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July 11, 2021

Do 'rent to own' housing deals actually work out?

If you've been in the U.S. over the last couple of years, you've seen the signs, generally at large intersections: “Rent To Own! No Financing Necessary! Call Now!”

They're touted as a good deal for owners who have trouble selling and buyers who can't get conventional financing.

In most cases, the seller gives the tenant the right to buy the house at some point in the future, usually one to three years out, for a price that's agreed upon today, plus a fee that will keep the option of buying open.

Tenants are also typically required to put down a deposit towards the final sale price which will be held by the homeowner as credit towards the price of the home at the end of the lease option.

While these offerings are nowhere near as common on this side of the border, several small Canadian companies have been using a similar pitch to entice prospective homebuyers into the market as well as targetting cash-strapped homeowners looking to get out from under. 

And for many people, things haven't been working out that well. When one B.C. couple tried the rent-to-own route last year, the deal fell apart early. The so-called prospective buyer ended up squatting in their property.

Another Ottawa couple signed an agreement with Rent 2 Own Canada in which stated that a $10,000 down payment and then $1,800 per month in rent would ultimately lead to them purchasing the home in about five years.

Unfortunately, that's not what happened. Instead, they could be on the street after the embattled company has found itself facing 18 lawsuits claiming $2.5 million in damages from jilted tenants and homeowners.

The whole thing is a mess, so much so that it's starting to look like a Ponzi scheme in which existing investors were being paid out of newer investors' contributions.

Have you been involved in a 'rent-to-own' arrangement, either a buyer or seller? How are things working out? Do you know any tenants who've actually came out ahead?

By Gordon Powers, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...