Help with Lease Option / RTO terms

[nubiwan]

I have a new home with a $220K debt. FMV is $295K. I'd like to offer it on lease to own. What are reasonable terms in my situation? What is reasonable cash flow to expect? Regular rents would be around $1700 per month. A mortgage on $295K at 5%, $300 taxes, and $150 insurance runs around $2100. So what is a good lease option rent rate?



Anyone doing lease options longer than 3 years? I am thinking if my home value increases (say 6% appreciation), then I need to account for the tax rate increase too.



Thanks All

 

[housingrental]

Try giving Mark Loeffleur an email if no one responds to this post

 

[markl]

Where is the property? Typically we see 20 - 25% higher rents then on a regular rental.



The term will be set typically by your tenant and how long they need to get a mortgage. Have them work with a good mortgage broker so you can determine this. As for appreciation per year you can use whatever everyone agrees upon. What is your motivation do you want to sell it to your RTO clients? If yes I would suggest you leave a little on the table for them at the end of the time.



Regards,

 

[nubiwan]

Yes I want to sell the property and find the right tenant / buyer. I already have one home under contract in the same area (of Newfoundland). But a lot smaller and older, so can't really compare.



When you say leave a little on the table at the end, what exactly do you mean. Keep the appreciation factor lower? Offer a lump paytment on sale? I amhappy to do either. At 6% appreciation, sale price seems high, certainly in 3-5 years.



Here is anad I have on kijiji for the deal - any comments on wording:



http://stjohns.kijiji.ca/c-real-estate-house-rental-Rent-to-Own-New-Home-W0QQAdIdZ299239662



Thanks



Tony

 

[Dan_Eisenhauer]

What he means is that if your expect appreciation of 6% over the term of the lease, then build in your appreciation factor at 4%, leaving 2% for the TB at the end.



I agree with you that 6% is a bit rich today. But, that may not be the case where you are considering. Remember real estate is local in nature.



Mark has given you good advice on the rate and term. I know of one RTO deal that ran 8 years, with rent and sale price increasing every year. The term is whatever you and the TB can work out.

 

[nubiwan]

My client wants to give me a larger down payment ($20K). How should this affect the monthly payments? I have quoted $2100 over 3 years with $350 credit.



Think my client would prefer a shorter 18 month term. I have no problem with that, but need to know how to re-structure the monthly payment if I take a lump sum from her 6 months into the lease.



The reason for the lump sum is a payment she receives thru a pension.



Any suggestions??

 

[GaryMcGowan]

It is all just numbers at the moment. Not until you haves your tenants credit report reviewed by a mortgage broker you really won't have a clear picture. Your tenant may need longer than the 18 months to establish good credit or the 20k may be enough today to get a mortgage.

 

[nubiwan]

I have a contract stating the monthly payments will be $2100 for 36 months with a $350 credit.



Tenant buyer wants to pay a lump down of $20K in February from here forces pension.



I told her we could renegotiate terms at that time for a revised 12 month term to the following February (2013) when she will have a $30k down payment saved thru the RTO process. Total term would be 18 months.



Just wondering what I should do about the rent payment/credit for the final 12 months. Is it just a matter of what we come to agreement on?







A somewhat related question I just thought of. I understand CMHC is allowing RTO as a means for tenant/buyers to show they have saved their down payment. Is there a formal process I can go thru with CMHC to register my tenant's contract?

 

[markl]

it is definitely a factor of what you can negotiate and again it depends on when the client can qualify.



Work with the client and the mortgage broker to figure out what is needed and work backwards for a successful result for everyone.