Rent-to-Own (also known as Lease-to-Own) is a real estate investment strategy where tenant rent the house from real estate investor with certain portion of monthly rent goes toward the down payment, and at the end of lease term (usually 2 to 3 years) has the option to purchase the house at the pre-determined price.
This is a great option for people who wants to own their house but otherwise cannot afford to do so at the present time. For example, new immigrants who has no credit history, young couple who cannot save enough down payment to buy the house, or people has bad credit history and still trying to recover from the debt.
For tenant, the advantages of Rent-to-Own are:
- Opportunity to buy house under difficult situations
- No rent wasted – certain portion goes toward down payment
- No CMHC qualifying process
- Gradual Saving plan towards down payment
- Flexible - can decide buy or not-to-buy at the end of lease term
- Lock in future price
For real estate investor, the advantages of Rent-to-Own are:
- Zero vacancy --- house rent out on long-term lease at the beginning
- Reduce maintenance --- most tenant will treat the house like their own
- Lock in cash flow and profit
- Exit strategy --- already find the potential buyer for the house.
As it illustrates, a good Rent-to-Own deal should benefit both investor and tenant, thus creating a win-win.