We were excited to have a few moments to interview Rent to Own expert, Tim Grier of Lindsay Kenney LLP to get a few details on Rent to Own’s and what you need to know before you enter into one. Watch the video above and read the full transcript below!
Geoff: Good Day, this is Geoff Lee of GLM Mortgage Group a division of Dominion Lending Centres. And today we have Tim Grier who is a Lawyer at Lindsay Kenney here in Langley. We’re going to talk a little bit about Rent to Own’s
What is a Rent to Own? A Rent to Own is an agreement between a tenant and an owner to purchase a property over an agreed period of time. With the surplus of that rent going towards the down payment of the home at the time of completion. So, for example I’m going to be renting Tim’s house for $1500 which we’ve determined that’s fair market rent. But I’m going to give Tim $2000 each month and out of that $2000, $500 will go towards the down payment $1500 dollars will go to rent.
Now, who does Rent to Owns? These could be individuals that are credit challenged. People that are reestablishing their credit because of consumer proposals. Can be because of bankruptcy. It could just be because of low credit history and credit score. It could be the income challenged; people that are transitioning from one job to another. People that are going from being employed to now being self-employed. And it simply can be just be because you don’t have enough for a down payment, and it’s a source and a way of saving for that down payment. With rent to own it’s very important that there’s two integral pieces. When you are doing a Rent to Own. That’s working with a great lawyer and working with a mortgage broker. Your lawyer is basically going to write an agreement of that rental propter that is going to protect you.
And more importantly with the mortgage broker in conjunction with the lawyer he is going to write that agreement that’s going to be within the lenders policies and guidelines. So, when it comes to completion we’re not going to have an issue with that.
So, Tim I have a couple questions for you. What is the responsibility of the renter or buyer when doing Rent to Owns?
Tim: They have to know if the money they are going to be spending is realistic for them. And they have to have an agreement in place that protects their interests. If the agreement later can be characterized as all rent they’ve just done market rent plus to the benefit of the landlord. For the landlord, they need to be sure that they’re willing to tie up their property in this way with the potentiality of this becoming the agreement later if they were to sell their property.
Geoff: So, a lot of times people will think that if I am paying you a $2000 rental agreement, that all that $2000 is going towards the down payment-which is completely false. $1500 of that would go towards as rent, $500 of that would go toward the down payment at the end of the agreement.
Tim: Yes, you want the two parts segregated so that it’s clear what is rent and what is going towards the down payment. The parties have to be clear on it at the start, and that’s where your agreement will help.
Geoff: In your expertise and your experience, were do Rent to Own’s fall apart?
Tim: Rent to owns frequently fall apart because the landlord regrets the decisions made and looks for ways to get out of the initial agreement. Or the tenant part way through realizes this is unrealistic and I cannot afford that extra $500, and they start missing payments and then they’re breaching the agreement. Potentially, you have yourself a little lawsuit rather than a nice agreement that both parties are happy with.
Geoff: And then on the financing side where it does fall apart is that the agreement that is written up by the lawyer isn’t it in conjunction with the lenders guidelines. So, again very important when you do Rent to Own that you are working with a lawyer, and you’re working with a broker that understands the Rent to Own agreements, so that they can finalize at the end. They are a very unique mortgage vehicle.
So for more information on Rent to Own’s go to our website and download the ebook or reach out to Tim Grier of Lindsay Kenney and he would be more than happy to point you in the right direction.