How Rent to Own Works

Rent-to-own programs (also known as lease to own, rent to buy or lease to buy) are typically operated by professional entrepreneurs. They are not usually charities or not-for-profit societies, but they do include a strong philanthropic motive. CAROP urges potential clients to avoid programs where such a motive is not evident.

Rent-to-own programs help those who would like to enjoy the benefits of homeownership but are not yet able to qualify for a mortgage. Among various issues, this may include credit challenges, too short a work history, or inadequate savings to meet down payment requirements. Rent-to-own operators can be more flexible than commercial lenders. They create programs to help non-qualifying clients get into the homes they will eventually own, prior to fixing these challenges. Then they assist the client (aka tenant-buyer) in fixing their issues over the course of the term, helping them to achieve mortgage eligibility over a prescribed period.

While there are varieties of rent-to-own programs, the central components are similar: An investor purchases a property for the purpose of renting it to a tenant who intends to eventually purchase it. For this privilege, the tenant-buyer pays an option fee (deposit), a portion of the amount eventually needed for the down payment.

The client moves into the property as a renter. Often, a portion of the rent charged during the period is applied to a “rent credit account.” A lease-option (or “lease-purchase”) agreement is entered into by both parties that include such matters as the amount of rent paid each month, any portion of rent that may be applied toward a rent credit account, the length of the term over which the tenant-buyer will have the option to purchase the property, and the purchase price at the end of the term. CAROP urges potential clients to avoid programs that do not have lawyer-drafted contracts.

During the term of the agreement, the Rent to Own provider and the client work together to repair the issues that have prevented the client from qualifying for a mortgage. The term of the agreement itself helps those who simply need a longer work history or to pay off other debts; the rent credit account is a forced savings program for those who need to increase their available funds for a down payment, and a credit coaching component (required of all CAROP members) assists the client in becoming credit-worthy by the end of the term.

At the end of the term, outstanding issues now repaired, the tenant-buyer exercises the option to purchase the home. The original deposit and the rent credit account are assigned to the tenant-buyer for the down payment and closing costs, a mortgage is obtained, and the title to the home is transferred to the client.

If, however, the tenant-buyer is unwilling or unable to exercise the option at the end of the term, they must vacate the premises and forfeit the original deposit and rent credit account. CAROP members seek to avoid such a situation by carefully screening clients at the outset, designing programs that are win-win for all, and monitoring, encouraging, and coaching clients throughout the lease-option period.

CAROP: your assurance of credibility, professionalism and ethical practice

In the absence of federal or provincial regulation of the Rent-to-Own industry, the Canadian Association of Rent to Own Professionals provides a measure of quality control, minimum standards, and ethical guidelines for the industry. It is therefore in clients’ best interest to avoid entering contracts with “lone rangers”, “fly-by-nighters” or informal operators and to engage in Rent to Own only with those who are subject to the scrutiny and oversight of a larger association.

Members of CAROP are vetted before admittance into CAROP membership.

• They must demonstrate that they have received previous training, formal or informal, in Rent-to-Own operation;
• They must demonstrate that they operate professionally and ethically;
• They must give evidence that they engage a professional team around them;
• They must commit to win-win operation, keeping the client’s interests foremost;
• They must include a credit coaching component, to help their clients reach mortgage qualification.

CAROP urges potential clients to avoid Rent-to-Own deals with anyone who is not a member of a professional association like CAROP.

The CAROP Members’ Code of Conduct

All members of CAROP commit themselves to:
– Actively and passively promote other members in good standing
– A “no spamming” policy
– Conform to the Canadian Access to Information Act and Canadian Privacy Act
– Share client information only with the client’s written consent and for the purpose of conducting Rent-to-Own/Real Estate investing business
– Treat all members with courtesy and professionalism at all times; and
– Report offending members to the Board of Directors. Offenders will be investigated and could be subject to potential suspension or expulsion
– Uphold the principles of the Canadian Association of Rent to Own Professionals
– Provide full disclosure to clients regarding the disposition of their deposits in case of default or failure to exercise their option
– Ensure that all Rent-to-Own activities are performed within the scope and intent of the law in each member’s province, city, municipality, etc.
– Advise clients to get their own legal advice or sign a waiver if they choose not to
– Include a mandatory credit coaching program that assists clients toward mortgage eligibility

A brief history of CAROP

CAROP traces its origin back to the fall of 2012 and a group of real estate investors who’d taken formal rent-to-own training and were just launching their client-first rent-to-own businesses. They clearly could benefit from one another’s support, but also needed something to give them credibility in their fledgling operations.

It coincided with a growing awareness that not all rent-to-own schemes had a good reputation or operated with the win-win schemes or the ethical values they’d been taught. There was a clear need to separate professional Rent-to-Own operation from lone rangers and unsavoury types.

So, the idea of an umbrella professional association was hatched. Five colleagues, meeting at a semi-annual rent-to-own Summit led by their mentor in Kamloops, BC, embraced the idea. They began working on a Mission Statement, Code of Conduct, goals and procedures, and then had a lawyer draw up a formal constitution and by-laws. They became the first directors and recruited five more to join them as “founding members,” all from Alberta and British Columbia. As a result, the legal framework for the Association is registered in British Columbia, and the official mailing and legal office is in Abbotsford, BC.

All but one of the founding members were graduates of Dave Dubeau’s Rent-to-Own educational program. But the fact that one was not, was already a breakthrough to the larger rent-to-own world, and later became important because of their involvement with a large Ontario-based operator.

The core group recruited more members but with limited initial success. By the fall of 2013, when we convened our first annual AGM in Edmonton, there were 14 members. That inspiring Thursday evening affair included a dinner, guest speaker Dan Heon (a mortgage broker specializing in rent to own) and the formal AGM.

Another breakthrough came in 2014, when HOS Financial, the first applicant from beyond the two western provinces, applied for membership. It had been the goal to become fully national (hence our chosen name). But HOS’s size (bigger than all of us combined), plus the fact that their model was a little different from that of the founding members had us doing considerable due diligence; it was the afore-mentioned connection that was relied on. Their membership instantly expanded both CAROP’s geographic reach and industry dominance!

In 2014 the “Associate Member” category was started at the request of an investor who wanted to be connected with the Association but was not, himself, operating a rent-to-own program.

By the 2014 annual meeting, also in Edmonton, there were 25 members, representing six provinces (including Manitoba, Ontario, Quebec and Nova Scotia), though the majority were still from Alberta and BC. But CAROP was now “from sea to sea.” Guy Lew and Terry Hepditch of Home Owner Soon attended that event, with Guy as guest speaker.

The Association continued to grow through 2015, with 34 members, representing seven provinces, by the time of the Fall AGM, though 21 were still from the two Western ones.

With a goal to build membership in Ontario and Quebec—and eventually, hold an AGM in Central Canada to reflect this—two directors travelled to Toronto and Montreal in March 2016 for workshops to promote the Association. The Toronto meeting was well attended and enthusiastically received. Several new members joined at, and after, that Toronto event.

The hoped-for spin-off of that event, that several Ontarians would attend that fall’s much-expanded annual event in Kelowna, BC, did not materialize, though, with only HOS represented (though a Manitoba member also flew in). The format started with a Friday night wine tour, then an all-day Saturday Summit with six speakers, before the dinner-hour AGM and a cash bar social evening. It was a resounding success.

That success did not carry over into the following year, however, as CAROP took a step backwards. When plans for a long-hoped-for Ontario event did not work out, an alternative was hastily organized for Calgary. A somewhat scaled-back affair was nevertheless an encouraging get-together, with several enthusiastic new attendees joining the Board.

The Association has soared since then! Most of Canada’s strongest and best operators have joined CAROP. The 2018 summit was once again held in Kelowna, but the 2019 Summit, the most successful ever, was held in Niagara Falls, Ontario. The professional input was outstanding, with four main speakers and a panel of diverse RTO CAROP veterans. At least half the attendees there were not members but observers who’d come to learn about rent to own.

The covid pandemic aborted the planned 2020 gathering for Canmore, Alberta, but a Zoom Summit, with guest speakers, several panels, our AGM, and even a wind-up social was a great success! The Association did not take a backward step due to covid but continues to grow in number and influence!

Between annual meetings, the directors are charged with running the Association, and their work includes recruitment, policy development, creating a monthly newsletter, hosting monthly mastermind sessions, interacting with other members and outside entities, and generally, overseeing the activities of the Association.

CAROP is meeting its original goals, having assembled the largest bulk of rent-to-own providers under one professional umbrella while reflecting the diversity that characterizes ethical rent to own in Canada. The goal is that all reputable providers join us so that the public will instantly know whether a potential provider they are considering is legitimate or suspect. We are approaching that mark.