Real Estate

Is rent-to-own a really bad idea for me?

  • Last Updated:
  • Aug 5th, 2021 3:18 pm
[OP]
Deal Addict
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Dec 28, 2006
2927 posts
1003 upvotes

Is rent-to-own a really bad idea for me?

A new condo development here in Vancouver has some units ready in a few years for rent to own. You pay $5K X 2 deposit while the building is being built and then your first two years of rent along with the $10K deposit goes into the downpayment at the end of the two years. The condo price is locked in when you enter the rent to own agreement. The condo price and rent look to be market prices. If you don't qualify for mortgage at the end, the rent and the deposit are forefeited.

Some background, I'm making around $95K, living at home, and have about $20K in savings along with a DB pension plan that I've contributed to for a few years.

Is this a really bad idea for me? As I've read some bad reviews on rent to own programs both here and on Reddit.

Thanks!
6 replies
Deal Addict
Jun 26, 2019
1993 posts
1723 upvotes
GTA
For all rent-to-own programs, they are going to make money off you somehow. Sometimes it will be beneficial to you, and other times it wont.

You should review the terms, is it the full rent they give you credit for, or only a portion of it?

Also, in regards to price a lot of these have a fixed appreciation schedule. IE. Condo price is X, and each year they will assume a 4% or something increase in price. So when you buy it in 2 year they will charge you 1.04^2 * X for the condo, and its locked in. So if the condo goes up 20% you're better off, if it goes down in value you might just be better off walking away and letting them keep the money.

So basically just need to look at the details, then decide based on that. Its generally set up so those running the program will either make a guaranteed X% off the initial price, or they will pocket the money of your rent and deposit when you walk away.

Based on that, and if you think the prices will outpace how much they are assuming, then it could be a good deal for both parties.
Deal Fanatic
Jan 15, 2017
5224 posts
5262 upvotes
Ottawa
Yes it is a really bad idea. Any program that has the risk that you can lose large sums of money due to constrains beyond your control is a really bad idea. There could be any number of reasons why you won't qualify for a mortgage when the time comes. You could be out of work, interest rates could be higher, mortgage rules could be changed, the building construction could be behind schedule, your unit's closing could be delayed....the point is that most of these issues are beyond your control.
Deal Fanatic
User avatar
Dec 27, 2009
7691 posts
5126 upvotes
Victoria, BC
Rent to own is pretty much always a bad deal.
Deal Addict
Mar 10, 2014
2373 posts
2417 upvotes
Since you are living at home, save as much as you can and then put down a 20% deposit when you are ready. Rent to own is a gimmick only to benefit the builder. Same as a reverse mortgage. Unless you are in dire straits, don't waste your time.
Deal Addict
Nov 9, 2013
4788 posts
5357 upvotes
Edmonton, AB
Chickinvic wrote: Rent to own is pretty much always a bad deal.
What happens if the property appreciates more than the 3-4%? In a hot market (aka BC) appreciation can occur at faster rates, so the purchase price may be under market value when the time comes. In that sense, it's beneficial to the buyer (not seller).
Keep calm and go long
Deal Addict
Mar 30, 2017
1182 posts
934 upvotes
with your income, you should be able to buy a condo outright, just max out mortgage.
most rent to own is not benefiting you.
profit on 6/23/2021 = 117.61% since 11/10/2020 to be exact😎

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