How investors can benefit from the latest mortgage rule change

Although the latest changes to Canadian mortgage guidelines have been met with derision by the majority of potential homebuyers, for investors the move could represent a good opportunity to strengthen and further diversify portfolios.

More Canadian consumers with what is deemed a higher quality credit profile are going to be turned away for financing by their own bank and credit unions and will be forced to look for alternative options for home financing, like HOS Financial's Home Owner Soon rent-to-own program.

By investing in real estate investment opportunities offered by well-established rent-to-own programs, investors have the chance to earn some attractive returns. The Home Owner Soon program is approaching 16 years in the rent to own market.

“A successful rent-to-own project is the result of a corporate strategy with strong process controls, unparalleled underwriting guidelines, and credit management which helps to minimize tenant default rates,” says Jeff Belanger, VP – Investor and Client Relations at HOS Financial. “Investors are able to realize revenue in four key categories: monthly cash flow, mortgage principal pay down, appreciation, and administration.”

When entering a rent-to-own agreement, the investor is required to provide all the funds to close the deal including a 20% down payment if they are leveraging the investment with mortgage financing. After the transaction is finalized, the investor will receive the tenant’s initial security deposit which lessens their overall net Investment.

Where a typical buy and hold Investment Strategy provides an investor with first and last months’ rent as their Starting Security deposit, a properly structured rent-to-own program provides security deposits that range between 3% and 20% of the value of the property.

“Each month, the investor will cash a monthly rent cheque and of course pay the necessary carrying costs of carrying the Investment property,” says Belanger. “In addition to the rent payment, the investor also receives a second cheque each month for the option credit portion. The combination of the two payments helps create a higher than average positive monthly cash flows as might be experienced with a buy-rent and hold Investment. The occupant, who is paying the rent, is covering the cost of the mortgage and therefore all money paid against the principal is your revenue.”