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Manoj Atri Sales Representative
RE/MAX Hallmark Realty Ltd., Brokerage Independently owned and operated
685 SHEPPARD AVENUE EAST Unit: 401
Toronto, ON   M2K 1B6

Office: [416] 494-7653Mobile: [416] 275-2089

Is It A Good Idea To Do Rent To Own Homes?

Rent To Own can be a good idea ONLY in one format i.e. When the market value is more than the option price. Let's explain you this with an example. You puchase a property for $400,000 in a rent to own program. The per year appreciation is say 5% per year. Let's assume your Option price after 5 years is $500,000. Only if the market value of this property becomes substantially more than the option price value than it can be a good idea.

Rent To Own Homes - Is it A Good Idea?

Rent To Own Home - Is it a Good Idea Review with a more detailed Example:

First Let's Review a Regular Property Purchase:

Freehold Property Purchase Price: $500,000 [A]
Per Month Mortgage Amounts  = $3,000 / Month
i.e. [Mortgage = $2,300 + Utilities = $300 + Property Taxes $300 + Insurance = $100]
Assuming Property Appreicates 5% per year.
Property Vaue After 5 Years = $630,000 [B]
Mortgage Balance After 5 Years = $430,000 [C]

Now Let's Review the above scenario as a Rent To Own Purchase:
Freehold Property Investor Purchase Price: $500,000 
Per Month Mortgage Amounts  = $3,500 / Month
i.e. [Rental = $2,600 + Utilities = $300 + Content Insurance = $100 + $500 Towards Down Payment]
Assuming Property Appreicates 5% per year.
Option Price After 5 Years = $630,000 
Down Payment Adjustment $500 X 60 months = $30,000

Lease Option Buy Back Purchase Price = $600,000 

Let's Now Calculate The Difference In The Above Two Scenarios:
Per Month Difference - $500 X 60 months = $30,000
Option Price Difference - Mortgage Balance After 5 Years
Total Difference > $630,000 [B] - $430,000 [C] = $200,000 [D]
=> Though the Property Appreciated by only > [B] - [A] = $130,000 [E]

Conclusion:
So yes it is a costiler program because you approximately overpaid by $70,000. 
i.e. Total Difference - Property Appreciation > [D] - [E] = $200,000 - $130,000
Now if the Property Market Value after 5 years becomes subtantially higher than $630,000
i.e. let's say $700,000 or above than it can be a good idea. 

 

Request More Info: Rent to Own FREE Homes Listings Greater Toronto Area.

Manoj Atri Sales Representative
RE/MAX Hallmark Realty Ltd., Brokerage Independently owned and operated
685 SHEPPARD AVENUE EAST Unit: 401
Toronto, ON   M2K 1B6

Office: [416] 494-7653Mobile: [416] 275-2089

Trademarks owned or controlled by The Canadian Real Estate Association. Used under license.

The information provided herein must only be used by consumers that have a bona fide interest in the purchase, sale or lease of real estate and may not be used for any commercial purpose or any other purpose.

Information is deemed reliable but is not guaranteed accurate by TREB.

Toronto Real Estate Board - IDX Last Updated: 8/21/2019 9:11:19 AM