There are many real estate courses out there (I will not single any out) that teach that this is one of the best strategies to get started within real estate if you have no money. In some ways, I would agree with that but in many others, I would wholeheartedly disagree with the “gurus” who preach this dogma. I will relate this to the Calgary market in which I have seen more than 4 rent to own companies either greatly reduce their operations or close up shop! I think that the strategy in and of itself is a great one due to the following:
-You are helping normal people get into homeownership/back into homeownership
-You get higher than average rent/non-refundable deposits
-Owner minded tenants when qualified properly
-POSSIBILITY to execute the strategy with very little money
That said, in practice in many of the Canadian markets you do in fact need money to execute this strategy even if you are working the sandwich lease option strategy. The reasons for this are: if you are new to real estate you still need to create your legal contracts from scratch, find a lawyer willing to execute the close, market to tenant buyers/homeowners. Some would argue that you need very little money to market to these two sides of the equation and in some markets that may be true but at least in Calgary that task is VERY difficult. The market in Calgary has continued to gain steam over the last three years and at the current moment, you could likely hire your neighbor’s dog to sell your house and would not have to wait long to get an offer! (just kidding to the realtors out there) Alberta by and large has a lot of people making higher than the Canadian median income and they have little issues qualifying despite the recent changes the government has made to the mortgage rules. I speak from experience here being at one time a new investor that was cold calling, posting ads on Kijiji, placing bandit signs trying to get the calls to come in for buyers/sellers and it is extremely difficult and time-consuming strategy to execute properly. I found that often the owners who may have been motivated to sell their property often had many debts to take care of and they needed cash from a retail sale and the tenant buyers were generally in the same boat and never had a reasonable down payment for the option consideration.
This may work well in other markets that have different demographics in terms of income/motivation levels to get out of their mortgages, but in Calgary, it is a tough mountain to climb. There is one option for Rent to Own that I see working in Calgary at this time and it is one that does require a LOT of money or a large number of partners that can qualify for mortgages/put down payments into the homes to execute the tenant-first side of the Rent to Own strategy. This entails finding and qualifying a tenant-buyer who can afford X purchase price and then they get to pick the home they want to buy on the retail market and then the rent to own company buys the home and then gives them the option to purchase the home in 2-3 years depending on the buyer’s circumstances. As you can see, this strategy will burn up a lot of credit/down payment money in short order with the average house prices in Calgary being what they are hovering around the 480k mark. This is the only viable way of making a run at the rent to own business in Calgary at this point to be able to close deals month after month, which is certainly not something a new real estate investor would be able to do unless they are very high net worth individuals. I feel that a lot of the gurus out there do not fairly illustrate how difficult this method of doing real estate deals is in the courses and they do not highlight how important it is to consider your market when choosing a strategy. I would at this point like to make something very clear: ALL REAL ESTATE IS HARD! there are no “easy” ways to make money in real estate even though the courses would make it sound that way at times. There are many ways to make money in this business but they are not without all their unique challenges, and they all need to be considered carefully in the context of the market you are looking to try them in.
In general, based on the above my opinion is that rent to own is a crap strategy for new investors in Calgary unless you have large amounts of capital getting started and in that case, I would recommend you explore other options that would get you higher returns faster such as hard money lending/bridge loans. If you have any questions about rent to own, how it works, how to get help as a tenant-buyer, or anything else related to the topic please visit my website or contact me directly or comment on this post!