What is 'Rent to Own' in Regina, SK?
What is 'Rent to Own' in Regina, SK?
Are you looking to make sense of the 'Rent to Own' concept in Regina, SK?
Rent to own homes provides a viable option for both home sellers and people looking for a place to live in Regina.
From the buyer’s perspective, rent to own homes allows you to save money for the down payment and establish a strong financial foundation. You can do this while already living in the property you are intending to buy.
When you look at the seller’s perspective, it’s understandable that sometimes selling your home isn’t that easy. If you get an unfavourable response from the market, you could offer a rent to own option to an interested buyer who isn’t ready to make the full purchase.
Which is why, in the following paragraphs and accompanying video, we are going to take a closer look at the basics behind the rent to own concept. You’ll learn about the implications of this type of contract and what you should keep in mind when providing a rent to own option in Regina, SK.
The Starting Point: How Does 'Rent to Own' Exactly Work?
Rent to own is an easy concept. You need to list your home as a rent to own and set the monthly rent at the top end of the rentals in your area. Additionally, you should charge an option deposit.
This option deposit should amount to around 1-2% of the total property value. It’s a non-refundable deposit that will go towards the closing price. Asking this deposit is legal in Regina and it’s an essential component of any rent to own arrangement.
Even though this type of contract is frequently used by people who don’t have an ideal credit score for buying a home yet, you should still screen your applicants. As a seller, you want to make sure their employment and credit situation is adequate enough for rent to own purposes.
When your tenant moves in, it’s time to collect the option deposit and rent upfront. You’ll sign a purchase agreement and a lease as separate documents. From that moment on, rent credit enters the picture.
Each month, a small part of the regular rent payment goes towards the final purchase price. Keep in mind that this particular portion of the rent payment is used at your discretion.
The important thing to consider here is that, if your renter decides not to purchase the property, they will lose all the money put towards the closing payment. This means you’ll own both the rent credits and the option deposit.
The Pros and Cons of 'Rent to Own'
Looking from the property investor’s side, there are numerous benefits to using this approach for your real estate investment.
Great Tenants: Usually, you won’t have to worry about a problem tenant. It’s much more likely that your renters will truly treat your property as if it were their own. Even if they decide not to buy the property, you are considerably less likely to face serious damages.
Option Deposit: As the property owner, you’ll receive a non-refundable option deposit. In most cases, the deposit sum amounts to around 1-2% of the home’s total price. You can keep this deposit if your tenant skips the option of buying the property.
Price Guarantee: You can rest assured knowing the agreed sale price is guaranteed. This locked-in price means you can eliminate uncertainty and plan your finances better.
No Upkeep & Repair Responsibility: When you have a rent to own contract, you won’t have to deal with expensive repair and maintenance activities. Instead, it’s your tenant who is responsible for taking care of these regular duties.
Higher Rent: The majority of 'rent to own' contracts come with higher rents compared to the market averages. You can justify higher monthly rent payments without any concerns.
Rent Credits: You won’t have to pay back the rent credits you obtained from your tenant. Once they fail to exercise their option of buying the property, you can keep these credits as profit.
As with any other property investment strategy, you do have some disadvantages or challenges with this particular approach.
Comprehensive Tenant Screening: You don’t want to take a risk by offering a 'rent to own' agreement to a completely unqualifying applicant. That’s why you need to obtain all the relevant background information about your prospects.
Locked Price: Having the selling price locked-in may not financially be the best result in an appreciating market. While it can protect your finances in a tumbling market, it won’t do any good if your property’s value is surging.
Tenant Flexibility: As a seller, you are locked into the contract and need to follow the purchase agreement until the closing. While tenants can’t get back their rent credits nor option deposit, they can still enjoy the freedom to walk away as they please.
In a Nutshell: 'Rent to Own' in Regina, SK
As a property investor in Regina, you have numerous approaches to choose from. One of the options is offering a ‘rent to own’ agreement to a prospect. That may be a viable strategy if you are having a hard time in a buyer’s market.
The ‘rent to own’ contract comes with many benefits to real estate investors. You get to keep the option deposit and rent credits if things go south. Also, you can command a higher rent price, and the tenant has to take care of regular upkeep and repairs.
However, you are locked into the contract. The locked selling price is great if there is a depreciation in your area. But it’s not an ideal scenario if your property’s value is rising. That’s why you should weigh the pros and cons of this approach in the context of your personal investment goals.