Rent Signed

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Household debt among Canadians has never been higher and is leaving many people unable to consider home ownership because of the strict criteria that Canadian banks follow when considering someone for a mortgage. Adding to the barriers created by the banks is the often insurmountable challenges that heavy debts impose as people try to reduce their debt while saving enough for a down payment.

Over the past few years the concept of lease-to-own (LTO) homes has become increasingly popular in Canada with renters looking for other ways to become a home owner sooner. This approach allows a tenant to lease a home while building their down payment with every cheque they give their landlord. In this article we look at the basics and consider the biggest obstacle to successfully completing a lease-to-own in Canada.

Let's start by explaining what a lease-to-own is.

A Lease-To-Own is an agreement that gives a renter the right to purchase a property. It consists of two parts: an option, which is the right to purchase the property for a specific price for a certain period of time, and an occupancy (lease) agreement.

Occupancy (lease) Agreement + Option to Purchase = Lease-To-Own Agreement

Other terms which are used to refer to lease-to-owns are Rent-to-Own, Rent-to-Buy, Lease Option, Lease with option to Purchase, RTO and LTO.

So how does a LTO work? The easiest way to explain this is that someone buys a home for a tenant who then leases the property for an exaggerated amount from the buyer in order to build a down payment, fix their credit and reduce their debts.

Each monthly payment includes an option credit payment that is usually about 20% of the normal market rent. This is the amount that is paid above typical rents in the area over a 24 or 36 month lease term in an effort to build part of the down payment.

The rest comes from a non-refundable deposit paid by the tenant before they choose their home. The downpayment must be enough to qualify for high ratio mortgage insurance from CMHC (Canada Mortgage and Housing Corporation) as well as cover the final closing costs.

So far I've revealed the basic structure of a lease-to-own home. One important difference with a Canadian LTO is qualifying for CMHC insurance. Another worth highlighting is the very strict criteria used by Canadian banks to qualify someone for a mortgage. Gettting approved is more difficult and presents a very real challenge to successfully completing a LTO in Canada and so we consider this next.

In order for a lease-to-own to be successful the tenant must be able to purchase the home once they've exercised their right to do so. If getting approved for a mortgage is tougher in Canada then the question you might ask is how do I know that I'll be able to qualify for one?

This question must be considered at the beginning of the LTO process, and not at the end. It is wise for a tenant to approach an accredited Ontario mortgage professional and/or credit councilor for this answer before a lease-to-own agreement is signed.

Canadian banks start by considering a person's employment, their income, credit, and total debts. This helps them to assess someone's ability to pay which is a good thing given that not doing so is what caused the American subprime mortgage crises that began last year.

The rules do tend to change frequently which makes the knowledge of a mortgage professional even more invaluable. Bad credit and high debts are common enough that it makes good sense to have a professional involved throughout the LTO in order to catch potential problems early. In Ontario, a tenant may also be required to follow a monthly budget and have their credit reviewed once per quarter as a condition of their acceptance into a lease-to-own home.

The services of a mortgage professional or credit councilor are an essential basic and a key part of a Canadian LTO that mustn't be overlooked. Remember, the goal of any lease-to-own home is to give a tenant the tools to become a home owner sooner. Having enough for a down payment won't help a tenant qualify for a mortgage in Canada if they have poor credit or a lot of debt.

In other words, a legitimate LTO program must always begin with the end in mind. For Canadians the basics must include having a professional prepare a plan that considers whether the banks will actually approve your mortgage when you're ready to buy your new home. It could be the difference between owning your home and bitter disappointment.

David-Paul Sip is a successful Canadian real estate investor from Toronto, Ontario. He is the founder of http://www.HomesForRentandMORE.com and specializes in helping couples and families become home owners sooner using lease-to-own homes. David-Paul is also a former NATURAL bodybuilder, landlord, mentor, public speaker, volunteer, and community organizer. You can follow David-Paul on Twitter at http://www.twitter.com/davidpaulsip to learn more about lease-to-own homes in Ontario and lease-to-own investing.

21 Tips to Get the Most Out of Renting

For people renting residential properties this can mean consistent rent increases for those already in properties and a shortage of properties on the market available to rent.

In this the following three article series I’ll address the following topics from my own experience as a tenant, a real estate business owner, a property manager and as a property investor.

1. How to make yourself the most desirable tenant when looking to rent a property

2. How to negotiate the lowest price for your desired rental property

3. How to keep rental increases to a minimum once you’re in a rental property

Notes, the following terms are interchangeable:

• Renter / tenant

• Landlord / property investor / property owner

Part 1

As a renter or tenant, here are some ways you can make yourself more attractive to the property owner or property manager when you’re looking for a property:

• If you’ve rented a property before, always ask to get a reference in writing from your previous landlord or (even better) from the property manager who you rented through. I say that a reference from a property manager is better than one from a private landlord in that it’s harder to fake a reference from a legitimate real estate company. The best rental references discuss the condition you kept the property in while you were living there, the condition it was in when you left and your consistency in paying your rent on time. Best of all is the final line where your property manager (hopefully) states that they would love to rent to you at again at any time in the future.

• If you have a pet be prepared that many investors may not even want to consider you for their property, however written pet references (note multiple if you can!) from previous landlords or property managers will speak highly for your case. Also – if your pet is small or presents well, a photograph attached to your application doesn’t hurt.

• In some areas (not Tasmania where the bulk of my rental properties are) you are able to pay a voluntary increased bond or “pet bond” to further guarantee that your pet will provide no long term damage. Offering to do this is a good sign of your intentions to a property owner.

• If you’re young sadly at times this can make you as undesirable as a Doberman dog! I know this personally from renting while I was 17 years old at University. To overcome this, attach with your application a few written referees from the most responsible adults you can find (teachers, employers etc). Remember here that putting down your parents or relatives as references doesn’t really hold that much sway as they’re obviously going to be biased!

• Why do I keep going on about written references? For one, they look good but for two, they save a property manager some of their valuable time. If a property manager has ten applications to check and yours is partly done because of the written references – you can come across as a more appealing tenant to the time poor property manager.

• If you really want a property and believe there is going to be competition or you simply think that the property is good value or will be hard to find again, consider offering $5 a week (or any amount you like) more in rental. This obviously isn’t going to be the answer for everyone, but is an option. (More on how to get the rental down in part II!).

• Present well when you inspect a rental property. A property manager or property owner only has limited information to go on when deciding which tenant to chose. One of the things that will be a factor (regardless of whether they admit it or not) will be your presentation and the first impression you make at the inspection.

• Remember that property managers may look to see how well you take care of your car as an indication to see how well you’ll take care of the property (NB. McDonalds wrappers all through the car – not a good sign!)

• Ask the person in charge of renting the property if there is anything you can do to make your application more desirable to the property owner. Examples of this may be: length of lease, gardening, presence of pets, supply of references / guarantors etc.

• Where possible I always recommend that if you’re unsuccessful at getting a rental property that you ask why. For anti-discrimination reasons you may not find out, but it never hurts to ask the question because it could lead to you being more successful next time.

• When you do apply for a rental property, have everything ready in advance. If the property manager has five applications to check and yours is incomplete it’ll go to the bottom of the list! A great idea is to have all the information photocopied and ready to hand over including credit checks, references, photo identification, birth certificate etc.

Part 2

In this day and age in many areas it can be difficult but not impossible to negotiate on the rental of a property. In your area there may be a high vacancy rate which puts you as the potential tenant at an advantage.

Here are some ways to negotiate when you rent. This may be to either attempt to save money on the rental price or to maximise your chances of being the number one picked tenant.

• Ask what length of lease the landlord would prefer and then submit your application with that lease length. Asking to see if the landlord wants a long term tenant gives you the advantage of being able to offer a 2 year lease instead of 12 months (if it suits you) which may put you one step ahead of the other applicants who haven’t thought of this.

• If gardening is included in the rental amount, offer to do your own gardening and provide (yes, you guessed it) a written reference to say how immaculately you maintained your last garden.

• Being ready to take the property immediately may put you in a position where you can negotiate more easily. To a property investor, any vacancy means a zero percent return, so if you’re ready to move in tomorrow – sensational! Consider stating that you will take the property immediately even if you don’t need it for a few days to put you in a stronger negotiating position and gives you a little breathing room to move in!

• I once bought a property specifically for one set of tenants because they offered to pay 6 months rent up front. It was a great bargaining chip for them because, as a property investor, it was money straight off my mortgage. This can be used as a negotiation strategy for any tenant (who has the funds at hand) and while you may not pay 6 months rent up front, two identical applications from tenants can be quickly separated if one wants to pay say 12 weeks rent up front instead of 4 weeks.

And don’t forget to go through part 1 and make sure that you present as the most desirable tenant!

Part 3

Of course most property investors want to maximise their return on a property, ie: they want to get as much money as they possibly can. However, it’s not rocket science to figure out that most of us also want to attract and retain a quality tenant and some investors will sacrifice some of the higher end of their return to do so.

If you’re in a property, here’s a way to make yourself a more valuable tenant and to try and avoid some of the rent rises:

• Be a long term renter. I know as an investor myself – I’m the most lenient on rental increases to tenants who have been in the properties the longest.

• Be nice to your property manager (they have a lot of sway as to whether an owner renews leases or increases rent and to how much!)

• Keep the home in great condition on rental inspection date. Working in property management through my real estate career I can’t believe the condition some tenants leave their properties in on rental inspection date. While I’m certainly no Miss. Neat and Tidy every day at my own house – on those 2 - 4 days a year, make an effort and it won’t go unnoticed.

• Be a problem free tenant. Most investors I know will be far more likely to extend a lease to a tenant (and sometimes without a rent increase if the rent is consistently paid on time).

• Don’t be a “difficult” tenant. Now this sounds a lot like the above, but a difficult tenant to a property manager can mean a whole swarm of things. Some of my big “no-nos” are as follows:

- calling up about “emergency” maintenance at 2.00am when it’s just a broken cupboard handle (extreme example, but trust me it has happened)

- making it difficult for trades people to access a property to complete maintenance

- insisting on being present for routine inspections (yes, we know it’s your home, but when a property manager has 20 inspections to do in a morning coordinating each one personally is impossible!)

• Where possible (and appropriate), treat the property like it’s your own. Don’t get on the phone complaining about every loose washer or blown light bulb. Just let your property manager know on the next routine inspection if you’ve replaced anything minor like this. (NB. Before even considering attempting anything major, even if it’s in an attempt to help, call the property manager or owner first)

Most of what is written above is common sense. For new renters and those looking to capitalise upon their renting experience I hope you’ve found one or two tips to help you on your way! Good luck with your renting experience.

About the Author

Copyright/Reprint Info - The contents of this article written by Kirsty may be copied, reproduced, or freely distributed for all nonprofit purposes without the consent of the author as long as the author's name and contact information are included as below. Kirsty Dunphey, founder of http://www.reallysold.com is an entrepreneur and author who started her first business at 15, opened her own real estate agency at 21 and retired a self made multi-millionaire at 27. To sign up to Kirsty Dunphey's weekly email, go to: http://www.kirstydunphey.com

Can my apartment complex charge me for late rent even though signed documentation by mgt is for a water bill?

I have a really good question for you. My apartment complex came on 20 April 2007 and left a written notice that I had owed them $17.44 for a water bill. I had paid my rent on time, and early even for the month of April. They had taken my rent money and applied it to the water bill. But in the contract it states: "Payment of all sums is in independent covenant. At our option and without notice, we may apply money received (other than sales proceeds under paragraph 13 and utility payments) first to any of your unpaid obligations, then to current rent regardless of when the notations on checks or money orders and regardless of when the obligations arose. All sums other than rent are due upon our demand. After the due date, we do not have to accept the rent or any other payment."

What it means is that your payment is first applied to any other outstanding fees - pet rent, utility bills, storage fees, etc. Then the remainder is applied to rent, thus making your rent short. The reason this is done is that if a tenant consistently pays the utilities late, or doesn't pay them at all, it's very difficult to have any legal right to evict the tenant over an outstanding balance. However, it's very easy to evict over outstanding rent.

Blame the landlord tenant laws in this country, that this is what needs to be done.

Did they charge you a late fee for the $17? Or just notify you that you had an outstanding balance and ask you to pay it? It sounds reasonable to me if they didn't charge you the $17.

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