Why researching your rent-to-own company is important

While rent-to-own purchases are becoming more popular, it’s important to know who you’re dealing with, and to balance the risks and rewards.

According to Bob Aaron, a real estate lawyer with Aaron & Aaron, rent-to-owns typically surge in popularity during market downturns, and they’re also one of the few options people with bad credit have available to them. However, Aaron also says that it’s his preference to advise clients against entering such arrangements.

One way in which buyers get short-shrifted is by paying above-market rental prices than they would for a similar house, which, if the buyer chooses not to purchase the home, cannot be recovered.

“Rent-to-own helps when the seller can’t sell and when buyers can’t get approved for mortgages, but the way it often works is the seller gets the lump sum from the buyer/tenant which is used to underwrite the down payment,” said Aaron. “So if the buyer decides not to close, or can’t close, or can’t get a mortgage, all that money they paid up front and along the way is down the drain.”

He also says another problem with rent-to-owns is there aren’t any industry standard forms.

The buyer/tenant isn’t the only party at risk, though.

“A defaulting owner can stick the landlord-/investor with all kinds of arrears, mortgage taxes, utilities, and damages to the house, and the landlord/owner/seller is going to be stuck with those arrears and damages,” said Aaron, adding the courts don’t recognize rent-to-owns under the tenancy act.

“If the buyer- occupant is in default, it’s very difficult to get rid of them.”

There have been stories of unscrupulous rent-to-own companies in the media, but one in particular has taken a unique approach to the rent-to-own model, and has a 100% success rate of turning its renters into homeowners.

Dale Monette, CEO of Homeowners Now, explained to CREW that by empowering renters with everything they need to improve their credit scores, save money, and eventually own their homes, the rent-to-own model can become an exceptionally successful way to help families achieve homeownership.

Homeowners Now endeavors to get their clients both financially- and emotionally- invested in their future homes. by holding tenants’ down payments in trust. The company a client-first approach, which entails allowing the client to choose the home they want to live in and purchasing it for them.

“Some rent-to-own companies do a $0 down payment, but we want to get them financially invested by an initial down payment, typically 3% of the purchase price, and holding it in trust for them,” said Monette. “Based on our research, $0 down programs have a higher likelihood of the client walking away from the property, because they weren’t financially invested.”

Homeowners Now made the internal decision to return down payments should their clients default, but with a 100% success rate that’s never happened. One reason is the company does everything in its power to make sure its tenants have everything they need at their disposal.

“We actually pay for home inspection reports and appraisal reports, as well as the closing costs for our clients,” he said. “They don’t have to give us any more money for closing costs or legal fees – they just provide the down payment and monthly rent. We take care of the rest. When working with us, essentially our clients are working with a team of self-employed entrepreneurs, like realtors and mortgage brokers, so they stay directly in touch. We even help our clients with grants when they experience hardship, which ultimately helps them become successful in the rent-to-own transaction.”

As Aaron says, it’s important to have all documents perused by a lawyer. Equally as important is selecting a company that invests in its clients as much as it does in properties.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

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Canadians still bullish on real estate

The good times will continue to roll on for investors in Toronto and Vancouver – whether you’re a landlord or a flipper.

“High demand and low supply continued to characterize Vancouver’s and Toronto’s housing markets throughout 2015 as competition from buyers over the limited inventory of single-family homes pushed prices higher,” RE/MAX said in its housing outlook for 2016. “The average residential sale price increased 17 per cent in Greater Vancouver and 10 per cent in the Greater Toronto Area, to approximately $947,350 and $622,150, respectively.”

Price appreciation is expected to continue into 2016, according to RE/MAX, with prices expected to increase 7% in Greater Vancouver and 5% in the Greater Toronto Area.

That’s good news for investors of all colours; those looking to cash out in 2016 will surely make a profit. As for landlords, continued upward trajectory for home prices will price many out of purchasing and force them into the rental market.

Investors in other areas may have more cause for concern, however.

“Based on the projections for Canada’s key housing markets, RE/MAX expects the average home price in Canada to increase 2.5% in 2016,” said Gurinder Sandhu, Executive Vice President, RE/MAX INTEGRA Ontario-Atlantic Canada Region. “While we expect to see some price decreases, particularly in regions that rely on the oil and natural resource sectors, strong demand in Canada’s urban centres is expected to continue throughout next year.”

As for oil country – all is not bleak.

“In Alberta, a year after the sudden drop in oil prices, the housing markets have shown resilience,” said Elton Ash, Regional Executive Vice President, RE/MAX of Western Canada. “With oil price volatility continuing to make buyers feel uncertain, we do expect the average sale price to decrease next year, by 3.5 per cent in Edmonton and four per cent in Calgary.”

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Colebrook, Seabrook, Fortune, New Liskeard, Lac-Ashuapmushuan

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The new biggest challenge for investors

Until recently, I always believed the toughest part of investing in real estate was finding the “right” income property (eg. good geographic metrics, under market rents, purpose built, good shape, good location, etc.). In the past, my ability to find “diamonds in the rough” is what made me an effective and successful investor. However, my opinion has now changed.

Looking back over my past few deals I realize that in today’s environment, putting the right financing in place for an investment property is now more difficult than finding a good investment property and dictates your ultimate success or failure.


Most novice investors just assume that the bank is going to use the purchase price when determining Loan-to-value. They look at how much money they have available and work backwards. If they have $300,000, they can use $250,000 for the down payment and $50,000 for closing costs. This means they can buy a property for $1 million and the bank will give them a mortgage of $750,000 based on a 75% LTV. However this couldn’t be further from the truth today.

How did this situation come about?

Historically low interest rates in Canada have been the catalyst leading to:

Cheap cost of funds
Market cap compression
Increased demand for real estate as alternative investments (Bonds, T-Bills, GIC’s) offer poor returns
Limited supply

As an investor looking to acquire an income property, you welcome low interest rates but cheap cost of funds is a double edged sword. On the one hand you want as low an interest rate as possible to minimize expenses. However, there is a direct correlation between cost of funds and market caps. Both move in sync which means as interest rates go down, market caps follow suit (which means the price goes up).

Why does this matter?

Market cap compression directly affects cash flow. For instance, most income properties on the market in Toronto, and in surrounding areas, are being listed with cap rates of 4% to 4.5% (and in prime Toronto locations sub-3% market caps). The problem is that there is a big disconnect between actual valuations dictated by the market and the criteria that banks use to value an income properties for financing purposes.

Just this week I approached two majors banks regarding an income property in a prime Toronto location and was told they use a cap rate of 6% to determine value. A 6% cap rate on a good income property in Toronto is like a unicorn — they just don’t exist.

The numbers

Most people, like myself, like to see the real math and numbers to truly understand a concept. So here it is.

Assume a property nets $40,000. Based on a 4% cap, a seller would list that property for $1,000,000. Bring that same property to the bank for financing and based on a 6% cap, that same property would be valued at $667,000. The bank will typically offer 75% LTV which would translate into a mortgage of $500,000. The purchaser would have to come up with the balance, or $500,000 in cash, to complete the transaction. One of the great benefits of investing in real estate historically has been the ability to leverage and borrow from the bank.

As if that wasn’t a big enough obstacle…

To make things even tougher, most banks have their own internal guidelines when determining a property’s cash flow and they differ significantly from what you see on the property’s fact sheet when it is for sale.

For example, most real estate agents will assign $400-$500 in annual repairs and maintenance per unit under expenses on the income statement. Banks and CMHC tend to use $800-$900 per unit. If you plan to manage the property yourself, it doesn’t matter, they will assign a 4% (of gross) management expense.

Capital expenditures warrant another 1.5% to 2% of gross. What does this mean? It means that if you apply these guidelines the cash flow gets even weaker making it tougher to get the financing you need.

Unless you are a REIT or have deep pockets, the erosion of leverage makes it almost impossible for the average investor to enter this market.

The solution?

That will be my next entry. Stay tuned…

Author: Paul Kondakos, BA, LL.B, MBA – Professional Real Estate Investor

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate

Investment Hot Spots:
Burin, Hacketts Cove, Shubenacadie, Daysland, Athabasca County

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Chambre 9 m2 à partir de/from: 335 $/m (room)

Chambre 9 m2 à partir de/from: 335 $/m (room)
8 mètres carrés (88 square feet )
Avec verrou (With lock)

-Métro Frontenac (5 minutes)
-Arrondissement Ville-Marie (district)
-Centre-ville est – Centre Sud (Eastern Downtown – South Center)

– 3 novembre – voir mes autres chambres disponible maintenant, ici:( November 3rd – See my other room available now, here):

-colocation (roomate)
-Meublé ou non (Unfurnished or furnished room).
-Pour personne PROPRE ( For CLEAN roommate)
-NON-FUMEUSE seulement S.V.P. (NO SMOKER only, please)
-Internet haute-vitesse (high-speed)
-téléphone et
-longue distance gratuit dans 60 pays (free long distance in 60 countries)
-Couverture chauffante (Electric blanket)
-Logement 5 chambres et 2 salles de bain (5 rooms apartment with 2 bathrooms)

-Chambre (room) 251$/m
+Frais* (+fees*) 84$/m (1)(4)
= Sous-total 335 $/m (Sub-total)

Vérification de crédit

-Grandes chambres disponible: (Larger rooms available)
12 à 22 mètres carrés au lieu de 9
(125 to 220 square feets instead of 95): +5 à 50 $/m.
-Chauffage = ( Heating)
0 à 78 $/m
pour locations d’hiver à court terme (for winter short stay)
-Service de ménage hebdomadaire ou 6 heures par mois
(weekly cleaning service or 6 hours a month) : +75$/m (2)
-Ménage quotidien (daily cleaning service): + 325 $/m

(English : http://roomrentalsmontreal.com)

-Samedi au lundi (Sat to Mon): 10:00-11:00
-Mercredi (Wed) 12:00-13:00
-7 jours sur 7 (7 days a week): 18:30 à 19:00
ou en temps supplémentaire 9:00-10:00 + 19:00-21:00 (or in overtime) : + 60 $
514-448-4060, Yves, propriétaire (owner), Geoffrey et Siaka.
-Envoyez un courriel 24 heures avant (send email 24 hours before)
-Indiquez le jour et l’heure (tell day and time)
-Pour visiter le même jour téléphonnez (call for same day visit)

-Électricité et chauffage (Heating) : 40 $/m
-Chauffe-eau (Hot water heater) : 9 $/m
-Eau chaude (Hot water) : 3 $/m
-Internet sans fil haugte-vitesse (High speed Wi-Fi) : 5 $/m
-Électroménager, meubles et literie (furniture and bed sheets) 11 $/m
-Téléphone, service et longue distance gratuit dans 60 pays (free in 60 countries) : 4 $/m
-Savon, papier de toilette, ampoules, rideau de douche, sel, etc.
(Soap, cleaning products, light bulb, shower curtains, salt, etc) 9 $/m

Carte: https://goo.gl/maps/Yww9w


(1) Basé sur une location de 12 mois avec facture annuelle moyenne d’électricité 116 à 156 $/m. (Based on 1 year rental with annual average monthly electricity bill).
(2) Dépôt requis pour ménage hebdomadaire 100 $ (deposit required for weekly cleaning)
(4) RABAIS sur location pendant les mois du printemps, été, automne (REBATE: for spring, summer, fall months rental)

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