What do I need to know about renting to own?

With the cost of living rising and real estate prices still high in Ontario, renting to own can understandably be an appealing option for some aspiring homeowners – especially if you don’t have a down payment immediately available, a great credit score, or perhaps are just not financially ready.

If this is something you are interested in, I would encourage you to proceed with caution and consider a few things before making your decision.

Understand the terms. As a renter and future buyer, you would normally have to pay a rent-to-own company a fee – known as an option fee, option money, or option consideration – in exchange for the right to buy the home at a later date at a set price. This fee can often be negotiated and typically ranges between one and five per cent.

As the tenant pays rent every month, a portion of it goes towards this fee and a potential down payment on a future mortgage.

There are two types of rent-to-own agreements, which are known as lease option and lease purchase. A lease option contract is generally the safer and preferred choice. This is because if you change your mind and no longer wish to buy the home at the end of your lease, you can simply move out of the home without any ramifications. However, if you have a lease purchase contract, you are legally required to buy the property when the lease expires, and not doing so may result in significant costs to you.

Regardless of the type of agreement, make sure all the terms are clearly listed, including who is responsible for the property taxes and any maintenance and repair requirements. Having this in writing may minimize any disagreements later.

Do your due diligence. Get an independent appraisal of the property. This will give you a better sense of whether the price of the home is comparable to other similar properties in the neighbourhood. Also, have an independent home inspection conducted so that you can be aware of any major issues before you make your decision.

Besides that, I would recommend that you ask for the rent-to-own company’s references and verify that the home’s property taxes are up to date. As well, visit your local registry office and ask for a title report to confirm they own the home, and check if they have a record with the Better Business Bureau.

Crunch your numbers. Find out how much you will be paying each month and how much of that will be going to your down payment. Also, include any maintenance and repair bills that you may be accountable for during the lease period and after ownership. Compare this with to how much you would pay if you were just renting and saving for a down payment on the side and then determine which is more feasible for you.

Consult with a lawyer insured to practice real estate law. They can thoroughly review and walk you through the agreement and title report, , advise on your responsibilities and risks, and answer any questions you may have.

As with any legally binding contract, make sure you review all the fine print thoroughly and seek any clarification before signing.

If you have a question for Joe about the home buying or selling process, please email information@reco.on.ca.

This column is for general information purposes only and is not meant as legal or professional advice on real estate transactions.

Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.

  • Facebook
  • Twitter
  • Addthis
  • LinkedIn
  • Email
  • Print
PDF Online
  • MyWeb Registrant Login

  • Look up a salesperson or brokerage

  • File a complaint

  • Public Advisories

  • Real Estate Education Programs

  • Ministry of Government and Consumer Services website