Lease To Own Home – Is It For You?

How Does Lease To Own Work?

  • These agreements – relatively uncommon in Canada – are best administered by a licensed real estate agent or lawyer, property experts say. 
  • A lease-to-own agreement gives a buyer the opportunity to rent a home, with an option to buy in three years or less. The sale price is determined beforehand.
  • The potential buyer pays a deposit, which is credited toward the purchase price.
  • The buyer pays a monthly rent, just as would be done in a typical lease agreement, plus an additional rent premium that is also credited to the purchase price.
  • If the potential buyer doesn’t buy the house at the end of the contract, both the deposit and the rent premium are lost.
  • Real estate agents and lawyers agree that before entering into such agreements, potential buyers should ensure they are dealing with the property owner.
  • They should seek assurances that their option deposits are going into a trust or other secure place.
  • Potential buyers should also know and understand the potential risk of losing their option deposit should they never qualify for a mortgage to eventually purchase the home.

Who really benefits?

Lease to own usually works very well if done correctly. Most of the time it works in favours to the landlord or homeowner. Why? Because they target buyers – people whose willing to own a home but cannot get a mortgage from the bank. (Example: Buyers that don’t have enough income and think their income stream will increase in the future or do not have a great credit score to qualify for a mortgage and thinking their credit score will increase in the future.) Some preyed on buyers who they think cannot afford to buy a home at all and they would inflate the future selling price of the property. Unless you have a crystal ball and could accurately predict the economic situation in the future then you can be certain that you are getting a good deal.

There are a lot of companies who advertise seminars about lease to own business and how it is a great source of rental income. But don’t get fooled with their no risk-guarantee advertisement and make sure to consult a professional before venturing and getting into a lease to own property investment yourself. Renting out a property to somebody who is in financial difficulty and cannot afford to buy now – with a tainted credit score is very risky! If you are counting on the rental payment to pay for a mortgage you could be well out-of-pocket for a few months while evicting a tenant out of your rental premises.

Before deciding whether lease to own is the right option for you consider and ask yourself the following questions:

1. Am I certain and absolutely sure that my financial situation will change for the better in the upcoming years?

(This question is important because you wouldn’t want to get locked in to a lease agreement where you would be shouldering all the expenses mentioned in the lease agreement such as – maintenance of the property and would later found out you are not qualified to get a mortgage anyway!)

2. Do I really know the future market value of the property Im purchasing?

(Do your homework! Do you think the future market value is set a proper price? Even an expert appraiser will be reluctant to give a future valuation because it is impossible to predict what will happen in the future. Make sure you ask a question about how they arrived at the future market value – what valuation method of analysis was used to arrive at a dollar value.)

3. For Lease To Own Investor: Do I have enough funds to pay months of mortgage without receiving a rent? 

(You need to consider for the worse scenario. Under RTA – Residential Tenancy Act a landlord must follow a proper eviction process to evict a tenant. Sometimes eviction process could take months and months and if you are relying solely out of a rental income you may find yourself defaulting on your mortgage.) Read More About Lease To Own Experience

2 Responses to “Lease To Own Home – Is It For You?”
  1. Michael Wong says:

    Short informative and to the point!

  2. Jane Smith says:

    Very good article.

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