Lease to Own

[MarkTorgerson]

Hello

I am interested in using some of the Quick Turn real estate methods as more of an exit strategy for some of the units that I have already owned for a number of years. I have been looking at some information in regards to establishing price but it is vague in its methodology. I was curious if someone had more of a concrete system for coming up with their exit price? I understand price is all about what someone is willing to pay but it would be great to have a guideline to work with. Let`s say for example that I had a certified appraiser come up with a current value of $250,000 on a home. The person was looking at doing a 2 year lease to own. The area has had a 10 year average of 6% appreciation. What would you use (or a guideline) for coming up with a value on this scenario?

Would you simply add the 6% appreciation to the $250,000 and compound over 2 years to come up with $280,900? Would this be asking for too much and prevent a deal from happening? I am curious if anyone has a system and also how they would pitch a future sales price vs. current value.

Thanks in advance!

 

[markl]

We are using 5% - 6% appreciation fixed per year right now.

How we pitch it is these are historical averages and these price increases do not take into effect any equity you add to the property therefore this gives you an opportunity to buy for less than the market price in 2 years.

The price will not effect the deal so much as their ability to qualify for a CMHC mortgage or barring that you may have to hold a small 2nd mortgage to get the deal done at the end of the day.

 

[MarkTorgerson]

QUOTE (markl @ Nov 18 2009, 03:41 AM) We are using 5% - 6% appreciation fixed per year right now.

How we pitch it is these are historical averages and these price increases do not take into effect any equity you add to the property therefore this gives you an opportunity to buy for less than the market price in 2 years.

The price will not effect the deal so much as their ability to qualify for a CMHC mortgage or barring that you may have to hold a small 2nd mortgage to get the deal done at the end of the day.


Thanks Mark!

That is exactly the kind of detailed information I was looking for. So you basically use 5% and then compound annually depending on the length of the deal?

What type of terms do you generally sign for carrying a small 2nd? I am in the process of selling a lease-to-own that I did a year ago. It looks like I am going to need to carry a 2nd for around $50,000. It is a high end unit. I was going to go with 10% interest with payments being interest only on a monthly basis.

Is this the type of detailed information that you are going to be offering in your upcoming book?

Thanks

 

[markl]

Hi Mark,

For the second it is whatever you can negotiate. I like to try to get my original investment out so I basically have a cash flowing asset that didn`t cost me anything. 10% simple interest is great I like to keep it simple as well.

The book goes through the numbers and worst case scenario`s as well as qualifying, marketing, different types of people that can be helped etc. I could probably rewrite the book on here or just copy and paste the jacket but alas I won`t.

Good luck on the closing.

 

[WadeFenner]

QUOTE (MarkTorgerson @ Nov 17 2009, 02:32 PM) HelloI am interested in using some of the Quick Turn real estate methods as more of an exit strategy for some of the units that I have already owned for a number of years. I have been looking at some information in regards to establishing price but it is vague in its methodology. I was curious if someone had more of a concrete system for coming up with their exit price? I understand price is all about what someone is willing to pay but it would be great to have a guideline to work with. Let`s say for example that I had a certified appraiser come up with a current value of $250,000 on a home. The person was looking at doing a 2 year lease to own. The area has had a 10 year average of 6% appreciation. What would you use (or a guideline) for coming up with a value on this scenario? Would you simply add the 6% appreciation to the $250,000 and compound over 2 years to come up with $280,900? Would this be asking for too much and prevent a deal from happening? I am curious if anyone has a system and also how they would pitch a future sales price vs. current value.Thanks in advance!


Hi Mark,

My approach is a little different. Please see the following methodology as one of many you can slice your pie any way you want to.

Having bought, sold, renovated, lease-optioned, and kept (or whatever) well over 100 houses I have grown weary of the "moving parts" and unknowns in the residential rental game. A big part of my future strategy will be the following:

I`ll use a moderately priced $300,000 house as an easy example (The value may not be accurate but I`m using it for the sake of this example).


BUYING

[*]Purchase a pretty house, hopefully, below market value say $270,000.[*]Refi to 80% of true value = $240,000, at say 4% (possible today), for a five year term, with a 35 year amortization period. Cost = $1,058. PI per m.
SELLING

• I`ll aim for 10% above current market value = $330,000
• At 1% above the Royal Bank posted rate on a five year fixed loan with a 25 year AM. For the sake of this example 6.5%.
• If the buyer gives me $20,000 down they will still owe me $310,000 with a PI payment of $2,076.Creating a montly spread of approximately $1,000 (with a $20,000 deposit)
  
  
  THE MATH

• 
  
  
  • If I bought originally with 20% I would have been out of pocket $54,000.After my refi based on a value of $300,000 (a new mortgage of $240,000) I would only be out of pocket $30,000.I recieve a down payment from my tenant/buyer of $20,000 (not unreasonable) leaving me $10,000 out of pocket.
  IN CLOSING

• :
  
  I don`t ever want them to pay me out. If I raised the purchase price every year or charged a high interest rate they will work like bandits to get rid of me by paying me out.
  
  I want to collect the spread as long as I can.
  
  On paper I`m making $60,000 on the spread of the purchase / sale price and if they stay say five years I`ll make another $30,000 + on the interest rate spread. Not bad.
  
  No management, no maintenance, etc.
  
  If they pay me out my golden goose is cooked.
  
  
  NOTES

• : There are a few things to be aware of.
  
  
  Have their payment adjustment date match yours ie the maturity of your mortgage (I`m charging 1% above the Royal Bank 5 year posted rate). When your payment adjusts so does theirs.

If they stay long enough, about 15 years, their mtg pay-down will catch up to yours as they are paying down their mortgage faster than you are.

Regarding "How to determine the sale value". There is no secret formula.


Good Luck

 

[antaynguy]

QUOTE (WadeFenner @ Nov 18 2009, 02:48 PM) Hi Mark,My approach is a little different. Please see the following methodology as one of many you can slice your pie any way you want to.Having bought, sold, renovated, lease-optioned, and kept (or whatever) well over 100 houses I have grown weary of the "moving parts" and unknowns in the residential rental game. A big part of my future strategy will be the following:I`ll use a moderately priced $300,000 house as an easy example (The value may not be accurate but I`m using it for the sake of this example).


BUYING

[*]Purchase a pretty house, hopefully, below market value say $270,000.[*]Refi to 80% of true value = $240,000, at say 4% (possible today), for a five year term, with a 35 year amortization period. Cost = $1,058. PI per m.
SELLING

• I`ll aim for 10% above current market value = $330,000
• At 1% above the Royal Bank posted rate on a five year fixed loan with a 25 year AM. For the sake of this example 6.5%.
• If the buyer gives me $20,000 down they will still owe me $310,000 with a PI payment of $2,076.Creating a montly spread of approximately $1,000 (with a $20,000 deposit)
  
  
  THE MATH

• 
  
  
  • If I bought originally with 20% I would have been out of pocket $54,000.After my refi based on a value of $300,000 (a new mortgage of $240,000) I would only be out of pocket $30,000.I recieve a down payment from my tenant/buyer of $20,000 (not unreasonable) leaving me $10,000 out of pocket.
  IN CLOSING

• :
  
  I don`t ever want them to pay me out. If I raised the purchase price every year or charged a high interest rate they will work like bandits to get rid of me by paying me out.
  
  I want to collect the spread as long as I can.
  
  On paper I`m making $60,000 on the spread of the purchase / sale price and if they stay say five years I`ll make another $30,000 + on the interest rate spread. Not bad.
  
  No management, no maintenance, etc.
  
  If they pay me out my golden goose is cooked.
  
  
  NOTES

• : There are a few things to be aware of.
  
  
  Have their payment adjustment date match yours ie the maturity of your mortgage (I`m charging 1% above the Royal Bank 5 year posted rate). When your payment adjusts so does theirs.

If they stay long enough, about 15 years, their mtg pay-down will catch up to yours as they are paying down their mortgage faster than you are.

Regarding "How to determine the sale value". There is no secret formula.


Good Luck

Hi Wade,

Excellent example!!

Antay

 

[MarkTorgerson]

QUOTE (WadeFenner @ Nov 18 2009, 02:48 PM) Hi Mark,My approach is a little different. Please see the following methodology as one of many you can slice your pie any way you want to.Having bought, sold, renovated, lease-optioned, and kept (or whatever) well over 100 houses I have grown weary of the "moving parts" and unknowns in the residential rental game. A big part of my future strategy will be the following:I`ll use a moderately priced $300,000 house as an easy example (The value may not be accurate but I`m using it for the sake of this example).


BUYING

[*]Purchase a pretty house, hopefully, below market value say $270,000.[*]Refi to 80% of true value = $240,000, at say 4% (possible today), for a five year term, with a 35 year amortization period. Cost = $1,058. PI per m.
SELLING

• I`ll aim for 10% above current market value = $330,000
• At 1% above the Royal Bank posted rate on a five year fixed loan with a 25 year AM. For the sake of this example 6.5%.
• If the buyer gives me $20,000 down they will still owe me $310,000 with a PI payment of $2,076.Creating a montly spread of approximately $1,000 (with a $20,000 deposit)
  
  
  THE MATH

• 
  
  
  • If I bought originally with 20% I would have been out of pocket $54,000.After my refi based on a value of $300,000 (a new mortgage of $240,000) I would only be out of pocket $30,000.I recieve a down payment from my tenant/buyer of $20,000 (not unreasonable) leaving me $10,000 out of pocket.
  IN CLOSING

• :
  
  I don`t ever want them to pay me out. If I raised the purchase price every year or charged a high interest rate they will work like bandits to get rid of me by paying me out.
  
  I want to collect the spread as long as I can.
  
  On paper I`m making $60,000 on the spread of the purchase / sale price and if they stay say five years I`ll make another $30,000 + on the interest rate spread. Not bad.
  
  No management, no maintenance, etc.
  
  If they pay me out my golden goose is cooked.
  
  
  NOTES

• : There are a few things to be aware of.
  
  
  Have their payment adjustment date match yours ie the maturity of your mortgage (I`m charging 1% above the Royal Bank 5 year posted rate). When your payment adjusts so does theirs.

If they stay long enough, about 15 years, their mtg pay-down will catch up to yours as they are paying down their mortgage faster than you are.

Regarding "How to determine the sale value". There is no secret formula.


Good Luck


Hi Wade

This is great info and an interesting approach!!

So if I am understanding you correctly, you are not actually exiting with a lease-to-own system. You are in fact becoming the "bank" and financing the purchaser right out of the gate and for the duration of the loan?

I am also curious on how long do you wait before you get the property refinanced? You would obviously have a large sum of money tied up until the refinance goes through.

Thanks!!

 

[WadeFenner]

QUOTE (MarkTorgerson @ Nov 18 2009, 03:51 PM) Hi Wade

This is great info and an interesting approach!!

So if I am understanding you correctly, you are not actually exiting with a lease-to-own system. You are in fact becoming the "bank" and financing the purchaser right out of the gate and for the duration of the loan?

I am also curious on how long do you wait before you get the property refinanced? You would obviously have a large sum of money tied up until the refinance goes through.

Thanks!!

Hi Mark,

Speak with Garth Chapman regarding this but expect to use him for it.

His specialty is tough files (ask me how I know this) he likes a good challenge.


His contact info is:

• [email protected]cel (403) 891-2204

 

[WadeFenner]

QUOTE (MarkTorgerson @ Nov 18 2009, 03:51 PM) Hi Wade

This is great info and an interesting approach!!

So if I am understanding you correctly, you are not actually exiting with a lease-to-own system. You are in fact becoming the "bank" and financing the purchaser right out of the gate and for the duration of the loan?

I am also curious on how long do you wait before you get the property refinanced? You would obviously have a large sum of money tied up until the refinance goes through.

Thanks!!

Hi Mark,

Speak with Garth Chapman regarding this but expect to use him for it.

His specialty is tough files (ask me how I know this) he likes a good challenge.


His contact info is:

• [email protected]cel (403) 891-2204

Yes thats the idea.

Do the refi as soon as you can to get your dough out asap. In the meanwhile you can use private money to do the deal (best registered on a different property as you don`t want to register a second at the time of purchase, you can for a small portion but why complicate things just register it somewhere else if you can.

Speak with Garth well ahead of penning the deal and when you`re about to write so he is up to speed and walking with you through the deal. Obviously he`ll try to get you an open mortgage or a HLOC, if possibe, but to do this you might need to take title in your personal name then switch to your company name at the time of doing the refi. (Expect to pay a brokers fee if this is the case as most brokers don`t get paid on placing an open mortgage or HLOC but its worth it to get the deal done. The cost of creating wealth eh?)

When I use private money I usually pay a minimum of 90 days worth of interest say 12% (annual divided by the number of months you had the money) just to keep the private lender happy. And if I pay out the private money early they get a little bonus. This not a penalty just a minimum return

 

[emy]

Wade,

I second Antay`s comment! This is an excellent post and an interesting thread...

QUOTE (WadeFenner @ Nov 18 2009, 04:45 PM) Hi Mark,

Speak with Garth Chapman regarding this but expect to use him for it.

His specialty is tough files (ask me how I know this) he likes a good challenge.


His contact info is:

• [email protected]cel (403) 891-2204

Yes thats the idea.

Do the refi as soon as you can to get your dough out asap. In the meanwhile you can use private money to do the deal (best registered on a different property as you don`t want to register a second at the time of purchase, you can for a small portion but why complicate things just register it somewhere else if you can.

Speak with Garth well ahead of penning the deal and when you`re about to write so he is up to speed and walking with you through the deal. Obviously he`ll try to get you an open mortgage or a HLOC, if possibe, but to do this you might need to take title in your personal name then switch to your company name at the time of doing the refi. (Expect to pay a brokers fee if this is the case as most brokers don`t get paid on placing an open mortgage or HLOC but its worth it to get the deal done. The cost of creating wealth eh?)

When I use private money I usually pay a minimum of 90 days worth of interest say 12% (annual divided by the number of months you had the money) just to keep the private lender happy. And if I pay out the private money early they get a little bonus. This not a penalty just a minimum return

 

[MarkTorgerson]

QUOTE (WadeFenner @ Nov 18 2009, 04:45 PM) Hi Mark,

Speak with Garth Chapman regarding this but expect to use him for it.

His specialty is tough files (ask me how I know this) he likes a good challenge.


His contact info is:

• [email protected]cel (403) 891-2204

Yes thats the idea.

Do the refi as soon as you can to get your dough out asap. In the meanwhile you can use private money to do the deal (best registered on a different property as you don`t want to register a second at the time of purchase, you can for a small portion but why complicate things just register it somewhere else if you can.

Speak with Garth well ahead of penning the deal and when you`re about to write so he is up to speed and walking with you through the deal. Obviously he`ll try to get you an open mortgage or a HLOC, if possibe, but to do this you might need to take title in your personal name then switch to your company name at the time of doing the refi. (Expect to pay a brokers fee if this is the case as most brokers don`t get paid on placing an open mortgage or HLOC but its worth it to get the deal done. The cost of creating wealth eh?)

When I use private money I usually pay a minimum of 90 days worth of interest say 12% (annual divided by the number of months you had the money) just to keep the private lender happy. And if I pay out the private money early they get a little bonus. This not a penalty just a minimum return


Thanks again Wade and Mark!!

This is excellent information that is hard to come by.

 

[Cargren]

QUOTE (WadeFenner @ Nov 18 2009, 02:48 PM) SELLING[*]I`ll aim for 10% above current market value = $330,000[*]At 1% above the Royal Bank posted rate on a five year fixed loan with a 25 year AM. For the sake of this example 6.5%.[*]If the buyer gives me $20,000 down they will still owe me $310,000 with a PI payment of $2,076.Creating a montly spread of approximately $1,000 (with a $20,000 deposit)


THE MATH

• If I bought originally with 20% I would have been out of pocket $54,000.After my refi based on a value of $300,000 (a new mortgage of $240,000) I would only be out of pocket $30,000.I recieve a down payment from my tenant/buyer of $20,000 (not unreasonable) leaving me $10,000 out of pocket.

IN CLOSING:

I don`t ever want them to pay me out.

So if I understand you, this basically an agreement for sale with you still on title and buyer buying you out in the future (like a lease option). Or does transfer of title occur and now you hold mortgage for buyer?

No I guess not as you would have to pay out your mortgage and all the benefits are gone. So it is a lease option but with a home you have bought below value, and you are calling it a financing payment rather than rent with credits back? If so, do you still still write off expenses as with rental property or do you declare profits/gains at time of agreement? hmmm....

 

[Pat]

QUOTE (Cargren @ Nov 19 2009, 02:41 PM) So if I understand you, this basically an agreement for sale with you still on title and buyer buying you out in the future (like a lease option). Or does transfer of title occur and now you hold mortgage for buyer?

No I guess not as you would have to pay out your mortgage and all the benefits are gone. So it is a lease option but with a home you have bought below value, and you are calling it a financing payment rather than rent with credits back? If so, do you still still write off expenses as with rental property or do you declare profits/gains at time of agreement? hmmm....

I am also curious about the tax treatment. Is this type of sales structure considered a capital gain or is it income because of the intent to sell ?

 

[antaynguy]

Hi,

The way I understand Wade`s sample is that this is NOT necessarily a lease to own but can be a seller financing example.

Buy:

In fact, the way I understand his example is that this is a straight buyout from the seller at 270,000 that is worth 300,000. He could use a JV money partner to put the downpayment. The title is now in the buyer`s name assuming his or his JV. He then refinance the property so that he can take out some of the downpayment that was put in when he purchase the property. The PI is roughly $1000.00.

Sell:

If he`s doing a seller financing providing a mortgage to the buyer with terms that has a good monthly spread ($2000) so that he can pay the underline mortgage and keep the cashflow. I am assuming that Wade is using an AFS as he would run the risk of "Due on Sale" clause.

If he`s doing a lease to own to the tenant buyer with terms that has a good monthly spread ($2000) so that he can pay the underline mortgage and keep the cashflow.

I hope I understand this right. Please correct me if I am wrong.

Antay

 

[GaryMcGowan]

In Wade`s example I have a couple questions.

If the buyer wishes to move out in XX years. How is his equity and original down payment handled? In a Rent to Own I`m very familiar with the proceedings.

Who pays the property tax or do you add it onto the PI payment? Which I think you would.

Also I assume you pay insurance on the property as your lender will require it.

In year 15 which is a long time away, what would be the best approach if both parties are still around. I would imagine you try to get them a mortgage and pay you out....


This is a really great approach. I already had a quick conversation with a "prospect" buyer who is very interested.

Thanks Wade !!!

 

[David Chien]

Hi Wade:

Will this method works in greater Vancouver where the averae price of a house is around $700k to $800k? Or should I be looking at a 2 BR. condo for half the price (ie. $350 to $400k). Please advsie.

 

[MarkTorgerson]

QUOTE (WadeFenner @ Nov 18 2009, 04:45 PM) Hi Mark,

Speak with Garth Chapman regarding this but expect to use him for it.

His specialty is tough files (ask me how I know this) he likes a good challenge.


His contact info is:

• [email protected]cel (403) 891-2204

Yes thats the idea.

Do the refi as soon as you can to get your dough out asap. In the meanwhile you can use private money to do the deal (best registered on a different property as you don`t want to register a second at the time of purchase, you can for a small portion but why complicate things just register it somewhere else if you can.

Speak with Garth well ahead of penning the deal and when you`re about to write so he is up to speed and walking with you through the deal. Obviously he`ll try to get you an open mortgage or a HLOC, if possibe, but to do this you might need to take title in your personal name then switch to your company name at the time of doing the refi. (Expect to pay a brokers fee if this is the case as most brokers don`t get paid on placing an open mortgage or HLOC but its worth it to get the deal done. The cost of creating wealth eh?)

When I use private money I usually pay a minimum of 90 days worth of interest say 12% (annual divided by the number of months you had the money) just to keep the private lender happy. And if I pay out the private money early they get a little bonus. This not a penalty just a minimum return


Hey Wade

Have you ever considered doing this with building homes or do you find that it is not worth the hassle?
For example, I have a contractor friend and we have been talking about doing some business together. He could build a $300,000 property for around $250,000 (maybe less). I am thinking if you market yourself as "the bank" you could most likely have several pre sales before a shovel hits the ground???
There are tons of people I have met out there making $100,000 plus a year that can`t qualify for a mortgage.

I am still a little confused on who would actually be holding title as there is in essence 2 mortgages (yours and the buyers). I guess this is where Garth would work his magic.

Thanks

 

[ChrisRichards]

QUOTE (MarkTorgerson @ Nov 17 2009, 02:32 PM) Hello

I am interested in using some of the Quick Turn real estate methods as more of an exit strategy for some of the units that I have already owned for a number of years. I have been looking at some information in regards to establishing price but it is vague in its methodology. I was curious if someone had more of a concrete system for coming up with their exit price? I understand price is all about what someone is willing to pay but it would be great to have a guideline to work with. Let`s say for example that I had a certified appraiser come up with a current value of $250,000 on a home. The person was looking at doing a 2 year lease to own. The area has had a 10 year average of 6% appreciation. What would you use (or a guideline) for coming up with a value on this scenario?

Would you simply add the 6% appreciation to the $250,000 and compound over 2 years to come up with $280,900? Would this be asking for too much and prevent a deal from happening? I am curious if anyone has a system and also how they would pitch a future sales price vs. current value.

Thanks in advance!

I have a different but related reply/question. If the ultimate purchase price ("strike price" in financial option terminology) is escalated from today`s market price with some sort of formula, complex or simple, what exactly is the WIIFM (what`s in it for me) for the tenant/buyer (T/B)? What valued service are you actually providing? Why would the T/B risk an option premium today and a monthly option fee, for the right to purchase a house two years down the road at your best estimate of what the house would actually sell for on the open market?? WHY WOULD I DO THAT AS A T/B? What is your sale`s pitch that would have me do this? Folks, from reading some of the posts, an outside observer might rightfully argue that tenant / buyers are there to be fleeced. Is this the business model? Please correct my thinking.

 

[ZanderRobertson]

Hi Chris,

I`m not a seasoned Lease To Own guy, but I understand your concern here, and I do think there is benefit to the TB if it`s done right . It was a concern of mine as well when we were learning from Ron Legrand and he essentially said "hey, it`s great if the TB can`t close on the sale because we get to keep their deposit and do it all over again." No doubt this does happen, but it should not be our goal. It is our responsibility to set up the TB for success.

Some of the benefits of a Lease-to-Own (to the TB) if it is is carried out properly are:

1) It allows the TB to purchase at a fixed price which could very well be lower than market in two years (if it`s set up correctly).

2) It allows the TB to put a portion of their monthly rent towards their down payment. This is huge because as anyone with a high ratio mortgage will tell you, your equity growth every month through that avenue is miniscule. Don`t discount how important this is. Many people can`t imagine themselves having the willpower to put aside more money for a DP every month, so it is very valuable for the TB to pay it down directly.

3) The TB wants to buy now and they have the money to do so, but have a poor credit rating. This allows them to experience the benefits of home ownership immediately without having to qualify for a mortgage. They can renovate how they want, landscape to their liking, tinker with their own garage etc. etc.

4) How else can we set them up to win? Be creative and make sure it`s a win-win proposition for the TB and yourself.

Great thread everyone,
Zander


QUOTE (ChrisRichards @ Nov 21 2009, 09:23 AM) I have a different but related reply/question. If the ultimate purchase price ("strike price" in financial option terminology) is escalated from today`s market price with some sort of formula, complex or simple, what exactly is the WIIFM (what`s in it for me) for the tenant/buyer (T/B)? What valued service are you actually providing? Why would the T/B risk an option premium today and a monthly option fee, for the right to purchase a house two years down the road at your best estimate of what the house would actually sell for on the open market?? WHY WOULD I DO THAT AS A T/B? What is your sale`s pitch that would have me do this? Folks, from reading some of the posts, an outside observer might rightfully argue that tenant / buyers are there to be fleeced. Is this the business model? Please correct my thinking.

 

[AndyLuchies]

QUOTE (ChrisRichards @ Nov 21 2009, 11:23 AM) I have a different but related reply/question. If the ultimate purchase price ("strike price" in financial option terminology) is escalated from today`s market price with some sort of formula, complex or simple, what exactly is the WIIFM (what`s in it for me) for the tenant/buyer (T/B)? What valued service are you actually providing? Why would the T/B risk an option premium today and a monthly option fee, for the right to purchase a house two years down the road at your best estimate of what the house would actually sell for on the open market?? WHY WOULD I DO THAT AS A T/B? What is your sale`s pitch that would have me do this? Folks, from reading some of the posts, an outside observer might rightfully argue that tenant / buyers are there to be fleeced. Is this the business model? Please correct my thinking.

Make no mistake Chris, tenants aren`t doing RTOs because its a great investment strategy, they`re doing it so that they can get a house before they can afford a house (or more likely before they can get a mortgage). Many tenants have money but can`t get financing because of poor credit from bad choices, or no credit because new to country or starting new business, so this allows them to get a house. But RTOs are not for people to make money, its for people to get a home. The only way the tenant makes money is if the market goes up more than the agreed upon appreciation.
Thus said, many people have such a hard time saving money at all, that entering an RTO agreement is beneficial for them, simply because it "forces" them to build equity in a house, and in that way start saving for the future.