5 Keys To Becoming A Rent-To-Own Property Investor In Canada
By now, everyone is quite familiar with the unique set of circumstances that lead to the collapse of financial markets across the world in 2008. This was a perfect storm and boy did it pack a punch, hitting hard and fast!
Many investors saw their retirement portfolios cut in half as global economies came to an abrupt halt. Since then nervous investors have wondered if they’ll be able to retire when they originally planned. They know their money must work even harder for them just to recover what they have lost, and yet they also want greater security because they can ill afford a repeat of recent history.
Some have turned to real estate investing. While investing in real estate can be profitable, it isn’t realistic for most busy professionals since being successful at it requires time and knowledge – both of which are in limited supply. Therefore most don’t give it any serious thought.
For those who decide to pull back the curtain in their search for secure investments, require little time or knowledge, and offer exceptional returns, they’ve discovered a virtual secret called rent-to-own (RTO) properties. This article covers the 5 keys to becoming a rent-to-own property investor in Canada.
Availability Of Cash Funds
Becoming an RTO investor begins with having cash available for the down payment necessary to qualify for a CMHC (Canadian Mortgage and Housing Corporation) insured mortgage. The keyword is available. This means that the investor already has liquid cash in their bank account that doesn’t need to be transferred from other accounts, or involve selling investments to access the money. An RTO investor should have 20% ready for a down payment (or $50K – $60K for a typical home purchase) even if less is required because CMHC rules can and do change.
Employment And Income Verification
Every RTO investor must also be able to prove their income. To be able to qualify for most RTO deals in Ontario an investor should have a minimum household income of $50K – 60K.
To be approved for a mortgage an investor needs a letter of employment, their two most recent pay stubs, all T4s for the past two years, and copies of their two most recent Notice of Assessments from the Canada Revenue Agency. If the investor is self-employed then they must provide copies of all T9s for the past two years instead of T4s.
Excellent Credit
This one should be obvious considering that most tenants who use an RTO to purchase a home do so because their credit sucks. The banks won’t look at you any differently because you’re an investor with money. The higher your credit score is the better. Different banks also have different lending rules so to ensure that you can qualify an investor should have a minimum credit score of 680.
Low Gross/Total Debt Service Ratios
These ratios are used to answer the question Are you in too much debt already? For RTO investors all that this means is that your debts should be within acceptable ranges before jumping on an opportunity. Your RTO specialist and their accredited mortgage professional will be able to assist you in answering this question.
Mortgage Pre-Approvals
With the previous four items checked off a rent-to-own investor should be able to obtain a mortgage preapproval for between $200K – 250K quite easily. A mortgage pre-approval is very important as it is a commitment from the bank confirming that based on the above information, they will lend you a specific amount of money towards a mortgage if obtained within a given period.
Becoming a rent-to-own investor involves the same things required of any home buyer. Having cash funds available and accessible, excellent credit, low debt ratios, being able to verify your employment and income, and obtaining a mortgage pre-approval are required by every RTO investor before they can start investing in rent-to-own properties.
RTO opportunities move quickly because the cash flow, passivity, security, and high ROI make it an ideal investment strategy. A rent-to-own investor must be able to close the deal. The Canadian RTO specialist makes it possible by ensuring these 5 keys are met and providing a team of RTO-friendly lenders, lawyers, and insurance brokers to complete the deal and secure your investment.