Vancouver real estate – Pros and cons of Vancouver condos in the US Market

Rent to own

As Vancouver condos agents, we have see many advantages and disadvantages of rent to own we believe we have many things we can share for you folks in the US. In a rent to own the leasee pays the steady rent on the home , but adds a nominal monthly amount for – for a term of about say 4 years – at the end of which the owner gives him a an option to buy the property at a fixed price . The $300 over 3 years or $10,800 is applied to the purchase price (in most cases the renter now also qualifies for a low down payment mortgage ). If he does not use the option, the ‘premium/overage’ of $10,800 is forfeited to the owner (after all he had to wait 3 years to find out). As an owner you would only want to do that if you received your best price and then some.

How do I actually set this up?

There are several ways. We have seen the buyer  sign a bona fide Contract of Purchase and Sale. There should be an addendum to the contract that specifies that a certain portion of the rent goes towards the purchase if the buyers complete the contract. It also specifies that failure to pay rent or meet other terms such as an increase of deposit will cancel the contract. The amount of the surcharge , of course, is at a premium to market rent and ordinarily the surcharge credited to the purchase is that amount of the surcharge . In almost all cases, if the renter fails to honour the surcharge, the premium goes to the seller.

But, never, ever transfer title of your property with ‘no money’ down to anyone – buy yes, sell no . The only constant is change. The tenant loses his main job, follows the lures of travels, or rediscovers what its like to sit on the couch and day dream and there you are. To take your property back from a lazy buyer that has no equity in the property is VERY COSTLY !

The most important factor is to have everything in writing. Having things in writing won’t make bad people good and won’t make good people better; all it does is delineate the parameters of any legal action. You never want to take legal action if you can possibly avoid it. But a strong rental agreement allows you to make convincing threats.

Why do it? Owner/Investor benefits:

(You can use this if you are a buyer – to tell the owner why he benefits! )

• Great Market Price in rough real estate markets (perhaps in today’s market in some US Cities ?). Get the property at market value or better. You also have more tenant/buyers who are amenable to pay a premium because of the terms.

• Higher than normal rental income. Increase positive cash flow.

• Higher rental cash : It is one way to make a property have cash flow that otherwise would not.

• Non-refundable option or ‘premium – overage of rent’ up front.

• Avoid a commission: Although there are ways to pay a top Vancouver realtors as well. ( Not much competition…most Realtors don’t understand it – and some lawyers!)

• Lower advertising costs. Run an ad for rent to own in today’s market and see what happens!

• Get a better quality tenant : Someone who wants to own , even if in the end he does not end up buying, will make sure you home is in much better shape . There could be quality people in the recently divorced, self employed or new immigrants.

• Less maintenance : Less management. Tenants that feel a “pridefulness of ownership” will pay on time, execute maintenance, and make improvements to your home. You could also term these monthly obligations as a condition into the deal.

• Larger market of buyers: You are disseminating the base from buyers only to renters/investors.

• Fewer Vacancies : Your phone will ring off the hook when you post your property as a lease/rent to own purchase deal.

Write a great contract. Legal documents are far more complex. Have a lawyer/notary or a West Vancouver real estate agent witness it. In a falling market the renter WILL want the option price and rental premium back. I guarantee it!

Also , owners should also use the lease to own contract ALWAYS instead of an agreement for sale in properties (out of town) say under $30,000. It is a pain to foreclose on default; it is much easier to cancel the lease.

 Why do it? Tenant/Buyer Benefits:

• Grow equity. Sometimes a family cannot get together a down payment.

• Knowing what you will buy. Checking it out for say 2 or 3 years, having the price fixed.

• Rent money is not wasted . Each month a portion of rent comes off of the sales price eventually.

• The full option deposit is not lost. This cash will be 100% credited to either the D.P. or the sales price.

• No huge initial capital infustions . With a lease purchase, there is only the first month’s rent and an option deposit to pay; no down payment, no closing costs.

• Low down payment needed The option deposit plus the rental rebates will likely take care of the whole down payment.

• Assign the contract. Wherever possible, get the right to assign the contract. If the market goes up, you could assign the contract for a tidy profit.

• Increased buying power. Your buying power is dramatically increased.

• Less credit problems. Qualifying is not as strict as conventional financing.

You will be approved at the sole discretion of the landlord/seller. You will have time to repair your credit, find the best financing available.

 
In Summary: You have full control of the home – and all the time in the world to see if its really worth it! . 

It is vital to have an ironclad contract. Insist on one. Pay for one. If the market rises fast, the owner WILL try to get out of the deal. I guarantee it! You do have more leverage as a buyer. With a lease purchase contract, you can control properties that usually require 10-30% down for a nominal amount of money without using a lender or going through the loan application process. Yet you will receive the same features.

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