Calgary Rent To Own

Are Calgary Rent to Own deals SCAMS?

I always get calls from friends asking me if Calgary Rent to Own deals are scams.

The rent to own or lease option information on my site can be applicable to most area's in Canada and the US- I specifically discuss Calgary because I live here and know the market

You will find numerous so called deals in Calgary- that proclaim to be "Rent to Own"- some will be, and most will only be inflated rental properties, with owners looking for new tenants that will pay 15-25% higher rents and never be in a position to close the deal- obtain a mortgage.

If you are a Buyer looking for a Rent to Own: You will learn the fundamentals of a rent to own or lease option (you can buy a house with as little as $5,000 and poor credit)

If you are a Seller/Landlord You'll learn how you can sell your house above market value, in any market, with little or negative equity without using a Realtor or having someone steal your house.

3 Critical steps in a true Rent to Own.

#1) The Lease Agreement (or rental contract).

The lease is signed the same as most rental agreements. The major differences would be that the tenant (buyer) is responsible for more maintenance on the house.

In most of the Rent to Owns that I am involved with, the tenant (buyer) is responsible for anything in the house that requires fixing under $1,000. This puts more control in the hands of the tenant and shows the landlord that in fact the tenant is prepared to buy the house as soon as they are able to qualify.

#2) An Offer to Purchase.

This is a purchase agreement where the tenant (prospective buyer) and the landlord (prospective tenant) sign an agreement.

If the tenant does not break the lease agreement (signed in #1) then the landlord agrees to sell the property to the tenant for an agreed price within a specific time frame (which is set out in the Option Agreement in 3).

#3) The Option Agreement.

This is an agreement where the tenant has the RIGHT not the obligation to buy the property within a specified time frame at the agreed upon price.

This is called a Unilateral Contract, because the buyer has the control as to whether or not they want to close on the house (so long as they have met all the prerequisites of the contract).

An example might be useful to illustrate what happens in a rent to own.

Example of a Rent to Own

I'll give you a prime example of why a landlord (home owner) and tenant (potential buyer) would ever want to enter into this agreement.

Right now I am currently working with B.F who is starting a new career (computer software consultant).

He's self-employed and looking to move his family into a house, as they just got an eviction notice from their landlord (landlord is looking to do a complete fix-flip, so he needs them out).

B.F calls me and asks about my rent to own program. I explain what it is and how he will benefit from such a program. B.F is dialed in & ready to go.

So now, I need to find a house for B.F and his family to move into. (At the time I had all of my own houses already filled with Rent to own buyer/tenants).

I go out to my list of sellers and find a guy (L.N) who needs to sell. He has no equity in his house, as he built it new 6 months ago. L.N is being relocated to Regina (were houses are much cheaper) and needs to sell fast.

I go over all the options with L.N and show him how a rent to own is his best solution. L.N will get full value for his house; have someone pay his mortgage until they qualify for the loan.

B.F (tenant/buyer) is responsible for all repairs on the property under $1,000 (so L.N doesn't have to babysit like most landlords).

If B.F is unable to qualify for a loan in the 24 month lease agreement;

- B.F losses his option money that he put down to secure his right to buy the property.

- L.N is able to take the house back and sell it the conventional way, or

- enter into anther agreement with B.F (so long as B.F is a good tenant, then in almost all cases L.N will write up anther rent to own).

There are obviously many factors and 'what ifs'- at the end of the day this type of arrangement can be good so long as both parties are honest and doing business on the up & up.

It is just one of about 10 creative ways that you can buy or sell a house (having options is always a good thing).

Rent to owns are dedicated to helping buyers who usually fall into 2 categories

#1) Poor Credit

Buyers who have credit problems can benefit from rent to owns- so long as they are coached and helped along the way. We find many buyers are not even aware of their poor credit and how easy it can be to fix.

We sit down with buyers 1 on 1 and go through their credit checks line by line. Takes about 30 minutes, and afterward they have a clear blueprint for improving their credit. Without improving their credit, there is really no reason to do a rent to own. That is why we are so adamant about helping buyers get their credit up so they can qualify for a mortgage as quickly as possible.

#2) Have Less than 5% for a Down-payment

For many buyers coming up with 5-10% down is difficult. We encourage buyers who may not have the down-payment yet but are working towards the dream of owning their own home to lock in a purchase price today and direct some of the rent they throw away every month towards equity (down payment).

A quick illustration of how a rent to own could work for you:

- Buy a house (Rent to own option) for $300,000
- Down payment is $7,500 (2.5%)
- 2 year rental contract
- Monthly rent is $1,700 and $200 month goes towards down payment.

In year 1 you will have $2,400 and 2 years will have $4,800 towards your down payment.

With $7,500 down towards the house on day 1 + $4,800 in equity from rent you would have $12,300 in equity.

Now, add in any appreciation in the house.

2 years of appreciation at 3%/year (very conservative) on a $300,000 house:

- Year 1 appreciation-(House value $30,000 x 1.03) = $9,000. New value is $309,000.

- Year 2 appreciation (House value $309,000 x 1.03) = $9,270 in year 2. Total value is $318,270

Purchase Price of $300,000
Total Down payment of $12,300
Cash to Close is $287,700

Calculate Your Equity Position using a rent to own

Value of Home is $318,270
-
Cash to Close of $287,700
Your Equity is equal to $30,570 (not bad for 2 years on a rent to own).

Why a Seller would use a rent to own to sell their house?

- Eliminate the need for a Realtor. You can lease option your house without having to pay a Realtor commissions.

- Attract many more buyers. You open the door to the majority of the population who may not be able to qualify for a conventional bank mortgage.

Examples of buyers who benefit from Rent to Owns:

- Buyers with little down payments. A great way to buy a house with very little down, build equity. If the market is appreciating then you lock in your purchase price today and reap the benefits when you exercise your option to buy.

- People moving from one city to anther for a new job (changes in careers can disqualify a person from getting a loan)

- Self employed

- Service Industry- were the majority of their income is in the form of tips

- People with had poor credit due to over due accounts, high visa balances, Investors who have numerous properties are candidates.

It has always fascinated me when talking to a home owner or landlord about 'Rent to Owns' they all seem to think that if someone could afford to put down $5,000-10,000 as a deposit on a rent to own then why can't they qualify for a mortgage.

Well, in reality Banks are very conservative by nature. Just look around at the current foreclosures in this market (both in the US and Canada) and I think you can appreciate why Banks are so thorough when it comes to lending money.

With 95% to 100%+ mortgages, a banker’s job is dependent on their ability to analyze risk and make sure that their books stay clean. Lenders are very cautious who they will lend money to.

Have Questions Regarding Rent to Owns?

I try and educate every possible lease option buyer and seller fully so they know exactly what is going on- the pro's and con's of rent to owns.

Unfortunately there is only have so much time I have in a day and we get many buyers submitting requests looking for rent to owns. Some submissions are buyers who are 'just looking' and not ready to act.

There are certain criteria that every rent to own buyer goes through. As the end goal is to obtain a mortgage, a rent to own is a tool to bridge the gap for home ownership.

Update Jan 3rd, 2010

I no longer have the time to source new properties to help home buyers into rent to own's in Calgary.

Due to time constraints and increased demand beyond what I am able to handle or help with, I have decided to help on a 1 on 1 personal consulting basis.

If you are serious and interested in a rent to own- I offer consultations on how to find, negotiate and structure your contracts properly. I do charge for this service as it makes sure that I am only working with serious buyers.

I am a consultant making sure whoever you work with doesn't take advantage of you.

I accept 1 client at anyone time and my hourly rate is $100/hour.

I am very fussy who I work with and you must know that the end play on any rent to own is qualifying for a mortgage.

Please remember, if you don't qualify for a mortgage at some later date, you are wasting your time and money. So please take this into consideration- a rent to own is not a magic bean or some secret way to getting rich quick over night.

I also offer my contracts for sale at $250.00 per contract and I show you how to fill them out properly.

If you were to get these contracts made for you, it would cost about $4,000- 5,500 (to be done by a lawyer).

To be clear- I do not find rent to own homes. The process is not difficult - but does take some time and energy (which I do not have time to dedicate to).

My goal is to help those rent to own buyers who are serious, have the potential to qualify for a mortgage in 1-3 years and value the services I offer ($100/hour and/or Contracts of $250.00)

If you would like a free resource on rent to owns- check out this 87 minute recording I made for would be rent to own buyers.

This is an 87 minute conference call I had with a small group of renters who wanted to learn more about the rent to own process and how they could do it on their own (and save thousands) you can get it at
Stop Renting in 37 Days

One consideration I like to remind potential rent to own buyers- most people providing rent to own houses are typically investors. This means their goal is to make money. There is nothing wrong with this- Realtor's sell houses and make money, mortgage brokers get loans to be paid.

Investors provide you with the rent to own service through locating the properties and sellers willing to structure these deals. So long as they are operating ethically and with your best interest in mind (which we do- I can't say the same of all the others) then Rent to owns can be an excellent way into home ownership.

Everyday I read in the Calgary Herald Classified- 8-12 Rent to Own newspaper ads with investors looking to take your $5,000-10,000 deposits. My research has lead me to conclude that many (not all) are selling houses at about 15-20% over their current market value. I would argue that Calgary is not going to experience the 20% gains year over year for many years. So over paying today is not really setting you up for home ownership.

The other adds I see- Rent To Own with $500 down. Calling on most of these adds- I have found they are not really rent to owns, because you don't get the purchase contract and option buy. If it is rental property with no option to purchase, then it is not a rent to own.

My best advice to anyone looking at Calgary Rent to owns:

Make sure you fully understand what you are getting into.

I ALWAYS recommend talking to a a Lawyer (before signing documents) a Mortgage Broker (call me if you'd like), and educating yourself on rent to own deals .

If you want to learn how to find a rent to own home on your own and save money check out this 87 minute audio I created Stop Renting in 37 Days
Thanks,

Shane Melanson

1800-931-7497 24 hours, for FREE recorded message
1st Avenue NE
Calgary, AB
T2E 9C6

P.S You will still require a lawyer to register your rent to own contract on title but I estimate that my services will save you $1,000 in legal and upwards of $20,000 in potential mistakes that most buyers make.

If you do not hire me- no problem.

Please hire a lawyer- I can't stress this point enough. You are signing a legal document. You don't buy a house without a lawyer and a rent to own, by most accounts is more difficult and less understood than buying a home.

It can and most likely will save you money in the long run.

P.P.S You should also note- most lawyers will steer you away form a rent to own.

Why? They are risky and usually done improperly. If you are skeptical or unsure- my advice, save your money for a down payment and qualify for a mortgage the conventional way.