Steps for Finding and Managing Rent-To-Own Tenants

Posted by Alan Zunec on Saturday, November 24th, 2012 at 1:34pm.

When you invest in property, the intent is to find good tenants to keep that cash flow going. Screening potential tenants is a must, even more so if you are considering doing a rent-to-own agreement. After you’ve found someone suitable, it’s then a matter of keeping them happy so that the deal doesn’t fall through down the road. Secure the services of a good finance manager and a lawyer to make sure all the agreements and associated paperwork are letter-perfect. But there are other considerations that are equally important.

Finding Suitable Tenant Buyers

Where is the best place to look for people suited for the rent-to-own scenario? Your best bet are people who are perhaps new to Canada and can’t yet qualify for typical financing, or those who have been self-employed for a year or less. People who have no credit or damaged credit are also good candidates. While banks and other lenders consider these folks too risky, for the rent-to-own scenario they are your best option.

Keep Yourself An Out

In spite of your best efforts you might find that a rent-to-own agreement isn’t working out. Make sure that the property you are offering is one that you can afford to keep if that happens. If you are trying to sell a property in a rural area and the deal goes bad, how hard is it going to be to try and resell or lease out that property? If you are buying property specifically to get into the rent-to-own business, location should be one of your most important considerations.

Reference Checking

Reference checking is important. Look into finances, check professional history and ask for personal references. If you happen to be talking to a current landlord, take into account that the reference given might not be totally accurate. Look at the rental history and make sure the entries are sequential and that they make sense. Many of those looking at the rent-to-own option have already put their ducks in a row, so to speak. The possibility of homeownership, perhaps considered out of reach, makes the tenant just as committed to the RTO agreement as you are. 

Option to Purchase Price Agreement

Your option to purchase price must be agreed upon up front, at the beginning of your rent-to-own agreement. Study the market so you come up with a price that is fair for both of you. If you come in too low, you risk loosing equity. If you give too high of a price, the prospective tenant, and others you may find, may just walk away from the deal. That means your property stays vacant and your bank account suffers. Be fair, not greedy.

Communication is Key

Keep in contact with your rent-to-own tenant. Inspect the property on a regular basis, quarterly usually works well. This helps insure your investment is being properly looked after. If there are improvements that the tenant has agreed to take care of, make sure there is progress on that front. Encouraging the tenant to work on building or rebuilding their credit is a plus for both of you.

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