Dreaming of owning a Toronto condo but facing challenges with a down payment or your credit score?
Rent-to-own might be the key to your homeownership dreams in one of the most competitive real estate markets in Canada.
Here's everything you need to know about how rent-to-own can help you secure a place to call home in Toronto."
Quick Summary
- Rent-to-own agreements typically last 2 to 5 years.
- Expect to pay 5-10% more than traditional rent, with part of that going toward your eventual purchase.
- Approximately 60% of rent-to-own agreements lead to successful ownership in Toronto.
- To qualify for most condos, you'll need a minimum income of CAD 100,000.
The Benefits of Buying a Condo in Toronto
Before we get into that here at Precondo, we will discuss first the 3 benefits of buying your property instead of renting to own in Toronto.
These were assessed by our real estate experts to give you a view of what condo owners were experiencing when they purchased their condominiums.
1. Affordability
There were 17,400 condo apartment rentals reported through the Toronto Regional Real Estate Board (TRREB) in Q2 2024, marking a 25.2% increase compared to 13,896 rentals in Q2 2023 [1].
The number of rental listings surged by 51.3% over the same period, indicating a strong demand for rental accommodation despite declining average rents.
Rent-to-own Toronto condos are low-priced compared to the housing units available for families. The low prices stem from the fact that condominiums are sometimes really small and that they don’t take much land space, but are just a tiny piece of a block of similarly sized condos glued together into a very compact space.
2. 24/7 Security
If you ask around, most of the people who own a condominium in Toronto will say they purchased it for the excellent protection it offers. Condos usually provide gated security, a doorkeeper and security officials residing in the building [2].
3. Wide Array of Facilities & Amenities
Toronto condominiums come with essential amenities like a parking garage, a pool, and a gym. You don’t have to reach far and wide for these essential amenities if you are a resident of a condominium. It's the convenience of these facilities that make condo living more ideal than a house.
Drawbacks of Buying a Condominium
Discussing only the benefits would be incomplete without the disadvantages. In the section below, we'll discuss what the Toronto condo renters thought about before buying their own property.
1. Condos Can Be Stifling
Living in a condominium in Toronto is fun and all, but when you have to run everything you want to do with your home by the condo association, it can get a little annoying and very stifling.
It’s not as independent as owning a house, and you usually have to ask for permission before making any significant changes to your condo.
2. Privacy Issues
Toronto condominiums are like Lego blocks all fitted together in a high-rise tower. Privacy is a foreign concept, and walls are paper-thin.
You can hear the traffic, hear your neighbors’ activity out in the hall when they pass by, and getting some peace can be a challenge. It could be inconvenient when you're a light sleeper since some residents could be more active during the night time.
Addressing Critical Questions
Now that we have covered the pros and cons of buying a condo, let’s see if owning one is worth it. A lot of renters have been jumping into purchasing the condos in Toronto that they are renting, and so far the buyers have only seemed to increase in number.
Here are some of the frequently asked questions for your review.
1. How much extra do you pay compared to regular rent?
Rent-to-own agreements typically require 5-10% more than regular rent. This additional amount helps cover a portion of your down payment over time.
Individuals aiming to solidify their credit ratings find agreements appealing as they offer the opportunity to build a strong credit foundation and organize their financial information for a loan application.
This deal allows buyers with imperfect credit scores to live on the property and pave their way towards buying the condominium.
2. Is it a Good Idea?
Having a rent-to-own Toronto condo is an excellent idea if you’re either recovering from bad credit or are not yet financially stable to make the down payment on a mortgage - the caveat would be finding the ability to rent and then own the property as it's not commonplace in the city.
The agreement allows potential buyers to secure the price of the property and lock into the purchase agreement while they slowly save enough to be able to purchase the property.
Rent-to-own is an alternative route to homeownership for those who can’t obtain financing due to poor credit or because they don’t have enough money for a down payment (or both). - Erica Alini, Global News
3. What happens if property values decrease during the rental period?
If property values decrease, the agreed-upon price may no longer reflect market value, but you’re locked into the purchase price stated in the agreement, which could be a drawback.
4. Who pays for maintenance during the rental period?
The tenant is often responsible for minor maintenance, while the landlord handles significant repairs. Make sure this is clearly outlined in your agreement.
Beware of These Red Flags in Rent-to-Own Deals
- Unusually high upfront fees without a clear breakdown of where the money is going.
- Vague or missing terms regarding what happens if you fail to purchase the condo.
- Lack of documentation proving the seller’s ownership of the property or their financial stability.
Case Study: One notable case involved a landlord who accused tenants of fraud and forgery, alleging that they provided falsified documents during the rental application process. This led to a lengthy eviction process where the landlord sought to reclaim possession of the property after claiming non-payment of rent and other issues.
The broader context includes ongoing frustrations among landlords regarding tenant behavior and the difficulties in the eviction process due to backlogs at the Ontario Landlord and Tenant Board (LTB). Many landlords have reported significant financial losses as a result of tenants exploiting loopholes or delaying eviction proceedings.
Overall, these incidents highlight the complexities and risks associated with rent-to-own agreements in Toronto's real estate market, particularly for both landlords and tenants navigating these arrangements.
Rent-to-Own Condo Calculator Framework
| Parameter | Details |
|---|---|
| Purchase Price | Enter the current market value of the condo. |
| Option Fee (1-5%) | Calculate based on the percentage of the purchase price (e.g., 1% to 5%). This fee is typically non-refundable and applied to the purchase price if the buyer decides to buy. |
| Monthly Rent | Set at current market rental rates, which can vary. For example, average rent for a one-bedroom condo is $2,452 as of Q2 2024. |
| Rent Credits | Determine how much of the monthly rent will be credited toward the purchase price (usually a portion, e.g., 20% of rent). |
| Rental Period | Specify the duration of the rental agreement (typically 2-5 years). |
| Future Purchase Price | Calculate based on an expected appreciation rate (e.g., 3.5% to 4.5% per year). Use this formula: Future Price = Current Price × (1 + Appreciation Rate) ^ Years |
| Total Rent Paid | Calculate total rent paid over the rental period: Total Rent = Monthly Rent × Rental Period in Months |
| Total Credits Accumulated | Calculate total credits accumulated from monthly rent credits: Total Credits = Monthly Rent Credit × Rental Period in Months |
| Final Purchase Amount | Total purchase price minus option fee and total credits: Final Amount = Future Purchase Price - Option Fee - Total Credits Accumulated |
Example Calculation
Assuming a condo with a current market value of $500,000 with a 3% option fee and a rental period of 3 years:
- Current Purchase Price: $500,000
- Option Fee (3%): $15,000
- Monthly Rent: $2,452
- Rent Credit (20%): $490.40 per month
- Rental Period: 36 months
- Future Purchase Price (4% appreciation):
- Total Rent Paid:
- Total Credits Accumulated:
- Final Purchase Amount: 562,432−15,000−17,658 ≈ 529,774
Closing the Deal: Final Considerations for Renting vs. Buying in Toronto
Seeing as there is an equal chance of a successful rent to own transaction as there is of getting scammed or failing to make the payment within the time of the agreement; we say it’s better to explore your options before you go for this option for the purchase of condominiums in Toronto.
References:
- https://trreb.ca/market-data/rental-market-report/
- https://www.canadiansecuritymag.com/news/industry-news/understanding-condo-security
