Tuesday, May 31, 2011

Rent to Own vs. Saving and Waiting

I was reading a blog today and they asked the question- Why would tenants Rent to Own when it's cheaper to rent and save the down payment. The response was interesting.
Read below.

Why would tenants choose to Rent to Own, when it is cheaper to rent for a few years, save for down payment and then buy a house? In many cases it does cost less to rent an apartment or a house than it does to Rent to Own the same place. Even when you factor in the net rent payments each month (which is 80% of the total monthly payments, since 20% of their rent goes towards their accumulated down payment credits on average), renting probably costs less each month.

So, in reality we are only talking about those who want to enter our new purchase program. Our new purchase program is for tenants who want to buy a home that's listed on the Multiple Listing Service (MLS). Most of these tenants have saved between 5-10% down payment, have decent jobs but have credit challenges (which is what is preventing them from getting a mortgage).

One of the primary benefits for the tenant is for them to enter into the credit counseling program, which helps them re-build their credit every month in a very disciplined way. I know what some of you are thinking - why can't they do this on their own and still rent an apartment? This is a fair statement - which leads to my next point...

Rent to Own is a great forced savings program for tenants, with 20% (on average) of their monthly payments going towards their deposit. The reality is most of the tenants (and society in general I would say) have difficulty saving money, and this is a big motivator for the tenants. Home ownership is a very emotional decision. Even though it may cost more each month, when rent to own tenants see what is available on the real estate market, it's normal for them to get emotionally invested in their home. I see it every day. Tenants can't believe how much better their "rent to own" home is compared to where they used to live. Usually the homes are in much better neighborhoods and in better school districts. It's easy to see how making the jump into rent to own allows for a family to have a much more improved lifestyle. With that, I also believe we live in a society of instant gratification- everyone wants that shiny new car NOW, or beautiful big house NOW. So even though it may cost more to do our program, they get the home they want NOW. And in reality, when assessing the market rents compared to the tenant's effective rent payments, we are only talking about a 15% premium on average to live in a rent to own home. If they can have the better house, better neighourhood, better school and better lifestyle - isn't 15% more worth it? Our tenants think so. If you want to discuss this article or if you have questions about mortgages in Alberta , contact me

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