Rent To Own done ethically

Why can’t I buy there?

Location is important

As a prospective owner, you should be asking yourself a critical “what if” question: What if you want or need to move in a few years’ time? How easy will it be to sell your house? What kind of return are you likely to get?

Everyone knows the following phrase in real estate: location, location, location. Realtors are always telling us about the importance of picking a good location to ensure that we end up with a good investment from a financial perspective, and they’re absolutely right. In fact, one of the factors that we look at very carefully in our Rent To Own program is where our clients want to buy.

But what if you come to us and say, “Listen, I know what everyone says about location but our family wants to buy a house in Farmland Central outside of Ottawa because we have always wanted a country property and we plan to live there forever. So why won’t that property qualify for your program?”

As a prospective owner, you should be asking yourself a critical “what if” question: What if you want or need to move in a few years’ time? How easy will it be to sell your house? What kind of return are you likely to get?

When I bought my first house I expected to be there ten years. I sold after three years following my first husband’s death. When I moved into my second house I figured we would be there four or five years at most because it was quite small. We were there nine years before moving to a larger house.

The reality is that in the Ottawa area, people move on average every four years. You might have one set of expectations when you move in but find that you alter them as life happens and your circumstances change.

Back to my first house: I lived in Kingston at the time of my first purchase and while the sensible thing to do would have been to buy in the city, I got lured out of the city to Harrowsmith because of lower prices and a purported bigger bang for my buck in terms of space. I soon found that what I thought was a short commute – no big deal – turned into a real pain as time wore on. When my first husband died, I no longer wanted to keep and maintain such a big house by myself so I put it on the market. It took more than one year to sell. Why? Because the market for country properties is much smaller than the market for a city property. Also, not everyone wants to deal with a well and two acres of lawn to maintain. What had seemed like an idyllic property turned into a dead weight at the time of sale.

The worst part of that experience was that the house had appreciated very little in three years compared to city properties, so by the time I paid the selling and moving fees, I had lost money. Not a fun experience.

In Rent to Own there is another consideration: The amount of risk that an investor is willing to take on. Remember that in Rent to Own an investor buys the house for the Tenant Buyers. If for any reason the Tenant Buyers choose not to buy or fail to buy at the end of the term, the investors and we, the RTO company, are left on the hook for that property and all of the carrying costs until the property is sold. If the property is not in a good location, that could prove to be very costly.

In order to make the process fair for everyone and to minimize the exposure for our investors, we stick to areas that have a proven track record of stable appreciation and reasonable days on market sale statistics. The only statistics we consider are the specific numbers for the zone in question and the type of house being bought.

We recently had clients approach us about buying a property in a small community outside of Ottawa. When we looked into the statistics, we found that the appreciation rates for that community were not stable: plus 30 percent one year, minus 21 percent the year before, and so on. Our clients argued that on the whole the houses ended up in positive territory and while that’s true, the yo-yo effect is worrying and suggests that the area in question has not yet stabilized into a reliable trend. With that kind of volatility, it’s hard to have a good sense of what will happen. We couldn’t in good conscience ask our investors to take on that kind of risk.

There are so many areas in and around Ottawa that demonstrate good, solid, stable growth year after year that there is no need to take on the risk of marginal areas.

So if you’re looking for a property, whether as an outright buyer or a Tenant Buyer, do yourself a big favour and heed the advice of Realtors regarding location. Your wallet might just thank you.

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3 Comments

  1. Solid advice with the back-up of personal experience!

  2. Pingback: Mortgage agents or the banks: What’s the best option?

  3. Gail Anderson says:

    Great advice – I wish someone had told me that the first 3 times!

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