Toronto Mississauga condo investors, who do not want to sell their condos in today’s market, may consider leasing with an option to sell at a later date. A lease to buy option allows a qualified tenant (someone with a good credit history and job) to purchase his/her rented property at the end of their lease term.
Newcomers and first-time buyers benefit from rent to own option
Rent to own option can work very well for a newcomer to Mississauga/Toronto who is looking forward to establishing his/her credit history, securing a job and settling down in rented property first, before buying their own property.
Rent to own option can also help first-time buyers to save for a down payment while renting the same property initially. By doing this a lease to purchase/ a rent to buy contract gives them a chance to come one step closer to home ownership. Thus a rent to buy option helps renters put home ownership on a test drive.
Sellers in the resale market can consider this method to help get their homes/condos sold eventually.
Recently a popular condo developer was even offering a rent to own program in Downtown Toronto to lure first- time buyers by offering this rent to own option, now that new builder condo segment has slowed down and builders are looking for more creative ways to sell condos.
Understanding the lease to own option is very important, advises a prominent real estate lawyer. As per him, “The idea of a rent to own agreement between an informed landlord and tenant, with professional representation, can be a win-win arrangement for both sides. This involves a lease with a separate option to purchase agreement, with appropriate protections for both the landlord and the tenant”.
How does rent to buy option work?
Typically, in a rent to own option, a landlord/seller extends the offer to buy the property after a period of time (usually one to three years) at a predetermined price; the tenant/buyer has to pay an upfront option deposit (fee). That fee is generally non-refundable. A portion of the monthly rent may be applied toward the down payment to purchase the home.
Advantages for the buyer/tenant
- A portion of your rent is applied towards the down payment that helps tenants save for a down payment
- Tenant has a contract to buy the home when the lease is up
- Tenant can be also allowed to buy the home at any time during the contract
- Tenant can lock in the purchase price and stand to gain in an event prices move up (reverse can also ring true if property prices end up going down in the future)
Advantages for the seller/landlord
- Immediate cash flow from the tenant and the opportunity to sell property later on
- If the tenant/buyer doesn't buy your property, landlord keeps the upfront fee (option money)
- Landlords likely get higher-quality tenants who take better care of the home since the tenants may want to buy it in the future
- You may get some peace of mind knowing that you have tenants in your home who are working toward buying the home
Things to consider when utilizing a lease to own option
If you are a landlord or a tenant considering a lease to own option, contact me for more information.
