Rent-to-own matches mortgage-ready investors with homebuyers who need time to qualify for a mortgage, typically about 36 months. The investor purchases the property and the tenant-buyer pays monthly rent with an option to buy, generating cash flow for the investor while the buyer works toward ownership.
According to Rachel Oliver of Clover Properties, rent-to-own properties typically cash flow anywhere from $600 to $900 per month. In the current low-rate environment, even when using a HELOC for the down payment, investors can still net $700 to $900 monthly after covering the line of credit costs.
The primary risk is the tenant-buyer not making monthly payments. Clover Properties manages this by screening for home buyer mentality rather than renter mentality, requiring $15,000 to $30,000 in saved down payment funds, verifying strong household income and essential worker status, focusing on top Ontario markets with rising values, and selecting entry-level properties priced between $350,000 and $500,000.
Entry-level properties priced between $350,000 and $500,000 are ideal because they are move-in ready, located in commuter-friendly communities with great schools and transit, and remain in demand among first-time homebuyers, new immigrants, and downsizers. Rachel Oliver notes that while higher-priced properties around $650,000 may see fewer buyers, affordable homes in hot markets like St. Catharines, Guelph, and Ottawa continue to appreciate conservatively at 4 to 5 percent year over year.
Dalia Barsoum advises that if you have a fixed-rate mortgage with two or more years remaining and your rate is above 3 percent, there may be an opportunity to save interest by switching to a much lower variable rate. However, you must analyze the penalty cost versus the interest savings to determine if it is worth your while.
