Rent to Own with Alfonso Salemi


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 Alfonso Salemi as they talk about Rent to Own.

Daniel: Alfonso Salemi, we're going to talk. We're going to be hearing from you. Alfonso not only is the founder of The REITE Club, but he's also the founder of JAAG properties which specializes in rent to own. He is the president of the Canadian Association of Rent to Own Professionals called CAROP. Mr. President, what do you want to share with us about? Does the government actually mention the word 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, you know what? As I prepared a presentation for today to stay on track and on time like you mentioned before, Katherine was a TV producer. We're definitely making sure we're counting the minutes to make sure that we are staying on time. The Federal Budget just announced the interpretation, on the campaign trail, when the federal liberals were mentioning rent to own, I was getting, this is something that's been, in the works for myself and in 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'll 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, their 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 accomplished through enforcement and ethical and professional conduct among its members advocacy on behalf of its clients, professionals, and the industry development of beneficial relationship with related agencies, mutual exchange of resources and encouragement of munch 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 where 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 40, 50, 60 emails of, hey, did you hear about this? Obviously, synonymous with rent to own, myself and JAAG properties, but again, it started rising, our indicators are our red flags. If they're going to be giving a whole bunch of money, how are they going to do it? How are they going to regulate it? What are they going to do? When they started talking to me about it on the campaign trail, this is what they had promised.

A re-elected liberal government will 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.
1. The landlord must commit to charging a renter, a lower than market rate to help Canadians build up savings for a down payment. There are floodgates that break all the real estate investors, they all want to charge their clients lower than market rate rents, don't think so. Great. That's not a viable solution. Why would it work? People want to charge lower than market rate to the renters and the programs.

That Canadians building up a savings for a down payment, that was something that most people know Daniel's operated, a bunch of friends owns and we've talked about this as an association, but is a key part of actually having a clear exit for our clients to own the home is having that having that down payment savings program. Let's give them half marks on that. This is just the prompts, but the landlord must commit.

2. The landlord must commit to ownership in five-year terms 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. 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 payments about the increase alone.
It's almost like extending an amortization or a longer period of time for clients to: A. Save up more down payment. B. Fix their credit score. They have more time and are more positive about their good score. Because if you have 15 years of bad credit, one year is not just going to do it. Thanks to lenders, poor people that are lending money are going to see that if they're looking at your credit score. Let's give them marks on that five years or less. Pretty good.

3. Proper safeguards will be in place to protect the future homeowner. What does that mean? They'll be safeguards. Did 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. Back to the regulation of what does that mean? The proper safeguards. When we want to help Canadians, 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 to develop and scale up rent to own projects with private, not-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 going to do? Supporting rent to own projects. 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 on the path to home 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 increased the population numbers. I saw some articles today as well about the population numbers 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 the money. And then you have to pay it back to us, but it's educating them. At CAROP and all the members, there is a commitment of having financial guidance, financial follow-up, having a credit specialist 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.

The key part here is to help develop and scale up rent to own projects across Canada. The budget proposes to provide 200 million dedicated support under the existing affordable housing innovation fund. This will include a hundred million to support non-profit, co-ops, developers and rent to own companies build new rent to own units. Very vague in terms of what that means of building rent to own units. What a rent to own unit is.

There's no clear definition of what that is, but helping support a non-profit that's not in the business that we're in. It was mostly investors. We do this for profit in return. We want to help people. We want to provide safe housing. However this sounds we are supporting. But some examples of eligible projects which must include safeguards and robust consumer protection could include the repair and renewal of housing or rent to own purposes, innovative financing models and programming that assists rent to own participants in preparing for homeownership.

I like what they see here in terms of creating safeguards. Rent to own has gotten the reputation in the past 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 clients. 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 cards. I'm not necessarily all about government regulation. I like the standpoint of self regulation in terms of rent to own professionals, CAROP being at that table and discussing that on what safeguards and what that actually looks like.

I think this is a step in the right direction. Certainly I built the money and what it can do or where it's going to support. However, I think it is getting closer to some type of regulation because if I call myself a rent to own and five other people call themselves rent to own. There should be the same type of rules.

If I'm a realtor, 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. And I know Daniel, remember this, we were at a CAROP summit. This was, I think, 2018 in Niagara Falls or maybe you put it's 2019 in Niagara falls.

We said, if we all own different restaurants, 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 is a certain level of standard that the food needs to be cooked and safe for anybody that's going to be eating at those restaurants.

Ultimately, I do think this is getting towards that 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 in 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, 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 the spread zone?

Maybe spark some ideas or light bulb off in my head say they've committed to them, like we just saw they're 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 individual rent to own providers put together their own proposals but together as a collective here up and the CFAA, the Canadian Federation of Apartment Association put together a proposal. I pulled out some highlights. I think there were over 22 recommendations or proposals that we gave them. These are the highlights that I wanted to bring to the table tonight on how maybe this money can be distributed or be best used.

The government should provide rent to own deposit assistance. Two would be home buyers who choose rent to own, future owners who can provide an initial deposit of at least two and a half percent, because in all rental programs, in my opinion, and I don't want to just put this out there. This is my opinion, but there, the clients should have some type of quote unquote skin in the game, deposits, if they're coming to the table.
Any client or any potential future owner tenant buyer, that can provide at least 2.5% providing a matching grant of 2.5% making the total deposit of 5%. That's going to lower monthly payments. That's going to build towards their future down payment. That can be added in at the end when the clients in our payback were built into the mortgage, almost like a CMHC insurance.

For our rental and future owners who can provide an initial deposit greater than 2.5% match the amount over 2.5% with a loan. Making the additional amounts above the 2.5% repayable in the future inline with the first time home buyer incentive program. Matching that and saying here, you have all 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 buying their homes.

The second one that I wanted to bring light to 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 use somewhere between 4% to 6% appreciation. We were selling the home back to the day. 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 that acceptance of that work to value rather than the purchase price, so that they're qualified for that higher value, like something, 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. 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 for tenant buyers.

As it's currently situated, because the client is not purchasing the home today. They would have to remove their funds from the RRSP, give that to the rent to own provider and pay their penalty. If they had $30,000, $40,000, $50,000 sitting in an RRSP. 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 and CFAA. I'm Happy to discuss more. Shout out to Paul Copcutt. When we first started working with Paul, he told me about Google alerts. I had about four or five google alerts that are rent to own, 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 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, we didn't turn our backs and just left and didn't provide this. Where are these people going to go? For me and I'm going to speak for JAAG properties if we want to help people. They can access some equity out of their own. They can be an investor and provide a better financial future and customize their life while doing it as well too. Thank you for the time.