In Kelowna and throughout British Columbia, rent-to-own properties have become more and more popular. It’s an alternative to people who don’t want to rent forever but aren’t prepared to buy right now. It helps property owners who are planning to sell their home and want to increase the money they can make on the deal.
If you’re thinking about doing a rent-to-own sale, make sure you’re working closely with experienced real estate professionals. It’s easy to make a mistake, and those mistakes can be costly. We have a few tips for you today, but please contact us if you decide to move forward. We’d be happy to help.
Remember That You Will Ultimately Sell
Make sure you are willing to sell the property in the future. While you start this process by collecting rent from tenants and holding onto the asset, the idea is that you will eventually let go of the property and sell it completely to the tenants who are in place and preparing to buy it. If you decide to back out of the agreement or the date to finalize the sale gets closer and you change your mind, you’ll be facing huge penalties. Don’t enter into a rent-to-own contract unless you’re absolutely prepared to give up the property in a year, two years, or whatever the terms of your agreement dictate.
Structure a Deal that Benefits All Parties
Every rent-to-own contract is going to be different, but you’ll want to make sure that your interests and income are protected. Make sure you structure the deal to address the purchase price of the property, the amount of rent that will be paid until the deal closes, and any rental credits that the tenants/buyers will receive while they’re in your property. Your deal should also identify the timeframe in which you agree to close on the sale, the fee for the tenant’s option to buy, and the expected structure for maintenance, repairs, and other expenses.
Have your documents reviewed and approved by an attorney before you sign. Make sure your tenants understand what the deal includes and what the penalties will be for not completing the contractual responsibilities as they are laid out.
Canada Mortgage and Housing Corporation Requirements
A licensed brokerage is needed to complete a rent-to-own deal in order to protect the landlord and the buyer against giving away rights or money to a third party. It’s an extra layer of protection for all parties involved. To successfully complete this transaction, you’ll need to follow the requirements of the Canada Mortgage and Housing Corporation (CMHC). You’ll have to hold your tenant’s down payment in trust, and you may be asked to provide a mortgage statement showing how much is still owed on the property. The option can be registered, as well as the option agreement. The title of your property guarantees the tenant’s option to buy.
With this type of transaction, you can enjoy a higher ROI, better cash flow, and regular income that frees you from vacancy and maintenance costs. For more information about how to make this work, contact us at Vantage West Property Management.