Although the most recent update to OFSI’s mortgage guidelines will help to prevent a credit crunch, they’re also preventing many Canadians from getting on the housing ladder. Investors are also going to be affected, as adding individual properties to their real estate portfolio will become increasingly difficult.
Already popular among a rapidly growing sector of investors, established rent-to-own programs are becoming a more attractive investment strategy for both new and seasoned Investors.
“These new mortgage rules will mean more high quality tenants will seek out rent-to-own programs more than ever before because they will be turned away by their bank for mortgage financing” says Terry Hepditch, Business Development Manager at HOS Financial
“Clients who would normally be AAA clients for a bank no longer meet the stress test requirements and will no longer qualify for the mortgage they need to buy homes in appreciating markets. These consumers will represent higher quality credit profile tenants and higher quality investment opportunities for investors partnering with leading edge companies who have an established rent-to-own program and are positioned to accommodate the increase in consumer demand.”
There are some negative misconceptions that still surround rent-to-own programs, but Hepditch believes it’s time some of these myths were busted. The HOS Financial
Home Owner Soon program has been providing investors with successful investment opportunities for the 15+ years, he says.
“Our program has a high success rate and as the profile of the consumer who enters a rent to own program going forward shifts, the quality of our investments will continue to climb. rent-to-own is an excellent investment strategy,” says Hepditch.
“The reality is, far more consumers are likely to purchase a property at the end of a rent to own program when they have initially invested a large sum of money, like 5% of house value, plus have been paying an extra 20% of their rent toward option credits. The option credits payments form a portion of the total down payment at the end of the program” Hepditch says.
Hepditch believes it can be difficult for the novice rent-to-own investor to see the forest through the trees. “Our Home Owner Soon rent-to-own program helps the investor navigate the forest,” he says. “The primary focus is on balance for both tenant and investor at the start and exit, which includes several defined strategies for a successful close. If the investor wants out or the tenant can't exit, there are several options that we can offer.”
With some of the highest consumer debt levels in the world, Canada finds itself in a somewhat precarious situation. The trauma of the global financial crisis is still fresh in the minds of many Canadians and the country’s major lenders and policy holders are reluctant to allow a housing crisis similar to that seen in the U.S a few short years ago.