The year I almost lost it all, and the year I did….and what we can learn from it.

We have all made choices that we have thought were for the best, and in retrospect said “what the heck was I thinking?”  I do chalk these invaluable life lessons up to a tuition fee, and an investment into my character.  These life events have opened my eyes and made me the person I am today.

When I was in University, I worked graveyards at a local gas station, but these nights are for another story.  There was a day when the owner told me she was going to sell the gas station to me and I would make a cool 80k a year.  You know what I did next already.   Of course, I dropped out, and learned everything I could about the workings of the station.  A couple weeks before the deal was going to be inked I went through a filling cabinet that was usually locked in the back office and deep in the back I found the real books and found out the station was in the red nine months of the year and a new loan was taken out to keep it afloat.   I left for Banff a week later.

The year I did lose almost everything, we don’t talk about very much around the home.  We call it the dark ages, or the great depression.  A time when we hit up the food bank, and had things repossessed.   To summarize this long story: A client I had known for years asked me to leave my stable banker job with an offer I could not refuse at his new finance company.  Maybe I was just a sucker for a fancy title but VP of Sales and Marketing sounded nice and went well beside the wage increase.  The potential for the company to do well was so great in my mind, I was sold.   The pattern I failed to see was hire a person on, get them excited about future growth, and transfer in their pension and the moment that happens let them go under some pretense of lack of performance.  

In my case it was a little different as after my locked-in pension was transferred and spent they had some other ideas for me. I was made a director of subsidiary company under the promise of taking over that company, then found that companies bank account was over drawn tens of thousands, my credit card was maxed by unauthorized transactions, and I was left holding thebag for unpaid withholding taxes and gst.  

I am a very goal orientated person.  When a goal that seems obtainable is put in front of me by a trusted party prior to this experience I did not look to deep to ensure I read all the fine print.     Now as a Calgary mobile mortgage advisor I double check every document, and look at things from every angel.  Life lessons.

There is a reason I told you these two very quick stories which I could have dragged out for hundreds of words.   It all stems from a feeling I got when last week my client asked me about a rent to own contract he was about to sign.  I reviewed it and I pointed out many flaws that he should have revised prior to signing!

Here is the short list of things to look out for when signing a rent to own contract with your landlord.

• From the start of the tenancy the Rent to Own agreement should be in place.
• Ensure it has a clause whereby your down payment is refundable if you want out.
• Needs to show terms, start dates, and how the monthly payment is split.

It’s important to know that 

you still need to qualify for the mortgage. 

1. You still need to have 5% down.
2. You still need to be employed, and have good credit.  
3. There is no auto approval because you have now saved up a down payment regardless of some claims I have read over the years.  

Did you know that the landlord must hold the down payment savings in a separate bank account?

They should not use it for any other purpose, as they have to give you all the statements to show source of down payment.  

Did you know that since it will be a private sale with no MLS listing you will need a full and complete appraisal?

That can cost a couple hundred extra dollars!

Did you know that the lender will only allow a portion of the rent to be used towards the down payment?

Only funds in excess of the fair market rent can be used towards this program as well.  This is not determined by the landlord, rather by an appraiser.  Which means you can’t low ball what the rent should be to pay more towards your down payment.    Say fair market rent is $1500, and you state that you are paying $750 in rent well if you were making monthly payments of 2000 then only 500 per month is going to the down payment not the $1250 as you signed for.

Where does your money go when you give it to the landlord and is that the best use of your funds?

It goes into their special account, and then what happens to the interest?

If you can put money away every month into this program then you can put money away every month into a RSP for the down payment of your home and get a reduction in your taxable income and get you a refund and interest rather than giving your money away for that term and gaining nothing.  If you need help saving, just ask a financial advisor to set up a dollar cost averaging (DCA), Pre-authorized contribution (PAC), or an electronic funds transfer (EFT) with a set monthly amount on your payday or a day shortly thereafter.  Before you know it you can have that down payment in place.    

There are many ways to work out the down payment.  Knowledge is your best insurance policy in these transactions, as the landlord might not know the rules and may have the best of intentions.

The bottom line?  Be careful out there with rent to own plans given that there is such a low vacancy rate currently.  Call  Michael Richmond if you have any questions.  If you don’t have a trusted one, you can always use my free service.

By Michael Richmond