Given the multiple announcements made in the Federal budget which will have an impact on real estate investors across the country join us for a special edition of our National event to hear from professionals in tax, financing, rent-to-own, and real estate about what the budget proposal may and will mean and what you can be doing to mitigate their impact. In this session join REITE Club Co-Founder Alfonso Salemi of JAAG Properties as they talk about Rent to Own.
Daniel: Hello REITE Club fans. This is Daniel St. Jean, welcoming you to this special podcast episode. Recently, we had a special national webinar event related to the Canadian federal budget announcements regarding real estate. We brought together some experts to offer their thoughts on what this can mean to you.
In this episode, I interview Alfonso Salemi, a co-founder of The REITE Club and the current President of the Canadian Association of Rent to Own Professionals about how the budget affects the rent to own strategy. Be sure to listen to the other special episodes that are all coming out over the next few weeks.
Now, here is my interview with Alfonso Salemi. Alfonso Salmi we're gonna be hearing from you. So Alfonso not only is the founder of The REITE Club, but is also the founder of JAAG properties who specializes in rent to own. And he is the President of the Canadian Association of Rent to Own Professionals called CAROP and he's the president. So Mr. President, what do you wanna share with us about the government actually mentioning the RTO in their budget. I'm guessing that probably most of the people who are in the government don't even know what that means. But anyway, tell us.
Alfonso: Yes, and I've prepared a presentation for tonight to stay on track. And on time like you mentioned before Katherine was a TV producer, so we're definitely making sure we're counting the minutes to make sure that we are staying on time, but yeah, absolutely what the federal budget just announced the interpretation. On the campaign trail, when the federal liberals were mentioning rent to own, I was getting giddy.
This is something that's been in the works and for myself and my business partner, Adam with JAAG properties, it's coming on eight years that we've been in business close to nine that we've been operating rent to own. As Daniel mentioned, I'm currently sitting as the president of the Canadian Association of Rent to Own Professionals. If you haven't heard of CAROP, I wanted the guys to give you a quick background on who CAROP is and what is CAROP?
The Canadian Association of Rent to Own Professionals is the collective voice of rent to own professionals across Canada who operate ethically and strive to create successful outcomes for their clients, investors and their programs. The mission is to educate and monitor its members in order to achieve successful outcomes between the rent to own professionals, the clients, and investors, and accomplish through enforcement and ethical and professional conduct among its members advocacy on behalf of its clients, professionals, and the industry development of beneficial relationships with related agencies, mutual exchange of resources and encouragement amongst members as well as making available educational programs for professionals and clients.
JAAG has been part of CAROP since 2016. This is a conversation that CAROP has been having long before that probably since 2009 in its inception. Rent to own is a highly unregulated industry. There's mortgage brokers that are licensed. There's realtors that are licensed accountants and lawyers but rent to own has never been licensed or regulated in any sense.
When the federal budget started talking about a rent to own program, obviously a lot of the rent to own professionals CAROP, everybody that I know in the industry, first of all, I got about, I don't even know, maybe 40, 50, 60 emails of, hey, did you hear about this? Obviously, synonymous with rent to own myself and JAAG properties.
I guess our indicators or our red flags of if they're going to be giving a whole bunch of money, how are they gonna do it? How are they gonna regulate it? What are they gonna do? When they started talking about it on the campaign trail, I guess what they had promised. So what did they promise a re elected liberal government? We'll introduce a new rent to own program to help make it easier for renters to get on the path towards home ownership while renting the program will be designed based on these three principles.
Number one. The landlord must commit to charging a renter, a lower than market rent to help Canadians build up savings for down payment. They're the floodgates that broke down all the real estate investors. They all wanna charge their clients lower than market rate rents. Don't think so. That's not a viable solution. Why would more people wanna charge lower than market? To their renters and the programs. But again, Canadians building up savings for a down payment, that was something that was key.
Most people know Daniel's operated a bunch of rent to own, and we've talked about this as an association. That is a key part of actually having a clear exit for our clients to own the home is having that down payment savings built up. So let's give them half marks on that. This is just a promise, but the landlord must commit.
Number two, the landlord must commit to ownership in a five year term or less. I'm okay with that because you know what? Most of our programs are three years long. We've had the extensive programs to four. So five years or less, typically we're looking at two years as a minimum for most of our programs.
Five years or less is really doable, especially as purchase prices have increased down, payments have increased along. It's almost like extending an amortization or a longer period of time for clients to A. Save up more down payments, B. Fix their credit score.
They have more time and are more positive on their credit score. Cause if you have 15 years of bad credit, one year is not just gonna do it. Banks, lenders, borrowers, people that are lending money are gonna see that if they're looking at your credit score. Let's give them marks on that five years or less. Pretty good.
And proper safeguards will be in place to protect future homes. That's not vague at all. What does that mean? Those safeguards. This is right from like you see the website here right at the bottom of the screen. That's right from the liberal platform, a new rent to own program.
Again, back to the regulation of what does that mean? The proper safeguards. When we wanna help deserving Canadians achieve home ownership, it has to be through the channels of qualifying for financing and qualifying for mortgages. On the campaign trail, they committed to 1 billion in loans and grants to develop and scale up rent to own projects for business profit, non-for-profit and co-op partners.
That's what they committed on the campaign trail. Recently, when the budget just came out, what did they commit to? What did they put in writing? What did they say that they were gonna do? Supporting rent to own projects. And again that you can reference this on the budget website rent to own arrangements can help alleviate that barrier from providing more time and support to renters, the path on ownership by allowing them to live and grow in their homes. Absolutely, that's what we want.
We want more people to own their homes, especially when we're helping people to get on that right track, whether it's young professionals, whether it's newcomers into the country. I think they just increase the population numbers. I saw some articles today as well about the population coming in here. But it's allowing them to get on that right path.
The key part is how it's not just throwing money at them and helping and saying, here you go, here's that money. And then you have to pay it back to us, but it's educating them. At CAROP and all the members of CAROP, there is a commitment of having financial guidance, financial follow up, having credit specialists work with the clients so that they're not left to their own devices.
That's why they got into that situation in the first place. This is the key part here is to help develop and scale up rent to own projects across Canada. The budget proposes to provide 200 million in dedicated support under the existing affordable housing innovation firm. This will include a hundred million to support nonprofit co-ops developers and rent to own companies build new rent to own units.
Again, very vague in terms of what that means of building rent to own units. What a rent to own unit is. There is no clear definition of what that is, but helping support a nonprofit. That's not in the business that we're in as real estate investors, we do this for profit for return. We want to help people. We want to provide safe housing. But some examples of eligible projects, which must include safeguards and robust consumer protections could include the repair and renewal of housing for rent to own purposes, innovative financing models and programming that assist rent to own participants in preparing for homeownership.
I like what they say here in terms of creating safe rent to own has gotten the reputation in the past because client, because either investors or individuals whoever they are setting up programs to fail, setting the bar too high, setting exit prices too high, not really looking at the client's best interest of maybe they're looking to sell a home and not actually help a family or an individual become a homeowner.
I'm all about the safeguards. I'm not necessarily all about government regulation. I like the standpoint of self regulation, in terms of the rent to own professionals having care about being at that table and discussing what safeguards and what that actually looks like. I think this is a step in the right direction.
It's not necessarily about the money and what it can do or where it's gonna support. However, I think it is getting closer to some type of regulation because if I call myself a rent to own, Daniel calls himself rent to own and five other people call themselves rent to own. There should be the same type of rules that apply. If I'm a realtor, if I'm a mortgage broker, if I'm a lawyer, there has to be some type of code of conduct, some type of rules that need to be followed.
We can all be creative. I know Daniel remembered this. We were at a CAROP summit. This was, I think, 2018 in Niagara falls, or maybe bought his 2019 in Niagara falls. And we said, if we all owned different restaurants, there's fast food hamburgers, there's Italian, there's Mexican, there's French food, there's all different types of food. Great, you can be creative and have all different sorts of menus, but there are a certain level of standard that the food needs to be cooked and safe for anybody that's gonna be eating at those restaurants.
Ultimately, I do think this is getting towards regulation, some type of overall regulation so that if you are operating in the rent to own space, you are doing it for the right reasons and helping people become homeowners. Just towards the end of last year, when the campaign trail when the federal liberals got elected, there was a website and it ran from, I think it was about the end of October, maybe beginning of November for about three to four months where they basically put it out there and said, hey, do you have any ideas on how to do this rent to own?
Maybe spark some ideas or a light bulb off in my head saying they've committed to we just saw there a billion dollars. But they don't know what to do or how to distribute or how to spend this money. Through the association CAROP, along with the Canadian Federation of Apartment Associations, we put together, I think it was a 27 or 28 page proposal to the federal government.
Many of the rent to own individuals, rent to own providers put together their own proposals, but together as a collective CAROP and the CFAA, the Canadian Federation of Apartment Association put together a proposal. I pulled out some highlights. And again, I think there were over 22 recommendations or proposals that we gave them. These were the highlights that I wanted to bring to the table today on how maybe this money can be distributed or be best used.
The government should provide rent to own deposit assistance to home buyers who choose rent to own. So assist rent to own future owners who can provide an initial deposit of at least two and a half percent, because in all rent to own programs, in my opinion, and I don't wanna just put this out there. This is my opinion, but the clients should have some type of quote unquote skin in the game or some deposit if they're coming to the table.
Any client or any potential future owner tenant buyer That can provide at least two and a half percent providing a matching grant of two and a half percent making the total deposit of 5%. Again, that's gonna lower monthly payments. That's gonna build towards their future down payment. And again, that can be added in at the end.
When the clients in our paying back were built into the mortgage, almost like a CMHC insurance. For our rent to own future owners who can provide an initial deposit greater than two and a half percent match the amount over two and a half percent with a making the additional amounts above the 2.5% repayable in the future in line with first time home buyer incentive program.
Matching that and saying here this, you have well, 200 million that you've committed. Why not put this in the hands of these future home buyers so that it can be future equity when they're building. When they're buying their home, the second one that I want to bring is acceptance of market value, rather than purchase price on the exit.
We've seen the purchase prices increase. We've seen commitments that again we typically have somewhere between 4% to 6% appreciation when we're selling the home back to the tenant. We've seen 15%, 20%, 23%, 25% increase in purchase prices over the last few years. Why not give that? If that value, why not allow the client to accept that market value rather than the purchase price, so that they're qualified for that higher value, accepting the difference between the current market value and the purchase price as a legitimate form of equity or down payment to qualify for the mortgage loan.
In most of the programs that JAAG is operating, we want our clients to have at least 10% saved by the end of the program. Now, just imagine how much more they would have if they could use that equity in that home that they were able to earn while they were in that rent to own program and then finally allowing the use of RRSPs as a source of initial deposit or down payments as security for loans for initial deposits or down payments intended buys as it's currently situated because the client is not purchasing the home to date.
They would have to remove their funds from the RRSP, give that to the rent to their own provider and pay their penalties. If they had $30,000 $40,000 $50,000 sitting in an RRSP, it'd have to be removed. Paying the tax on that and actually having less of a down payment, why not allow using the RRSP in a rent to own purchase so that they can apply and use that the same way that if they were a first time buyer or as a normal buyer buying a home using the RRSP.
This is just part of the submission on the proposed federal rent to own program. Put together by CAROP or CF AA. That's just some high level stuff like that. Again, happy to discuss more. I am so excited to rent to own. I've actually shouted out to Paul Copcutt. When we first started working with Paul, he told me about Google alerts. I have about four or five Google alerts that are written to rent to own homes, lease option rent to buy that kind of stuff.
It was really dry for a long time on my Google alerts, but over the last year or so, I've been getting inundated with different things that are coming through about rent to own, about different regulations, about new companies, prop tech companies that are putting together these rent to own programs.
I'm super excited where this industry is going as again, the home ownership numbers continue to fall. We know it's on us as investors to provide safe housing for people. If we all of a sudden just walked away or turned away our turned our box and just left and didn't provide this, where are these people gonna go?
And for me and and I'm gonna speak for JAAG properties is we wanna help people own their home so they can access some equity out of their own, and then they can be an investor and provide a better financial future and customize their life while doing it as well too. So thank you for the time.
DJ: Thanks for listening to The REITE Club podcast, where the focus is on helping all levels of real estate investors advance to the next level and help you customize your life. Be sure to tune in next week at thereiteclub.com/podcast or wherever you listen to podcasts. And if you get a few seconds, please rate the podcast, wherever you're listening, it helps the show get noticed by others like you. And we truly appreciate it. And don't forget to subscribe.
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