Rent to Own Experts Panel

Join our co-hosts as they ask questions about rent to own real estate investing from our experts' panel;

Claire Drage

Limor Markman

Erika Warren

Alfonso: Today we're talking about rent to own, and this is truly really near and dear and close to both our hearts, Daniel and myself. Like I said, this is our main strategy and we're going to be talking about it in depth. I'm super excited. There's so many real estate strategies out there and today, this is my personal favorite. We get to go in depth with some of the best. So, a little bit about the agenda today. First, we're going to have a quick market update with Claire Drage from the Windrose group.

You guys have seen Claire, know Claire, love Claire, and she's going to give us a little bit of a general market update of what's going on in the world of real estate investing. And then we're going to bring on our other panelists as Erika Warren and Limor Markman. We're going to be doing a whole panel with them, the experts on rent to own and really power team members that you should have on your side, if you ever consider renting a home.

Quick housekeeping notes for question and answers. If you have questions. Put them in the chat. Make sure that you identify the chat box. Let's do a quick check, put a one. If you know where the chat box is, make sure you put one up there now. And please start your question with a queue. And if it is directed to someone specific on the panel, please put their first name, so that we can get those questions answered.

We only have one hour this afternoon. We're going to try to get through all the questions. If we don't please feel free to reach out to our panelists, their contact information will be available at the end of their segment. And we'll be including their contacts and all the post event communication as well too. And everyone that registered will be receiving a replay of today's session as well too. Yeah, let's get started with Claire. Daniel, I'll pass it on.

Daniel: Yes, first up, we're going to get a market update with Claire Drage of the Windrose Group. Welcome Claire, but before you say anything, let me introduce you to the people who are participating. Claire Drage is a mortgage broker for people who hate coming to see a mortgage broker. She's been in the industry for 30 years. She is a top 1% mortgage broker with her own large team of mortgage agents. And she's the Chief Executive Officer of Windrose Group. She was also an elite trainer and a real estate investor or self, but for people to know Claire, what is even more important is that she is one of the nicest, most trustworthy, most friendly people you will ever meet. And Claire, take it away.

Claire: Thank you so much. That was lovely. You should tell my kids that sometimes he used to tell them off when they were younger, but so what's happening in the market right now. Obviously, from an interest rate standpoint, interest rates are ridiculously low, even back 2007, 2008. I don't remember rates being this low.

The bond market is pretty much. It's not bottomed out. There's still further we can go. But what's resulting is basically interest rates are under 2%. Even as stupidly low as 1.5% for regular home buyers for real estate investors, we're always going to pay a little bit more of a premium if we're buying rental properties.

The bottom line is when you've got interest rates that start with 1%. Even if it's 1.99%, I don't make you guys, but I'll take that. We have zero anticipation rates going up anytime soon. In fact, we're likely to see this for a good year or so. We really, truly haven't seen the negative impact of COVID-19 on the economy and whether the government intervention with financial assistance has been enough to not necessarily avoid, but soften the blow.

Obviously, everything is very much based on not just the Bank of Canada, but also the US Federal Reserve that they are trying their best to keep. I don't want to say manipulating but let's face it their ability to help control the slowdown of the economy to be as slow as possible and hopefully rebuild.

Any increase in cases is going to have an impact, but when it comes to borrowing money, so cheap right now, it's ridiculous. If you qualify, borrow now. If you have money and you want to load it out, there's still really good returns. So, what am I seeing in the market with regard to consumer confidence changes in consumer buying and/or overall as real estate investors?

I will tell you that we've never been busier, that there is a lot of activity when we look at all the real estate stats and we look at the number of listings and number of sales. There isn't a gap like they are close together. I would say that strong markets are even stronger. Now, I would say from a borrowing perspective, some of our lenders are proceeding with caution when it comes to the traditional downtown cause.

What I mean by that is like downtown Toronto, downtown Vancouver, downtown Calgary, for example some lenders are proceeding with caution on condos. For example, maybe cutting down the loan to value because they're proceeding with caution.
We know that obviously the one shift that we've seen, especially the Windrose Group is, where you always used to live where we worked, but that's now changing. Now, we get to work where we live. That's a big difference. I get a list of a dozen calls a week from people that are going. I'm setting up and I'm moving to the country or I'm moving further out.

I'm trading in my 850 square foot condo to a fully detached home because you can work where you live. So, we're definitely seeing a shift from an investor's perspective, seeing a lot of conversions, a lot of renos, as doing a lot of private mortgages for burgers, but seeing investors shift into adding key things like, cable, internet, and more ports more sort of wireless capability in property, building dens, not just extra bedrooms, but building more conducive, multiple office spaces within a home or the possibility of that.

When it comes to, is there enough money out there to borrow? Absolutely. I will say the only caveat I would give right now is that I always used to talk about there's guidelines, there's exceptions to the guidelines, and then there's pixie dust. Pixie dust would be for a lender that would be comfortable providing you with financing based on the opportunity for future business and or just the bragging rights to say they took a deal from another bank.

I would say pixie dust is pretty much non-existent right now, all been spent. But we are still seeing some exceptions, but a majority of lenders really are sticking to the guidelines. The good news is we are reporting from our lenders that the deferrals that were a big thing back in March and April, have seen a significant drop.

We had one lender this morning say that they went from 39% deferral rate to currently at 9%. So, that means the lenders have cash flow too, because we always think investors, we need cash flow, but so do the banks and they're now getting that back with less deferrals. So, it's all good in the world of real estate investing.

Alfonso: Awesome. Always great to check with Claire and give an update that you do see it from so many different perspectives with your team and the amount of projects deals, things that you guys have coming across your desk. So, it's really cool to see that some of us individual investors out there only see it from our own perspective. You see it from the whole perspective of what's going out there yet. The pixie dust is slow if it hasn't already dissipated out into the air.

Claire: It will be back. Those Pixies are working behind the scenes, building up reserves.

Alfonso: Definitely one takeaway, I wanted to make sure that you said, if you can qualify, borrow now. And I really put it in huge capital letters and circled it. And it's the thing it's a big if, right? And on the topic of rental and that we're talking about, it is going to get more and more difficult for people, the common person, investors, we're always talking about how we can qualify for the ninth and 10th and 50th property.

But for a lot of people, that tenant buyer that we're going to be talking about today, they qualify. I think as rates get lower, I think you might've told me the stars, the rates get lowered, the bar gets higher. And it's just cyclical that way. But yeah let's bring in our other panelists so that we can get this panel started.

First I want to bring on Limor Markman. Limor is a real estate investor and money expert, host of the TV show, the fortunate future, which airs nationally across Canada, she teaches real estate investors across Canada so that the average Canadians can achieve their greater than average dreams.

Founder of www.limor.money. Love that website, one of my faves and now the YouTube channel Limor, where she empowers people to live apologetically financially fabulous lives. So, she is a contributing author to the bestselling book, "Who's going to stop us now? And shares her personal finance journey.

Thank you so much Limor for joining us today. I know you are a Titan in the industry and definitely familiar with so many real estate investing strategies and rent to own being one of them for sure. So, thank you so much for being on today.

Limor: Yeah. Thank you so much for having me. It's exciting to be here, Claire, what an awesome update and what an exciting time to be either up and up your game in real estate or jumping in, those kinds of interest rates and people are afraid when the market feels a little scary, but that's when amazing opportunities persist. Alfonso, Daniel, and the REITE club. Thank you for having me, excited to be here.

Awesome. And now you guys can see Erika Warren from Carson Law. Thank you so much for joining us. And I know there's already a question on the chat about Ottawa. So, Erika is actually a native of Ottawa. So, born and raised in Ottawa, a law degree, with an undergrad in Biomedical Mechanical Engineering.

Erika has been around and involved with real estate through her father who manages a number of rental properties in Ottawa. And Erika is not only a valued lawyer at Carson Law. If need be, she could also help you with your, do yourself, fix their projects as she never goes anywhere without a toolkit in her car or her purse.

That is amazing. I am not a handy guy. If you need to demo, I'm your guy, but to put it back together. You better call Erika for those kinds of things, amongst some legal advice.

Daniel: What kind of person do you care about Erika? Where can you carry a sledgehammer in there?

Erika: It's my toolbox. I keep one in the trunk of my car all the time. Thank you so much Alfonso and Daniel, the REITE club. It's great to be here with everybody with clearly more great updates and I'm looking forward to answering everybody's questions and hoping to give some insight to RTOs.

Daniel: I'm not going to be asking you the first question. So, in your opinion, based on your experience, what are some of the pros and cons of the rent to own strategy?

Erika: Yeah, of course that's definitely one of the main questions that we get from a lot of clients, because usually, especially when somebody's starting out, they don't really know what's involved. What are the risks? And so usually I start by giving sort of a general list and what's on my pros side, I would say, it's definitely, it gives you some control in choosing the property and or the tenant. There are definitely many different types of RTO deals.

And so just based on the general ones that come through the firms, sometimes there's control in let's say finding first the tenant and then the property, like something that they might actually be interested in owning. And then on the flip side, you also sometimes have control in the property itself. Let's say you find a property that meets all of your criteria is a good place for investing. And then you actually end up fitting a tenant to the property itself. So, you've got some control there in leeway, depending on what options you have.

The other thing is that it's quite low risk. When you're studying up these deals there's not very much risk in the sense that if you're investing once the deal ends up closing, let's say if everything goes through. You eventually, like you will always come out with cash flow in the end.
There is some risk there, obviously if the market decreases. So, I would say maybe the con on that side is if your purchase price that you set from the get go ends up being, I guess less than what the market value was, when you're actually selling the property. There's some risks there. However, on the flip side, if the purchase price or market value is actually lower than what you're selling, you're actually making some profit and you actually, as long as you're able to finance the property up until that point, there's very little risk there in losing cash as well, there's excellent return on investment. There's cash flow.

You've always got monthly cash flow coming in because you're technically leasing the property. So, you've got monthly income, which is going towards covering a lot of your expenses like mortgage et cetera, some deals the rent tour covers maintenance as sometimes the investor covers maintenance. Again, you've got options there. It's quite handy. Investing there's built-in exit strategies. So there's always something there to protect you on the legal front plus the realtor fees. So once you get your tenant in there, you're essentially, if everything goes well, you're essentially skipping the realtor fee part to sell the property.

In general, I would say those would probably be the biggest pros. I don't really see any huge cons other than the risk factor. So, from investing in something like this, there's always risk. Everybody who's investing know that there's always risk in any kind of investment, any kind of deal that you're going through. But I would say this one's on the lesser, there's less risk involved with this one. And you can flip things different ways. You don't know how the market is going to go.

Alfonso: Great sound advice there, obviously from the legal perspective. Everybody, that's a common question. It's illegal, you can't rent to own. Guys, this is a lawyer kind of explaining pros and cons. Let's go to Limor next, some quick pros and cons about the strategy in general of rent to own, from your perspective. And I know you work with a lot of investors as well.

Limor: Yeah, absolutely. Thank you alfonso. And Erika did a great job covering the legal side of things. When I talk to somebody about getting into real estate, they're really all excited. One of the things that I really try to deep dive is ask them about. Why are you actually even getting into real estate? What the heck is the point of even investing? And ultimately through that conversation, there's really a few common themes that come through to place. The first one is people want cash flow.

They want more money every single month to be able to enhance the quality of their life. They're looking for a strong return on their investment. And I'll share with you that with rent to owns, and the same thing on the cash flow side, you have an opportunity to have a strong rent return on investment.

We're typically looking at double digits. I've seen them anywhere call it 12% to even 30% or above, depending on how the deal is structured. And then the third thing people are really looking for is passive. They want to be able to spend time with their family. They want to be like me up at the cottage and the summer having barbecues, eating watermelons, and just enjoying their life.

They're looking for something passive. And they're looking ideally for something that has as few interruptions as possible. So, just having a property and renting it out because I've got those in my portfolio as well. You can have those interruptions and you may be cash flow in beautifully, but then bam, one thing happens.

There's a vacancy there. The washing dryer machine dies and there's your cash flow for a month or several months on end. So, you know what? Those four criteria have strong cash flow and high return on it. As passive as possible and as few interruptions as possible, there's really one strategy that rises to the forefront and that is no surprise rent to own.

There's a lot of different ways that we can do the strategy. And I'll explain a little bit further in one of the additional questions that I answer, but just at a high level, cream of the cream, top of the top, if you're looking for all of the best things that real estate has to offer rent to own, and in my opinion, checks those boxes.

Alfonso: Great insight. And now let's go to Claire from the mortgage side of things. Pros and cons, right?

Claire: There's so much from a financing perspective, it's really calling in the fact that from an investor's perspective, the investor is going to presumably get a form of a deposit, an option consideration from the borrower. So, that can help support closing costs and part of the down payment.

Can't traditionally be used as the down payment from the lender's perspective, but ultimately it can go into the investors coffers. So, they've got some of that expenditure back. I totally agree with Limor with a whole panel on the fact that if you're going to look at single family it's really hard to cash flow single because market rents, you can't charge more than standard market rents. In order to adhere to the guidelines for the tenant buyer to buy the property at the end and get their own mortgage.

Market rent isn't always keeping pace in these hot markets with purchase prices. We always talk about sweet spots, 250 to 500, is that the sweet spot for rent to own purchase price today? The challenge being that when the investor buys the property today, they need to cash flow on market rent or at least have enough additional income to help qualify.

I talk about that's a bit of a pro and con on both, but superior cash flow. I think my favorite is, it's not giving back, but it feels good when you do a rent to own. You've got a tenant buyer who for some reason, doesn't qualify to buy today, but you're putting them on the path of home ownership. It feels really good to give someone, test driving home ownership. They get to pick their property. They get pride of ownership.

The quality of the tenant, like they're not going to call you for a blocked toilet. They're more likely to call you to say, we'd do a new deck or we'd like to refinish all the flooring. Is that okay with you? As long as it's not like pink and green polka dots, it's going to be fine. It's going to have value to the property. So, for me, I think it feels great.

It gets positive cash flow and it can, when structured correctly, create such a strong win-win for the homeowners, the tenant buyers I've seen tenant buyers come out with more equity than they imagined, and it feels good to help.

Alfonso: That's the one thing that you can't put on that spreadsheet is some of that really good feeling that you are helping and being profitable at the same time. I really don't think they need to be exclusive, right? It's not like the aviation industry where they're charging $19 for a bag of peanuts on a flight or something, you just to be profitable because the gas is so much, you can help people along the way and and be profitable and really do good for yourselves, for investors, for all the people involved.

We have some questions that were specifically sent in from our right combination, some questions. As the founders have put together for you guys specifically. So, Erika, we're going to start with you from the legal aspect of things. So, Claire mentioned you do get an initial option consideration. Now, that sounds like a lot of words, but essentially it's a deposit, and there's a monthly deposit or option consideration as well, too, that they're combined that they do get at the end as well too.

The question that I get all the time is that all these it's great, because you could keep their deposit and you can do this if it is okay. What are the legal requirements of returning the initial option deposit and the monthly option to deposit that you are collecting?

Erika: Yeah, of course. That's definitely a popular question. So, I think the best way to answer that is it all depends on how the RTO is written. So, it's all really in the legalees of the RTO deal. A lot of times clients will come to us before you sign a deal and we'll like to negotiate some of the terms. In general your initial deposit is generally not refundable.

And so, in the actual wording, in the agreement, it will say your deposit is not refundable no matter when you like it doesn't matter when you decide to not I guess go through with the option to purchase. It's just strictly nonrefundable. So, as soon as you decide that you're not going through with that.

The investor or the landlord, the owner of the property ends up holding onto the deposit. Now some RTOs can be written differently in the sense that it could be refundable. But in general, I see mostly they're non-refundable; the landlord, the owner of the property ends up keeping the deposit.

If the tenant buyer does not go through with the option to purchase, and usually with your lawyer will ensure that's all written in all the contracts and documents that you sign in order to put together the deal properly. And now I think you also were asking about the monthly deposits as well. Again, that one is more, let's say like in the agreements, it's an actual rent.

That itself is not really going towards the purchase of the property, unless in the deal you can say 90% of this monthly payment is going towards rent. The owner of the property will hold it. And then let's say the remaining 10% might go towards your purchase. So, that almost creates a sort of a bank of funds for the tenant buyer that they can put towards their down payment at the end.

The legal aspect between both of those, that all depends on the two parties. It depends on what the parties have negotiated. And I think the biggest thing to make sure is that when you are working with a lawyer, make sure you tell them what your intentions are, what you're looking for, what you're happy with.

From our perspective, there are so many RTO deals out there. Everybody comes in with different terms to negotiate. There's obviously the average RTO deal that you'll see. But it's still important to let your lawyer know that this is what you're expecting. And then they will make sure that the wording is drafted appropriately to ensure that your rights are covered.

And to ensure that let's say if that initial deposit is nonrefundable, it's going to be nonrefundable. If they breach the contract, they don't go through with the purchase. The landlord, the owner, of the property ends up keeping that deposit. And there's no question about whatever's in paper, that's binding. If it's in writing it's non-refundable like there's no dispute there. I hope that answered the question you were asking because that's a common one that we get.

Alfonso: Yes. That's for sure, because that is one of the most common questions we talked about. It's a probe that clients are giving deposits on an upfront basis on a monthly basis. And it's just the legalities around that. And again, to preface and as I pass it off to Daniel, the two of us do rent to own and have different agreements, different contracts, different wordings.
And you do have to be careful. And specifically, how you're writing that agreement. There is not one silver bullet, the same way a lender does not have one contract for a lending, right? There's always different factors that you need to do.

Claire: Can I add to that if that's okay. On that exact subject?

Alfonso: Go ahead Claire.

Claire: Thank you. I think that also what's important, Erika is absolutely right from a legal perspective, making sure it's really clear what's required. I will tell you, however, from the tenant buyer standpoint, when they go and get their mortgage two or three or four years at the end of the rent to own and their down payment to qualify for the mortgage is coming from the initial option consideration and the monthly top-ups that become their forced savings plan. We need to verify that for the lender.

Most buyers, basically, their down payment is coming from this option deposits, et cetera, it's very clear when the borrower needs a default insured mortgage CMHC, Genworth, Canada guarantee, less than 20% down payment. They have very specific requirements on how they want the words written.

What I mean by that is, they want it to be made very clear that all deposits are refundable a hundred percent. So, there is a way of wording it that's acceptable, which is that all our deposits are a hundred percent refundable minus liquidated damages to list and sell the property. So, you can probably tell 5% realtor fees alone will probably chew up the option credits and deposits.

It is really important that when you're doing those contracts upfront, your option to purchase agreement, as well as your lease agreement, two separate ones that you're not just adhering legally to make it transparent, but they're written in a way that will meet the lender's requirements for your tenant buyer, three years from now.

Alfonso: Absolutely, such an important part of Claire, great addition. Thank you for adding that because I always say anybody can start a rent to own program, but it's about successfully concluding it and getting the client the mortgage at the end. A wrong word or not having it spelled out right.

The proper lenders that you're bringing the client to getting them qualified for can have huge implications. So, great clarification on that. So, that leads me to my next question to Erika is, when should we engage the lawyer, when thinking about the rental and project right after we've waived all conditions and bought the property, right? That's when we should call you.

Erika: Definitely before that. So, anytime you're contemplating any RTO deal, a hundred percent, go talk to your lawyer, go talk to your mortgage broker. Like just make sure everything is in line. Like Claire said, there are definitely ways that we can draft things to make sure that everything's upfront and clear, but like she said, I mean there's different requirements from different sides of the deal that you need to make sure incorporated into whatever contract you're drafting up. And what we would have to do is we need to know that obviously we work with different teams.

We'll generally have multiple professionals looking at the deal, reviewing it before anything is signed. So, I would say as soon as you're in any talks about any kind of RTO deal or otherwise, I would say, talk to your professionals, talk to your team, make sure that they've read it. They've looked at it. There's nothing that they see could cause any issues down the road, whether it's at the beginning, whether it's at the end, it doesn't matter.
It's definitely a very team effort in the sense that all of these working parts need to come together and we need to make sure that everything is drafted appropriately, so that there are no speed bumps along the way. That's probably what I would say. Lawyer and professional anybody really first, just make sure it's reviewed to talk to somebody, do your research and before you sign anything, it's what I would say.

Alfonso: I absolutely, and I know sometimes, always people think that rent to own, it's so different than any other real estate strategy out there, but there are components. You need a mortgage, you need a lawyer, you need an inspection, you need a realtor, you need all those different components and investors.

Really using common sense that having a lawyer review the documents shows that it's a partnership with the clients, a partnership with investors yourself. If you are the investor, all the parties involved with your mortgage broker accountants, all those types of pieces really you have to put into consideration the same way that if you're buying a property for a BRRRR. You're like, I'll buy the property and then maybe I'll get some quotes on how to do the work. No, the horse before the cart or cart before the horse, you want to make sure you're doing it in the right order.

We do talk about, like car wrecks and everybody loves seeing like a bloody mess and making sure that, like not looking away, it's human nature. You always look on the other side of the highway, right? So, maybe that's why some people are tuning in today. They want, oh, rent to own is so bad and they just want to pile on or a top of it. What are some of the components from either an investor standpoint, if you're a provider that protect you that are components of the contract, I should say, whether it's the lease agreement, the purchase off control, what are some of the components of the contract that protect the investor in the worst case scenario, right? The car wreck scenario. Yeah. What are some of those components of that contract that are protecting the investor? Erika?

Erika: Basically the items that are in the contract that protect the investor themselves, from the get-go the investor, or, whoever is on title, let's call it, let's pretend the owner of the property is actually invested because I know we have different scenarios where somebody might want to be the investor, but not be on title. So, just from the basic standpoint of the investor, is the owner. From the get-go they're on title. So, legally they own the property.

That already in itself is a protection because they have control over the date of that property. And they don't necessarily need to go through with anything. If the tenant buyer does not exercise their option to purchase, right? So, they're always in control. They're holding that with themselves until everything is lined up and everybody is meeting their obligations under all agreements, and then they can close.

The other thing is the non-refundable initial investment. So, like Claire said in the wording, we would usually word it like this is the initial deposit. If the option to purchase is not exercised, then parts of it will be used to pay like any fees associated with. Let's call it default under the agreement.
And so eventually, like she said, most of the deposited is actually used up to cover any fees associated with default. So, that's one way that we would word it. That's also a protection as well. Even though there's that need for the deposit to not really be non-refundable, but in the wording, it ends up being used to cover fees.

That's one way to protect the investor because they know that deposit is going to cover whatever fees they incur upon default, if that option to purchase is not exercised. The other thing that's that helps as well the investor is the monthly rent payments. Just consistent cash flow, going to cover a lot of the payments from month to month.

That also in itself is a protection because that's where the low risk aspect comes from. It's like you're holding on to this debt, but it is going to get paid. So, you're getting some cash flow and there's low risk. If a deal does not go through, you're still up to date to the point where the deal does not go through, but you can easily kind of catch up.
And or if you need to find a new tenant buyer, that's fine. Like you have some leeway there. The other thing is termination of the contract when the option E or the tenant buyer is ever in default, there's an automatic cancellation. If somebody is in default under the contract, the wording allows for the contract to be terminated.

Another one, basically, is the investors on title until the actual transfer. So, like I said, from the get-go they're on title, but they are on title until the official transfer. So, the option of purchase has to be exercised. The tenant buyer needs to meet all of their obligations under the RTO contract.
And they also have to meet all their requirements through leasing the property. They have to make all of their monthly payments. And it's not until the final day, like the closing day where the title is transferred, that you're letting go of that property. So, that's when the control shifts but until that point you're in control. And I would say that's the biggest thing in these RTO deals that protects the investors.

Alfonso: And that's what makes me sleep at night. I don't have any more hair to lose, so I can't be worrying any more about this kind of stuff. So, that's what makes me sleep at night that we don't, we are helping people, but we are also protected in the worst case scenario. From a legal standpoint, Erika, thank you so much for sharing your expertise. You're going to hang in here and maybe comment on a few of the questions and responses, and Limor, but from a legal standpoint, guys, you want to work with Carson law. You want to speak with them. If you are considering rental on the contracts that use the legal agreements that you put in place, make sure to reach out to Erika and the whole team at Carson law.

Next, we're going to go to Limor, and I know you've had such a wide experience in so many different types of real estate strategies and you've invested in all types of real estate. You started to allude to it right at the beginning, but maybe what are some of the reasons why you would recommend, someone that's maybe looking to start or expand their portfolio or why you'd recommend a rental home?

Limor: Yeah, absolutely. It comes down to a little bit of what I mentioned before is when people are looking to invest in real estate, I think it's really important to take a soul searching journey to really identify what is the recent, do you want to learn how to swing a hammer? Are you looking for something to fulfill your time or are you really looking for the financial benefit as well, as was Claire mentioned earlier, which is are you looking to help some people in this world?

And, I would venture to say that there are a subset of investors who are excited to roll up their sleeves and get dirty with me personally. That's not exactly my style. And the truth is most people lead very busy, stressful lives. If we think about the commute to work, even though we're mostly working from home these days, people are busy with careers and children and afterschool activities. Really have the time, but they hear, and they know the fact that, Andrew Carnegie said 90% of all millionaires have real estate in their portfolio.

And so, I want to have real estate. I think that the only option is to buy a property and rent it out. That can include a lot of headaches, a lot of mistakes, a lot of negative experience, especially if you go through the school of hard knocks, whereas if you really truly consider what a rent to own can offer, it can provide that absolutely incremental cash flow on a monthly basis, right?

Every single month. And when you're working with someone who has a homeowner's mentality, with these tenant buyers, you can feel it when you talk to them. When you look into their eyes, they are so grateful. Oh my gosh, you're helping me get to homeownership. And for many of these tenant buyers if we don't help them to buy a house and pay a mortgage off for 25, Like they are never going to retire, and so even for me working with tenant buyers, like I'll go in once every six months, I'll make pastries. We'll sit at the kitchen table. They'll tell me about what's happening from their jobs, their kids at school.

And it's so fulfilling, but at the same time, we're also generating that incremental wealth, which is really the reason why most people are interested in real estate. Look at what happened in the stock market, 40% drop, not backed by an asset over a few month duration. Like no one in the world should now solely be in the stock market. And this was a very hard lesson. And I spoke with a lot of people who are saying, okay, I get it. I never want to have this happen to me again in my life.

I want to transition to real estate, but I'm afraid. I want to have all the upside and mitigate against the downside. And that's where the rent to own perspective or the investment strategy can be extremely powerful. Now I will also clarify and say, and myself and the panelists were chatting before this webinar started.

There are a lot of different ways that you can invest in a rent to own everything from you're the person who's doing all the heavy lifting. You find the tenant buyers. You make sure that they're qualified with a mortgage broker. You help them find a property. You find an investor, you manage it throughout the term.

You can run the whole gamut, everything beginning to end. And that is a very active approach. Then the other side that is equally as popular. The investor is someone who is partnering with someone who provides the rent to own opportunities. So, they are an operator of sorts like Alfonso here from JAAG, like Daniel here as well. And they're doing a lot of the heavy lifting.

Finding the tenant buyer screening, helping with the property, managing it throughout the term, and then the investor themselves is qualifying for the mortgage, putting in the down payment. And depending on the arrangement, they can have a lot of the cashflow, part of the cashflow, some of the end, small returns, big returns.

There are so many permutations. I can't get into them right now, but it does create a lot of options. So, if you, as an investor, identify with hey, I'd like to own a property. I want to have an asset backed investment. And I still want to have a lot of these other upsides. You can really figure out which is the right rent to own, opportunity for you. But, I recommend it to anybody in the world. You can qualify for a mortgage. If you want to invest in real estate, you got to have at least minimum one rent to own in your portfolio,

Alfonso: obviously. Yeah. Great advice Limor. And did so many good benefits. I'm going to shift gears just a little bit because I always have my blinders on and I think obviously I'm biased, rent to own is the greatest thing on earth since sliced bread and all that good stuff. But why isn't it more popular? When I talk to people, I want to say rent to own and share all these things that all of us are talking about here. And there are some factors that were secured, all the different pieces of it, but what's the biggest challenge that the investors face and why does it rent to own the bee's knees, right?

Limor: Yeah. It's a really great question. And I think the biggest challenges, because not everybody who's running a rent to own has the same level of integrity or the same perceived outcome of what is a successful rent to own. And I'll tell you, I was on my way back from Punta Cana, a couple of years back, this was way before COVID and was on a flight.

And the gentleman beside me, was talking about all the things that he's up to. And I played a little silly, like I just downplayed what I was doing. And he was telling me he's about real estate. And I was like, oh yeah, have you heard of a rent to own? because I wanted to just see what his perception was.

It's oh yeah, they're amazing. I've been doing them for years. It's so great. You get someone who can probably not qualify in the future and you get to take their down payment money. And it's usually only like a year or two. I just pretended I knew nothing about real estate. And I was like, I think it's time for a nap. And I like slouched out in my chair. The reality is that unfortunately not everybody is attending the right club, not everybody's being properly educated, not everyone understands that actually the real way to build wealth and to build a great quality of life is to create win-win opportunities where you help other people.

It's not only about the dollars that ended up in our bank account. It's the karma credits that we get as well from doing good in this world. And unfortunately, that's out there, there is a bad rap and the other thing that I would say that's a little bit of a challenge that I would say for some people is they look at it and they're like, oh, this is cool. I could do one, but how do I scale out of my job?

If you're thinking 35 steps ahead, you're like, oh, I'm not even going to do one rent to own because I can't qualify for 10 mortgages. So, why should I even get started? Which to me is a very short minded approach of taking a look at it. Start with the rent to own, generate that little bit or incremental wealth and then, pivot to another strategy.

And now you've got experience with contracts and now you're working with amazing mortgage brokers, like Claire and top-notch lawyers like Erika and really extend and grow. And what I've really found has happened with my experience to real estate is it starts to feel like an Austin Tetris game.
So, like an opportunity comes and it's quick contracts are coming and I gotta twist it and turn it and I need private money or I need hard money or I need another investor or a joint venture or a vendor take back. And then before it lands, you're like, yes. So, I think, looking at the strategy, if you can even do one, this is typically a three-year term.

You're making strong returns. You're helping somebody. Like I just think that we've got to do a better job of communicating, how great it can be. And having honest conversations like Erika has just provided to say, hey, here are the risks. Here's how we can plan for them. And just really get started.

Alfonso: Now, all I can hear is the Tetris music, my mind going faster and faster, but listen, you go to the beat of your own drum, write your own music. No one speeds up that music except for yourself, or slows it down except for yourself. All right, one last question, before we move on to Claire. Obviously COVID has impacted the whole, all these strategies, really the entire world, right? Even how I haircut my hair. No, I'm just kidding. I still cut my own hair. But it's impacted, it touched almost every facet of our lives, right?

It's in, in the entire economic structure of the world, maybe, because you work really closely and coach a lot of investors, like you said, putting together that Tetris puzzle, specifically, how did it impact rent to own, COVID and how did it impact some of the investors that you work with?

Limor: It's really funny and I'm so glad you asked that question because for years, all of us have been educating, communicating, sharing, and we talk about all the downsides, but we have been very fortunate to be in an economy that seems to be up and up and up and up and up and up. And we just talk about these risks as if there's this thing we should never really consider because it's never going to happen.

And then boom, March hit and COVID hit. And not that I ever wanted it to happen, but it was actually really cool to see how so many strategies either stood up against what was happening in the economy or completely crumbled as a result of that. And what's really neat. And a sneak peak that I am a member of the Canadian association of rent to own professionals.

I'm the token lady on the team, the lady boss on the team and with rent to own, really, what we identified is that people were still on their journey to homeownership. If they were instantly knocked out of their job, if their income dried up overnight, they didn't just throw up their hands and say, oh you can defer your mortgage.

I don't need to make a payment. The mentality of the tenant buyers was, oh my gosh, please. This is our one and only chance to have been in a home. What can we do? And I would say across the board, and this isn't an exact per slice number, but from all of my discussions with my client's rent to own companies, I would say probably no more than maybe 5% of tenant buyers were impacted.

And Claire, I'm happy to see you nodding always like your validation and of those who were literally like their employer said no, don't come to work. There is no job for you. They scrimp, they save, they side hustle. Then they said, you know what? Even if I need a little bit extra time at the end please I'm all in. What can I do?

And so, there was the utmost level of communication investors for the most part were still getting their cash flow. When we were really looking to see, hey, how do we ensure that everybody is properly supported? If it was someone who was in a really tough situation. Maybe there's a slight modification, okay, pay 80% of the rent or let's catch up as soon as this is over and you can take on some extra hours. I would say compared to other strategies, rent or own gets a gold star as to how it performed, how it endured, how the investors got to support the tenant buyers, but the tenant buyers being so grateful to have the support of the investor and the belief in them in the first place.

We're like, what can I do? How can I support? What can I do differently? Let me pick up the phone, maybe proactive. I might have two more weeks of work. Let me get back to it was so beautiful to see that. Not that I ever wish COVID on the world again, but we talk about stress tests and things happening and oh, we got to mitigate against the risks, but like the unprecedented happen.

And the way that rent to own responded, the way that rental operators and tenant buyers responded. Like I would rather have my money in a rent to own than pretty much any other, except for private lending. And I don't want to talk about that today rather than any other strategies. So, I'm really glad you asked that question, Alfonso.

Alfonso: Yeah. And in case, in point form, a case study of over a hundred active rentals to own projects that JAAG properties has going on. We had less than 10% of people like deferring or not being able to pay. Like you said, that sense of home ownership, that entitlement, that part, where they wanted to own their home, that didn't change.If anything, it became stronger. And the importance of owning a home actually got elevated. So, great point. And I know you are so well versed and you do a great job of educating all the clients and investors that you work with Limor. Definitely a great resource. And thank you so much for your insights.

Let's move over to Claire as we wrap up the questions on the panel here. But we talked about it right off the top, right? Will the rates get lower? The bar gets higher, right? So, banks have become more strict. Right now, they're lowering the rates and becoming more strict to different things, but what have you seen in terms of the ability of using the HELOC for maybe a down payment, like a Home Equity Line Of Credit, for a down payment on a potential rent to own investment.

Claire: This question makes me mad. And here's why one lender, one singular lender changed their guideline, which was, we don't really like you, or want you to use your secured line of credit for a down payment. And then all of a sudden, every lender gets plastered with the same brush. So, the fact is there is one lender and they don't like the fact that you want to borrow more money from them to buy more real estate.

They have just changed their guidelines. So, one of those exceptions, that little bit of pixie dust, they took away. So, for one lender, it was the collateral damage, this is also the same lender. It's the one with the red and white logo. That looks like an S and it's got a little globe in the middle, just the same, but the fact is, they had such a large amount, especially real estate investors.

Like the banks, aren't stupid. They look at the performance of their portfolio, just like we do as investors and go, holy smokes. If more than half of our investors that have rental properties deferred their payments because they could not, because they needed to, because they should, big difference. Lenders have cash flow too.

Therefore, that lender is going okay. We had way too many deferrals on rental properties. That's a big bucket for them. So, we need to just slow that flow down. We just need to hold back. So, when it comes to using any form of down payment, as long as you can prove it, and you meet the anti-money laundering act and finance for terrorism act requirements, which are pretty clear there's only one lender that restricts you currently using your line of credit is downpayment.

Alfonso: And that's awesome. That's is cutting to the facts, not just reading the headline and keeping scrolling through is working with professionals on your power team, the people that are your trusted advisors, like Claire at the Windrose Group, Limor, Erika, who's on your team because they're looking out for that every day, right?

They're not just reading a headline and moving on and doing something else. They're working with that in that business every single day. This is a question that we've talked about, over the years, Claire and I've talked about. I sometimes maybe I'm a little weird, but I do, I used to do bank appointments and just talk to the people at the bank about rent to own, just so I can get funny looks. But really, yeah, like looking at rent to own. Oh, no, sorry, Sir , put your mask on and leave if you ask about rent to own. I guess traditionally, banks aren't the biggest fans or they don't like the fact that maybe I'm wrong in saying that maybe I'm right. But what is the perspective of the banks and maybe why traditionally aren't they open to a rent to own?

Claire: You're absolutely right. They don't like them, but they don't like them for all the reasons we've already talked about. They don't want to be part of a scam. They don't want to be part of a bad rent to own that dude on that flight back from Punta Cana, they don't want to be part of that.
They don't want to be part of the tenant by being hosed, like taking their down payment, have no intention of them buying the property. So, the banks don't want to be part of anything that's bad. They don't want to be part of that. So, I think there are two aspects. However one is, as the real estate investor buying the property on day one, you aren't buying a rental, you have a lease agreement. You don't have a purchase agreement. You have an option to purchase for, from the bank's perspective, you are buying a rental, your tenant may or may not in the future, buy that property from you.

It's just a regular rental. You're buying a rental. And fortunately, you're going to have a lease, which kind of answers maybe the next question, which means you're probably going to qualify for more mortgages because you actually have an active lease ready to go on day one.
When you take ownership of that property. Now from the tenant buyers standpoint, let's fast forward three years now, the tenant buyer needs to go into the bank or work with their broker to qualify for a mortgage. There's criteria to qualify for a mortgage. Technically the only thing that makes rent to own different for the tenant buyer getting their own mortgage is their source of down payment.

That should be the only thing that's different. Their down payment is coming from the deposit they made three years ago and all those little extras they did each month. That should be the only thing that's different about the deal. So, if you go in and say, I'm a first time home buyer, I buy my first home, I have good credit. My ratios are in line. I have a great income. This mortgage is suitable, but the only blip is my down payments coming from a rent to own. You're good to go.

But if combined with that, you still got crappy credit and your ratios, a map. And you're self-employed and write off everything. Oh, by the way, I didn't really clear up that consumer proposal three years ago. Like I should have done then the banks are just going to go no, and you'll be looking for alternative financing options.

I think there's two extremes, and I think also people overcomplicate it, like I'll say to my clients, one of the worst things you can do is not use a broker there, but the second worst thing you can do is try and do it yourself and talk too much and not really understand what I'm not saying, not disclosed. Because that would be terrible. But sometimes people just talk too much and that's information that they don't need to know.

Alfonso: Yes. I think that the first time I ever met Claire was in a hotel conference room. She was teaching a creative financing class. And the one thing that I remembered, and it goes for banks and maybe for life, but answer what you're asked no more.

And the other thing too, while you're adding onto that is, there's no such thing as a rent to own mortgage. There's no rent to own a mortgage. There's a mortgage, right? There's no BRRRR mortgage. There's no flip mortgage. There's a mortgage, there's financing. So, I think that's where people get a lot of confusion.

That's where I spend a lot of my time explaining to people that it's not a rent to own mortgage and it's for rent to owner. This is not that it's different or anything like that. But maybe what are some of the elements that investors should be aware of or consider when they're going to qualify? Because sometimes they're two year terms, three-year terms, and four year terms, depending on the length of the rental.

What are some of the things, when they're speaking to you to say, all right, I'm ready to go. I worked with Limor. I talked to Erika, we reviewed it, and reviewed all the documents. I'm safe. I'm ready to go. Now I want to get the financing. Claire, what are some things I should consider for that rent to own a mortgage that doesn't exist, but for the findings.

Claire: If we're talking from the investor's set perspective on acquisition, let's make the assumption that the tenant buyer has been truly pre-qualified the tenant buyer that you know exactly how long the rent is going to be, how much the down payment needs to be for the end of the rent to own agreement.

And you know exactly what steps the tenant buyers got to do in order to qualify. And you've also predetermined the future value of the property. If we assume all of that's aligned and let's take a three-year rent to own, for example. So, obviously aligning the financing with maximum cash flow because that's usually typically, primarily the goal.

An extended amortization, like 30 years by, cause you don't really want to be mortgage free. You want to increase your monthly cash flow. And the other thing would be to really consider the penalties to get out of more. So, a lot of clients will say to me, what's your best rate?''
And I'm always like going into the mortgage or coming out, because right now, there's a massive sticker shock on penalties for breaking a mortgage. Obviously if I do a three-year rent to own, I could, and three years being conservative, I might say maybe I'll do a three year fixed term, fixed rates.
It's going to go for three years. However, what am I going to do if the tenant buyer combines for three years, but it's three years and three months. Then I may have to jump into a bit of an open. What are my options on renewal? If the tenant buyer doesn't close on that day, am I going to get dinged for a big penalty?

Most popular would be to go for a five-year variable rate. The maximum penalty is three months interest in a majority of variables. Therefore, it doesn't matter whether they tend to buy it executes early in two and a half years, or in three years, four months and two days or five years from now because you have to extend it.

Then there are penalty to break that mortgage is only three months interest, and you can build that into your business model. What I don't recommend is going for a longer fixed term than you need, because the penalty when rates today are so low, that interest rate differential, you could be paying tens of thousands of dollars in a penalty, which could negate all your profit. If you don't structure it.

Alfonso: Yeah. Very sound advice. Thinking with the end in mind, starting with the end in mind, having that exit strategy, that full picture, you're not just, it's not a choose your adventure type of project where we'll just see how it goes. We want to have all those pieces set up well in advance to make sure that we have.

Honestly guys, very amazing information that you guys have all shared with us. I want to wrap up the panel and I'm going to start with Erika and I wanna get to you guys one last piece of advice in maybe a minute or two or less. What's one piece of advice or key takeaway that you'd like to leave with the REITE club community today. And I'll start with you Erika.

Erika: Sure. Yeah, I think I can't stress this enough and I think I mentioned this earlier is just make sure you have a team that's going to review all of your agreements, make sure everything's in place. And that's not just a lawyer, it's a lawyer. It could be a mortgage broker. Like really, you just need a good solid team. Like you could have Limor, look it over Claire, whoever just as long as you're making sure that all of the moving parts are correct. They're right for you.

Everybody's comfortable and upfront with the deal and everything is correctly recorded in writing for the deal. And then you should have a smooth transaction. That would be my biggest takeaway for today.

Alfonso: I love that. This is not a solo sport guys. The team used the network, and the company. That is your biggest asset. Definitely, great advice, Erika, I'll go to Limor next. The one piece of advice that we didn't cover or that you'd like to share with the REITE club community.

Limor: Yeah. I would say that rent to own, I think we've done a really great job here of making it sound super easy. And 1, 2, 3, and big cake and out the oven and there you go. Everything is perfect and ready to go. I would say if you're going to do rent to own, which I recommend you do, you get educated and you know what you're doing.

It's not somebody that you meet, especially not on a plane. Clearly, it's not something where you meet someone. Maybe even if it's at the REITE club meeting or online, you need to know what you're doing. Just because someone says, hey, I have the smoking hot deal and it's a rent to own and I'm going to handle everything and you get a 20% return.

You need to know what you're doing, which is why I provide services for teaching people how to rent, work, going through a series of case studies. Ultimately you as an investor are sophisticated enough to be able to make a decision for yourself. With rent to own and all real estate, I would just say please ensure you're properly educated and you're quRent to Own Experts Panel- August 2020alified to make a decision because you're typically making 50, a hundred thousand dollar decisions.

Make sure that it's not just because somebody else said, hey, this is a great deal. So, make sure you're educated. You're comfortable. You understand the upside, the downside, and then enjoy the journey and sleep at night. Because you feel good about the decision that you make.

Alfonso: Yes, absolutely. Don't let the analysis paralysis stop you, but make sure that you do the analysis, right? That's for sure. Claire, there's always one thing that you always said when you came up on the REITE club stage, it was like a disclaimer. It was like, don't believe anything I say, get it. Double-check, I always paraphrase it, but I'd love to hear that for everybody on here today. And then I'll let you get to your final words of advice.

Claire: Exactly what I used to say, but don't do what I say, do what I do or something like that. I think my word of advice, I think like Limor said, it's a journey and the journey is what is the finish line? So, the finish line is your tenant buyer executing and buying that home. You hand their keys over, they're not moving, but that's the journey, right?

The finish line is a tenant buyer buying. You're getting your money. You're getting your profit and be very happy. Because it is a journey to really quantify your tenant buyer properly. Don't qualify them based on where they sit. They're going to make this much next year or, oh, they're going to start their own business and be, make 300,000, quantify the tenant buyers properly.

Make sure you clearly understand what they need to fix to get their own mortgage and help them along that journey. Whether it's working with companies like, Daniel's and Alfonso's where there's those quarterly check-ins with your tenant buyer, because there is a journey and there's pit stops along that journey.

We just don't want your tenant buyer to get lost. And then whose fault will it be when they can't execute at the end? And it's not going to be mine, it's not going to be limos. It's going to be yours. And when things start to go South, because they can't own the home everyone gets blamed and their dog and you don't want the legal wrath of that either, because it can get pretty nasty. No, that wasn't very positive.

Alfonso: No, but sound advice, real advice that you definitely need to consider and the underwriting on who you're going to be partnering with. The same way that if you're going to get into a relationship with somebody, you want to have some background, right?

Whether it's your investor, whether it's the tenant buyer, the investor, and the tenant buyer, yourself and your client, you want to know who you're getting into that relationship with and really underwrite that to know, and not just based on projections into the future, what is real and and reasonable. Ladies, thank you guys so much, Claire, Limor, Erika, a wealth of information, a wealth of knowledge.

There's been such amazing questions here. We're going to hang around for a couple more minutes to get to some of those questions, but thank you ladies so much for your help today and for your amazing expertise. I do want to say this. What we're going to do is ask all the questions that we have here.

Claire: We're going to copy and paste them. Oh, and there is the information. So, for further Claire Limor or Erika to get in touch with them, to reach out with them, check out the chat box right now, we're going to pop up their contact information as well too, so that you can get in touch with them.

Each of them asks the questions about rental, what we're also going to do is that on the right club community, the right club.com, there is a forum for renting on. We're going to have all these questions. And within the next couple of days, myself, personally, or Daniel, we're going to go on there and we're going to answer those questions for you guys.

We're going to get those responses. So make sure that you haven't. Register@therightclub.com, get your questions answered. And we're going to have all that from everybody, those asking so many good questions that I saw in the chat box. It's tough to get to a lot of the questions we had to. But we did cover a lot in your short period of time. Yeah, so I think we did lose Daniel. He dropped off with some technical issues, but I do want to wrap up and say, thank you guys so much for paying attention for being active on the chat here.

And some upcoming things that the REITE club has in store for you guys is every Friday at 7:00 AM, the REITE club podcast drops. So, this August or so this Friday we have Mark and then the next Friday, Mr. Michael Dominick Hetty is going to be coming up on the podcast. Our next webinar is going to be a mindless state with Mr. Harry James, both feelings, not facts and stories, not the stats. Really great character, really great person to listen to, make sure that you are tuning in, get onto the calendar to thereiteclub/events to make sure you catch that as well, too.

And on Wednesday, September the second, mark your calendars, we are doing a social, we're going to call it a wine or whatever and real estate. If you bring your favorite drink and then you can be at that event as well, too. And make sure that you pay attention to everything that we're doing.
Again, get onto the REITE club community. Amazing questions. Reach out to me personally, find me, message me if there's something that we didn't cover today, or one of the questions that you wanted to answer. I want to share with you my biggest takeaway in this. Obviously the rental and space is something that I live breathing in our company JAAG works on every single day. And as we went through this pandemic and COVID we worked with over 70, 80 individual investors that we partner with on our properties. And none of them had lost a dollar during this pandemic. And we, personally, step up work with those clients to make sure.

Whoever you're working with, whether it's myself, Daniel, other providers, yourself putting that structure, make sure that you have the right things in place so that that you can do this strategy properly because just like any other one, if you don't have the things in place it's not going to work.
It's going to be a foundation built on sand. So, we'll get those questions answered in the REITE club community. Thank you guys so much for participating. We look forward to seeing you on the website stay healthy, stay safe, and again, thank you guys so much and have a great day.