Canadians can now "rent" a house and have an expert break down exactly how it works

Canadians can now “rent” a house and have an expert break down exactly how it works

If you’ve always dreamed of buying a home in Canada but don’t have enough of a down payment yet, it might be worth looking into rent-to-own.

Simply put, renting is a way for renters in Canada to, you guessed it, lock down their dream home, even if they don’t have the money for it yet.

To understand the concept, Narcity sat down with real estate expert and realtor Trish MacKenzie.

“Rent-to-own is a lease where you commit to rent for a period of time with an option to buy at the end of the period,” MacKenzie said.

Often terms are negotiated and then a contract is signed. This contract usually states the length of the lease from one to five years, as well as the purchase price.

“In most cases, you agree to buy the property years in advance, and the responsibility of owning the home falls on you in the meantime, depending on how the contract was structured,” she explained.

For starters, MacKenzie recommends getting a team that has experience with this type of situation — a lawyer, financial advisor, rental company or real estate agent — so you can figure out what’s best for you.

Then of course you want to view the property and do everything you would if you were buying it outright. Ask yourself if this area fits your lifestyle? Is it a good investment? Will it be reconstructed?

“Once you’ve decided that the property is the right choice, you’ll need to come to an agreement with the seller,” explained MacKenzie.

This means finding out the terms of your lease.

“There are generally two types of leases,” MacKenzie said.

The first of these is the “lease option”, in this case “you rent the house for a fixed period and have an option to buy at the end of the period, although the purchase is not an obligation”.

The second option is “lease-purchase”, where you have to buy the property after the end of the lease.

“Sometimes this type of contract will require an upfront fee, such as a deposit, and failure to comply with the purchase may result in a penalty, such as forfeiture of the deposit,” the real estate expert continued.

Of course, you’ll need to apply for a regular mortgage once that deadline arrives, so you’ll need to make sure your finances are in order.

As with everything, renting has its pros and cons, explains MacKenzie.

“Some of the benefits include time to save for a down payment and build your credit score to secure a better mortgage at the time of purchase.”

She also pointed out that renting to own allows for more security, especially if the market is on the rise, and can provide buyers with a much cheaper down payment.

However, she mentioned that “it may end up being more expensive”.

“This is especially true if you lock in the price and the market goes down by the time you get to your call option,” MacKenzie said.

Rent to own is also not a building investment like a home mortgage.

“When you lease, you often don’t build equity in the house, nor are you able to invest those funds elsewhere, so it affects you in the same way as a classic lease.”

In any case, if you decide to rent to own, you should do so carefully.

“As with any financial investment, real estate or otherwise, it’s so important to carefully consider how the solution may (or may not) work for you and whether it suits your personal situation before entering into a long-term contract.”

So now that you have some knowledge of exactly how it works, you can hopefully be better equipped to determine if rent-to-own is the right move for you.

The cover image of this article has been used for illustration purposes only.


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