How exactly do you set up a Rent to Own?

[rgilker]

Dear REIN members,
I am new to REIN and have a question on how to "do" a rent to own. I have a couple in Edmonton who are graduate students who are looking to buy a home but don`t show the income to qualify for a mortgage. They currently are living on a student loan and one of them has a part time paid position as a research assistant to her PhD. sponsor. My question is how do I set up a rent to own?
Do I charge them a premium on the rent of which the premium is considered a "down payment" towards their down payment? Does this continue until they`ve paid me the agreed upon down payment, say , $20,000?
At what point do they take over as owners and assume the mortgage payments?
They will graduate in a couple of years and should then be earning a good income so I`m confident of their earning potential going forward.
Can someone steer me to a detailed description on how RTO`s are structured? Is there somewhere where this info is downloaded?
What haven`t I asked that I should know?
Your help is much appreciated on this.
Ross

 

[cmattric]

All the answers for your questions are in this book. Also available at Chapters.
Dear REIN members,
I am new to REIN and have a question on how to "do" a rent to own. I have a couple in Edmonton who are graduate students who are looking to buy a home but don`t show the income to qualify for a mortgage. They currently are living on a student loan and one of them has a part time paid position as a research assistant to her PhD. sponsor. My question is how do I set up a rent to own?
Do I charge them a premium on the rent of which the premium is considered a "down payment" towards their down payment? Does this continue until they`ve paid me the agreed upon down payment, say , $20,000?
At what point do they take over as owners and assume the mortgage payments?
They will graduate in a couple of years and should then be earning a good income so I`m confident of their earning potential going forward.
Can someone steer me to a detailed description on how RTO`s are structured? Is there somewhere where this info is downloaded?
What haven`t I asked that I should know?
Your help is much appreciated on this.
Ross

 

[JimWhitelaw]

Hi Ross,

Briefly, the couple you describe are not good candidates for a rent to own. You typically want someone who HAS income but can`t qualify for bank financing. This is because you want them to be able to afford a reasonable rent amount plus your option fee. This couple might be candidates in a couple years when they have income but little downpayment or credit history (and hopefully are not saddled with student debt to be repaid).

Maybe take a step back and ask WHY you would do RTO in this situation. Is it part of your long-term business strategy?

There`s a lot more involved, but you`re on the right track thinking about charging some amount over the rent - you want your tenant buyer to be able to qualify for conventional financing at the end of their lease term and buy the property from you. Their downpayment will consist of the option money they give you up front, plus the total of the option fees they`ve paid during the term of the lease. That needs to add up to at least 5% of the value of the property at the time they purchase, so they can qualify for their own financing.

 

[rgilker]

QUOTE (rgilker @ Apr 5 2010, 04:05 PM) Dear REIN members,
I am new to REIN and have a question on how to "do" a rent to own. I have a couple in Edmonton who are graduate students who are looking to buy a home but don`t show the income to qualify for a mortgage. They currently are living on a student loan and one of them has a part time paid position as a research assistant to her PhD. sponsor. My question is how do I set up a rent to own?
Do I charge them a premium on the rent of which the premium is considered a "down payment" towards their down payment? Does this continue until they`ve paid me the agreed upon down payment, say , $20,000?
At what point do they take over as owners and assume the mortgage payments?
They will graduate in a couple of years and should then be earning a good income so I`m confident of their earning potential going forward.
Can someone steer me to a detailed description on how RTO`s are structured? Is there somewhere where this info is downloaded?
What haven`t I asked that I should know?
Your help is much appreciated on this.
Ross

 

[rgilker]

thanks Mehmet and Jim, this is very helpful. The couple are my nephew and his wife so I thought this would be a way to help them get in to a house and give me tenants I know and trust. Having said that, I`ll read the material you suggested before I get too far ahead of myself!
thanks again for your reply!
Ross