Investor responds to criticism about popular housing investment type

Following an investigation that argued rent-to-own deals are risky for tenants, one expert in that space responds.

“ … these rent-to-own agreements reside in a gray area of the law, the New York Times wrote in its report, entitled Rent-to-Own Homes: A Win-Win for Landlords, a Risk for Struggling Tenants. “An examination by The New York Times of contracts and court filings, as well as interviews with housing lawyers and more than a dozen of Vision’s customers across the country, found that these deals are risky, lack consumer protections and may not be enforceable in some states.”

The report, obviously, focuses on the American rent-to-own market. However, with so few resources about the practice, it’s likely Canadians interested in researching R2O may find it and believe the strategy is just as risky in their own market.

Jim Pellerin, an investor, coach, and owner of Innovalty Investments, told Canadian Real Estate Wealth tenants should work with reputable companies to ensure the contract benefits both tenant and renter-buyer at the end of the agreement’s term.

“A standard rent-to-own transaction is simply a Lease Agreement with an option to purchase the property at a future price,” he said. “This option is secured through an Option Agreement and is done so by the tenant paying an option consideration when the option agreement is entered into. These are valid contracts available through any licensed real estate office.”

The Times report also found many tenants are stuck with repair costs – even if they don’t end up purchasing the home.

“Most tenants walk away with nothing, having sunk money for rent and repairs into homes they had once hoped to own,” the report said. “Others faced surprise evictions, having signed a contract that did not disclose what repairs were needed, yet set a deadline for making sure the home was up to local housing code. As different tenants move in and out of the same property over the course of years, many homes fall further into disrepair.”

Pellerin confirmed rent-to-own tenants are responsible for home maintenance.

However, he argues reputable investors ensure homes are habitable and in good shape prior to the renter-buyer moving in.

“My experience is that most tenants end up purchasing the property if they are dealing with a reputable rent-to-own company. All of our properties require an onsite inspection prior to the tenant moving in. They are also strongly encouraged to conduct a full inspection by a licensed property inspection,” he said. This is a protection for the tenant and is a small price to pay to ensure the property is sound.

“A rent-to-own transaction should be viewed as if the tenant is purchasing the home and would be comfortable purchasing the home in the current condition.”

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