Hi. Considering a rent-to-own arrangement with one of our a lovely homes in Edmonton through our current management company who have located new tenants who would like to option the house on a four year lease/option-to-purchase arrangement. Advantage is that this house has been hard to consistently rent out at a rent which cash flows. Have had some vacant periods and a tenant (who is leaving early after multiple arrears) Question is: what is a reasonable annual appreciation to factor in (based on long-term appreciation rates in NW Edmonton) when quoting the eventual projected purchase price. Contract states purchase price or appraised value, whichever is the greater.
appreciation on RTO contract
- Thread starter JanBowler
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QUOTE (DavidB @ May 27 2010, 11:29 AM) Hi. Considering a rent-to-own arrangement with one of our a lovely homes in Edmonton through our current management company who have located new tenants who would like to option the house on a four year lease/option-to-purchase arrangement. Advantage is that this house has been hard to consistently rent out at a rent which cash flows. Have had some vacant periods and a tenant (who is leaving early after multiple arrears) Question is: what is a reasonable annual appreciation to factor in (based on long-term appreciation rates in NW Edmonton) when quoting the eventual projected purchase price. Contract states purchase price or appraised value, whichever is the greater.
Fairest way is appraised value at closing. If you try and go above that your tenant/buyer will have trouble qualifying (lenders usually do an appraisal) and they won`t be able to close. You can get around it with a second mortgage or something but it`s usually ugly. Also setting an appreciation rate is tough to get both parties to agree to.
You benefit for selling at full appraised value with little to no closing costs (structure the closing to avoid a mortgage payout penalty and no realtor fees).
Set the contract up so that the closing won`t occur if you are in a loss position, but RTOs go sideways the quickest when landlord/owners get greedy.
Fairest way is appraised value at closing. If you try and go above that your tenant/buyer will have trouble qualifying (lenders usually do an appraisal) and they won`t be able to close. You can get around it with a second mortgage or something but it`s usually ugly. Also setting an appreciation rate is tough to get both parties to agree to.
You benefit for selling at full appraised value with little to no closing costs (structure the closing to avoid a mortgage payout penalty and no realtor fees).
Set the contract up so that the closing won`t occur if you are in a loss position, but RTOs go sideways the quickest when landlord/owners get greedy.