking, ‘I’m not worried my children are too young to accept the responsibilities of home ownership if I set them up in an apartment. They don’t have to recognize the responsibilities of maintenance in an apartment.’ ”

Parents might also see a condominium as a way to get their kids to start a family. The survey found 36% of Canadians are willing to raise families in a condo.

“One of the reasons for that is affordability,” says Ms. Wisniewski. “Where are the new condominiums being built? They are being integrated in really nice existing neighbourhoods with all the infrastructure and all the schools and amenities.”

Brian Johnston, president of developer Monarch Corp.’s Canadian division, says he doubts families will ever be integrated into the condominium stock, but does agrees with the premise that parents are helping to buy housing for their children. He says parents often want to keep children close to them so they’ll chip in for a condominium in a nearby neighbourhood.

“How do we know they’re helping out? They tell us when they are writing the cheques for the deposit,” Mr. Johnston says.

Mr. Johnston said when it comes to recent immigrants to Canada, there is “lots of help” from family members to get that first home. “Condominiums are not inexpensive and they’re going to need that help, particularly if the younger ones have not had time to build up their finances.”

The builder has his own children and, based on today’s prices, he figures he’s going to have to lend a helping hand. “I don’t expect them to be able to buy a condo … before they are 30. That is just part of the deal [for parents],” says Mr. Johnston.

It’s not like Baby Boomers don’t have the cash. There have been endless studies that suggest the Boomers are set to inherit billions of dollars in the coming years from their parents.

Craig Alexander, deputy chief economist with TD Bank Financial Group, says there is no hard data to suggest how much parents are helping children, but they certainly have the financial capacity to lend a hand.

Canadians have $1.5-trillion invested in stocks and mutual funds with $500-billion of that figure in capital gains.

“The generation before the Baby Boomers were big savers and, as a consequence, there is a very large income transfer going to take place over time,” says Mr. Alexander, adding it makes sense that some of that money is going to end up in housing and real estate.

For first-time buyers facing rising rates and increasing prices, the helping hand couldn’t come at a better time — just ahead of tighter mortgage financing rules. Most of them probably hope their folks go from “considering” buying a condo to actually doing it.

Source: Garry Marr, Financial Post Friday, May 7, 2010

Cyrilla Hamlet, who had her credit ratiing destroyed after moving out of an apartment because the landlord falsly claimed they owed money. One of the city's biggest corporate landlords, Metcap Living, also runs an in-house collections agency, Suite Collections, to go after clients for backed rent. But tenants report that years after moving out, they are pursued for ficticious debts due to "lack of proper notice" to move out.

The Liberal government has committed to ending the practice that allowed landlords to evict tenants and then pursue them for not giving proper notice.

One day after the Star published an investigation into how MetCap Living Management Inc. and its in-house collections agency, Suite Collections, go after evicted tenants for two months’ rent, Ted McMeekin, minister of municipal affairs and housing, said he would put a stop to it.

“This practice is unacceptable to me. I’m committed to putting an end to it,” said McMeekin.

“If somebody gets an eviction notice and they move as a result of that notice . . . the tenant is no longer responsible beyond the date of the eviction notice,” he said. “That’s the law of the land.”

Brent Merrill, president of both MetCap and Suite, maintains that the practice is legal. He provided the Star with a copy of a divisional court decision from 1993 that ruled a tenant was responsible for two months’ rent even after they had been evicted.

But the law governing landlords and tenants has changed since then. The Star found a 2013 small claims court decision that rejects the 1993 decision.

“At this time the divisional court decision that we have provided you and are relying on here trumps the more recent small claims court decision,” Merrill wrote in an email Monday evening. “As of today, our counsel feel that we are in compliance with the law. If the Minister of Housing feels otherwise then he or a member of his staff should pick up the phone and call us.”

When informed of the Minister’s statements, Merrill agreed to temporarily suspend the practice for any future evictions until the law has been clarified.

“If the law changes, of course we would have to reassess our position and we are happy to do that to remain in compliance,” he wrote.

Even though the legislature has risen for the summer, McMeekin was confident that an immediate change could be made using regulations that would not require an amendment to the law. But if a formal amendment is required, he committed to seeing it through once the house returns in the fall.

Cyrilla Hamlet, who was evicted by MetCap in 2012, was happy to hear that the practice that saw her get saddled with more than $2,700 in debt would end.

“It’s just wicked, very wicked,” she said. “I’m glad a lot of people won’t have to go through this anymore.”

Hamlet’s debt was reduced to $1,400, but it was also registered on her niece’s credit report. Today they’re both unable to borrow money because of their bad credit ratings. She says this won’t be over until they can clear that debt.

NDP housing critic Percy Hatfield said the practice has to be ended as a matter of fairness.

“I don’t think they should be penalized for following your order to get out,” he said Monday. “(Landlords) shouldn’t be attacking and going after the people who can’t pay your rent because now you’re tacking on more bills on and they’re never going to be able to pay you.”

Progressive Conservative housing critic Ernie Hardeman did not return request for comment.

Source: Toronto Star  Staff Reporter, Published on Mon Jun 22 2015

Don’t buy into the ‘flip’ hype

<b>Flipping</b> Humpty Dumpty’s House with Online <b>Real</b> <b>Estate</b> Courses

Source: Canadian Real Estate Wealth

by Jennifer Paterson05 May 2015

The latest onslaught of flip-focused television shows make the strategy look thrilling and easy, but experts on the ground say that investors should focus on the long-term game instead.

“When you buy and hold, you don’t have to worry about timing the market,” said Freedom Malhotra, the founder of Condo Planet in Mississauga, Ont.

“As long as you don’t buy above market value and you do crunch the numbers, you should be very happy with your investment.”

In the past six months, HGTV has added nine new glamourous flipping shows to its roster, including celebrity home remodels, house-flipping adventures and winner-takes-all home renovation competitions.

In 2015, HGTV Canada premiered Open House Overhaul, where designer Sam Pynn and her crew overhaul houses in order to sell them fast and make top dollar.

Given the typical five-year real estate cycle, particularly in Toronto, Vancouver and Montreal, investors who commit to hold a property for at least that length of time have generally come out ahead.

But that kind of long-term strategy doesn’t necessarily make for riveting TV, with strategy-driven property investment struggling to win air time. That’s a shame given the real cash flow potential flippers can leave on the table in the rush to sell.

“As prices increase, people will need that revenue stream, like a basement apartment to offset their mortgage costs,” said Steve Arruda, an investor and Realtor at Keller Williams Neighbourhood Realty.

“That’s going to be a huge attraction down the road. As prices increase, having that basement rental, or any rental, will help investors to qualify for a mortgage.”

But if quick-flip shows really are the best way to attract viewers, network executives might want to take a page from more experienced flippers who are using that strategy in the hopes of making quick cash to reinvest for long-term gains.

“The strategy is a bit more enhanced – not just lipstick,” said Cindy Wennerstrom, an investor and president of Oro Properties.

“It is more full gutting renovations appealing to the more discerning buyer that wants their property move-in ready.”

Rent-to-own works, but beware the pitfalls

Renting to own a house can be a very effective way for a buyer without enough of a down payment to buy a home. But do your homework.

SHUTTERSTOCK

Renting to own a house can be a very effective way for a buyer without enough of a down payment to buy a home. But do your homework.

The concept of rent-to-own can be a very effective way for a home buyer who does not have enough of a down payment, or the right credit score, to buy a home. It allows you to make the purchase over time at a set price.

But you have to be careful. Without due diligence, problems can occur for everyone involved.

In a typical rent-to-own arrangement, the owner and tenant sign an Option to Purchase agreement, where, for a fee, the tenant acquires the right to buy the home two or three years later, at a set price. The fee is usually 2 to 2.5 per cent of the purchase price. The tenant pays the rent each month, plus another amount towards the down payment.

Ideally, this comes up to 5 per cent of the purchase price by the end of the contract. Hopefully, by then the tenant has improved his credit score and qualifies for an insured CMHC mortgage, and the deal closes. A benefit for the landlord is that most tenants who have this option will take better care of the home, since they expect to become the owners.

Problems can arise when a middle man offers to get between the home owner and the rent-to-own tenant. The middle man offers to manage the arrangement for the owner for a fee and may also guarantee the owner a sale if the tenant doesn’t buy it.

If the middle man is a scam artist, he disappears with the fee leaving the home owner and tenant wondering who owes what to whom and their rights.

An Ottawa company is facing lawsuits from tenants, owners, lenders, investors and contractors involving a rent to own business.

Golden Oaks Enterprises, and its owner, Jean-Claude Lacasse, acquired 48 properties in the Ottawa region using the rent to own method. As reported by CBC, in one case, Golden Oaks agreed to buy a home but couldn’t find a tenant and backed out of the deal. The seller had already purchased another home and then had to carry two homes.

In another case, a tenant who made the down payment was evicted when an investor with a second mortgage took over the property. Meanwhile, investors put money into Golden Oaks after being promised a 30 per cent return by investing in rent to own properties.

The allegations have not yet been proven in court, but a receiver has been appointed to administer Golden Oaks affairs and it appears most of the investors will lose everything. Lacasse‘s own home is up for sale as well.

Many tenants who cannot qualify for a mortgage might be excellent candidates for a rent to own contract. But they should remember these arrangements require the same due diligence and protections as any real estate contract, to avoid problems later.

Here are some suggestions:

•Any deposit sum paid towards the final purchase price by the tenant should be held in trust, similar to a normal real estate deal. It should not be paid to the landlord or a third party, until the deal closes or terminates.

•Do your homework. For a small fee, go to the county registry office and get a copy of the owner’s title records, showing who actually owns the property and the amount of any mortgages registered against title. Now you know you are dealing with the correct owner. You should also ask for a mortgage statement showing how much is owing on the property.

•Register the lease and option agreement against title. This will protect the tenant from future dealings by the owner with the property. In most cases, the tenant will have to pay land transfer tax in order to do this, but it should not be more than $100, so long as the option agreement is kept separate from the lease, since land transfer tax is only payable on the price paid for the option, not the final purchase price.

Or just use a lawyer to protect everyone involved by doing the proper due diligence in advance.

Be suspicious of a middle man who wants to buy an option on your home. Rent-to-own can work for landlords and tenants, if everyone is properly prepared before signing anything.

Mark Weisleder is a Toronto real estate lawyer. Contact him atmark@markweisleder.com

Need more information or advice on #mortgage_qualification, contact the The Ray McMillan Mortgage Team

#mortgagesmadesimple

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Is it too late to get into Hamilton’s hot housing market?

Hamilton is poised to be one of the strongest housing markets in the country in 2015 — but is it too late for investors to catch the train?

Far from it, said Cam McCarroll, an investor and sales person at Harbour Properties.

“The hot market in Hamilton means that increased demand makes finding discounts on price more challenging, that paying close to full price is the norm, and often multiple offers are creating sales over asking price,” he added. “But this is just the cost of admission for accessing a hot appreciating market like Hamilton.”

Analysis published this week by TD Economics showed that, across Canada’s largest 14 cities, Hamilton is the only one expected to see house prices grow over the next two years.

Diana Petramala, TD’s real estate economist, said: “Unlike other markets, where we see prices decline, we do see prices growing by about two or three per cent per year in Hamilton. The sharp gains we’ve seen are probably behind us, but it’s still going to be one of very few markets where home prices will continue to grow.”

Housing prices in Hamilton rose an average of six per cent in 2014, reminiscent of the kinds of sales and price activity more typical of Toronto, Vancouver and Calgary.

The Canadian Real Estate Association’s figures for November 2014 showed a year-over-year percentage change of eight per cent, from an average price of $368,947 in November 2013 to an average price of $398,590 one year later.

Only two or three years ago, McCarroll said, investors were wondering whether Hamilton was the best choice for investment. Much has changed in the ensuing years.

Hamilton has a wide spread of housing stock from $140,000 to $400,000,” he added. “Identifying transition areas is the key to long-term success when investing in hot markets like Hamilton. These key transition areas are where new and experienced investors can take advantage of greater appreciation and good rents.

“A report like TD’s deals with averages across the city, but a smart investor would be buying in areas that are in a specific neighbourhood that will transition upwards in value and is going to perform better than the average.”