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In the case of buying the real estate with 20% downpayment the picture worsens, but even in this case the money works for more than 30% in annual terms. And you don’t need mortgage insurance in this case.

There are almost no risks in this case because:

1)      There is no real estate vacancy  – because it is bought for the particular client.

2)      There are no unforeseen costs – because under the terms of the Rent to Own contract all the repairs are tenant responsibility (At the time of signing the contract, the buyer usually do house inspection)

3)      If the buyer refuses to buy property for some reasons, he loses the deposit. In this example it will be 10,500 + 300 X 36 = 21,300. Also for these three years 20,400 was paid as the principal. And the total income will be 41,700 and it is without real estate price growth! In fact, the situation when the client refuses even more profitable for investors than when the transaction is completed successfully, but it happens rarely.

Besides that to close the deal the buyer must have money for closing. The sum varies from 5,225 to 7,000 depending on the year of closing. But as the buyer has a surplus of money in downpayment by the third year, this surplus could be subtracted from the closing cost. Also the buyers under the Rent to Own  program are usually first time buyers and can get Land Transfer Tax Credit in amount of about 2,000. Getting mortgage with 5% downpayment is not a problem for those who buy not expensive property as a primary residence. 


Real Estate Broker / Investment Advisor

Published in Money World & Success. June, 2014

RENT TO OWN  (Investor’s point of view)

The real estate price is 350,000. For purchasing it’s required 35,000 – downpayment + closing 5,225 (3,725 land transfer tax + 1,500 lawyer and etc.)

You need to invest 40,225. Monthly payments will be: 1,325 mortgage payment + 50 fire insurance + 225 house tax = 1,600. 565 of this money is going to principal each month. ( You can do better by issuing more profitable mortgage, but in this case, in order to exclude the risks I take mortgage under  3%, fixed for 3 years).

House for sale under the Rent to Own program. (3 year variant, the most popular).

In this case, the rise in price is calculated from the rate of 5%. (This is a generally accepted percent). Accordingly, after 3 years the house is sold for 405,170. Profit is (405,170 – 350,000) + 20,400 (paid principal) = 75,570. Subtract 5,570 agent commission from this money. And we will get.

Net income is 70,000.

Now, under what interest % money works:

A client that issues the Rent To Own program, signing the contract makes deposit usually 3% of the value of the house . Accordingly, we subtract 10,500 (deposit) from 40,225. And the actual investment is 29,725. But that's not all, as the client in addition to rent 1,600 (which is the market rent for property like that in areas such as Keswick, Sutton, etc.) pays about 300 dollars, that are deposited in his principal and will be used as a downpayment on the moment of re-registration after 3 years. Accordingly, an investor has an opportunity to use this money for 3 years. Given the money it turns out averagely that an investor puts in the deal not 29,725 but 27,000. Accordingly, investing 27,000 in 3 years the investor gets 70,000 profit. That is 260% for 3 years. The calculations do not consider the mortgage insurance payment. It is about 6,000 for the whole amortization period (30 years). You don’t have to pay immediately, this amount is added to the mortgage and monthly payments are increased by ($ 10-25) because the downpayment is less than 20%. But while selling a property there is a possibility to transfer the insurance to the next property. So for regular investors it is a one-time payment for all years. For those who make such a deal once this amount should be considered, because if you sell the real estate and do not buy the following you will lose these 6,000.


House values

 $        350,000


Your Saving




Rent  included Rent Credit

 $            1,900

+ utility  ( Market Rent 1,600 +300 Rent Credit)


 Rent Credit(Non Refundable )

 $              300

x 36 months

 $         10,800

3% Deposit (Non Refundable)

 $          10,500


 $         10,500


 $          21,300


   1st year

 2nd year

   3rd year 

 4th year

5th year

Sale price

 $        367,500

 $     385,875

 $       405,169 

 $        425,427

 $        446,699

Monthly rent

 $            1,900

 $         1,900

 $          1,900 

 $            1,900

 $            1,900

Rent Credit

 $            3,600

 $         7,200

 $        10,800 

 $         14,400

 $          18,000

Client money on hold

 $          14,100

 $        17,700

 $         21,300

 $          24,900

 $          28,500

5% Down

 $          18,375

 $        19,294

 $         20,258

 $          21,271

 $          22,335

Client Need To Close

 $           4,275

 $        1,594

 $         (-1,042)

 $      (-3,629)

 $         (-6165)