In Canada’s hot small-city housing markets, rent-to-own is on the rise

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In 2020, Amanda Core and Brad Robinson made a huge life change. Presented with the opportunity to run a First Nations eco-tourism business, they relocated with two of their children from Thunder Bay to Sault Ste. Marie.

The house-hunt began. By the time they found their perfect home, however, the COVID-19 pandemic had restricted operations at their new company, Thrive Tours Inc., says Mr. Robinson, who is a member of the Oneida Nation.

Although the couple, who had been renting a cramped space, had a 10 per cent down payment, without steady income from their new business, they didn’t qualify for a mortgage.

Confident the off-market house was an excellent deal, at $260,000, “and if we didn’t act fast, we’d miss out,” they took a “tenacious [approach] in trying to figure out how to change our situation for the better,” says Ms. Core.

When she called Toronto-based Requity Homes, which specializes in rent-to-own properties, Ms. Core was pleased to speak to someone “who didn’t want to gouge us. They got to know us and were super helpful, lots of great communication.”

Instead of walking away from the “too-good-to-be-true” house and waiting until they’d accrued sufficient self-employment history to qualify for a mortgage, Requity convinced Ms. Core to start the process of home ownership right away.

The couple submitted financial documents to the company, which quickly ascertained their ability to afford its rent-to-own program. A three-year contract was presented, which detailed ways Requity would purchase the home, and eventually, the couple would buy it back.

Requity held their 10 per cent down payment and charged $1,800 in rent. The couple also contributed $700 a month with the aim of increasing the down payment to 20 per cent. The contract included Requity’s annual fee of 5 per cent of the house price due upon closing.

Within two years, Thrive Tours took off – “with really big government contracts and partnerships with huge organizations,” says Ms. Core, who adds they’d even taken Prime Minister Justin Trudeau on a canoe ride.

They were mortgage ready. In 2023, they bought back their house from Requity for $282,000.

During their rental period, prices for houses in Sault Ste. Marie, as in many of Ontario’s smaller cities, soared. Today, same-street comparables indicate their home could sell for $450,000, says Mr. Robinson.

Amy Ding, co-founder and CEO of Requity Homes, says her four-year-old company is on a mission to make home ownership more accessible in Canada.

Last December, the company, which operates in Northern Ontario, Manitoba, Saskatchewan and Alberta, secured $26-million in seed funding.

Ms. Ding hopes to purchase homes and then sell them back to 100 homeowners this year and as more people get to know her company, eventually “help 1,000 or 2,000 people a year.”

“There are a lot of families that, even though they don’t qualify for a mortgage, are financially really strong,” she says.

Newcomers to the country and newly self-employed individuals, who don’t have sufficient income history, and people who have experienced an event (such as divorce) that negatively affects their credit are all potential clients, she says.

“They are 100-per-cent financially capable of affording a home, but the current mortgage underwriting system just doesn’t recognize them that way,” says Ms. Ding

“I can’t change the mortgage underwriting system, but I can give you a different way to access home ownership.”

Typically, Requity approves clients first, provides a home budget and then the client finds their home. Clients make an initial down payment of at least 2 per cent and must be able to pay rent and increase the down payment to at least 5 per cent by the end of the rent-to-own period.

Renting-to-own is more expensive than a mortgage, says Ms. Ding. “We can’t offer a cheaper product than the bank.”

Yet Requity helps clients save by locking in their purchase price.

“The markets in Northern Ontario and the Prairies where we operate are extremely hot,” explains Ms. Ding. “We’re constantly getting out-bid” in multiple-offer competitions.

In cases when Requity wins the bidding war, by the time clients buy back the house, the property has increased in value on average by 20 per cent, says Ms. Ding.

Canada’s longest-running rent-to-own company, Toronto-based HOS Financial, operates in every province. Since launching in 2005, it claims to have helped nearly 1,300 successful tenant-buyers – “the most of any company in Canada by far,” says Terry Hepditch, the company’s head of business development.

HOS Financial’s rent-to-own program shares some similarities with Requity, like buying homes for approved clients, who make an initial down payment, and then pay rent and down payment top-ups until they’re mortgage-ready.

But contract fine-print reveals a number of client-fee discrepancies regarding appraisal, inspection and legal costs, as well as buy-back expenses, “because every company does things differently,” explains Mr. Hepditch.

And this is why the best advice he can offer is “do your homework. Ensure you understand everything about what you’ll be paying for.”

He also recommends working with a professional organization. “There are a lot of one-off cowboys out there, who are just looking at their pocketbook.”

He suggests dealing with one of 45 companies affiliated with the Canadian Association of Rent to Own Professionals (CAROP), of which HOS Financial was a founding member.

“All CAROP members are socially responsible facilitators who want win-win outcomes,” he says.

As rents continue to increase, “the demand for rent-to-own will continue to climb,” says Mr. Hepditch.

“A lot of people are going to look at alternative options to get into home ownership, mainly because the rental market is escaping on us,” he says. “Clients are going to look for protection from rising rents. They will dig harder and look for more solutions.”