I have seen a wide fluctuation in the Return on Investment that Rent To Own scenarios provide. There are many factors that influence the final ROI.
I am wondering, for discussion sake, what other investors would be happy to earn as a ROI. For example, would there be a market for RTO situations that would provide a ROI of 17% and a Cash on Cash return of 7%. Or would that be too low, and therefore, there would not be a market for these situations.
In looking at a few calculations of late, for RTO tenants that simply want to go out and purchase a home, the ROI seems to calculate in this lower region. The longer the RTO investor holds the property, the higher the ROI and COC when I forecast from 3, to 4 to 5 years holding time.
I use a modest appreciation of 3%, look at the FMV rent and add on around $300 lease option payments. In many cases, the RTO tenant wants to purchase a single family dwelling, so the income is "capped" by the FMV of the rent and the lease option payments on top that are credited back to the RTO tenant at the time of purchase.
I have thought that working with a very good real estate agent, an RTO investor may be able to instruct the agent to find properties that have built-in equity, and have this equity revert to the RTO investor - that would be a way of increasing the ROI for the investor if this value stayed with the investor, and was not passed on to the RTO tenant.
Feedback, thoughts, ideas would be appreciated.
Marlene Pettit
Realty To Build Wealth
I am wondering, for discussion sake, what other investors would be happy to earn as a ROI. For example, would there be a market for RTO situations that would provide a ROI of 17% and a Cash on Cash return of 7%. Or would that be too low, and therefore, there would not be a market for these situations.
In looking at a few calculations of late, for RTO tenants that simply want to go out and purchase a home, the ROI seems to calculate in this lower region. The longer the RTO investor holds the property, the higher the ROI and COC when I forecast from 3, to 4 to 5 years holding time.
I use a modest appreciation of 3%, look at the FMV rent and add on around $300 lease option payments. In many cases, the RTO tenant wants to purchase a single family dwelling, so the income is "capped" by the FMV of the rent and the lease option payments on top that are credited back to the RTO tenant at the time of purchase.
I have thought that working with a very good real estate agent, an RTO investor may be able to instruct the agent to find properties that have built-in equity, and have this equity revert to the RTO investor - that would be a way of increasing the ROI for the investor if this value stayed with the investor, and was not passed on to the RTO tenant.
Feedback, thoughts, ideas would be appreciated.
Marlene Pettit
Realty To Build Wealth