Lease to Own

[markl]

Chris,

Andy has done a pretty good job to some of the benefits for tenants. My question to you is how many people have come to you to try to get qualified for a mortgage and were lacking in some way say had too little down payment or their credit needed to be repaired. You gave them a 2 year plan to help them save and repair their credit at the same time. How many come back after that 2 year time frame? I am guessing your answer is not that many. We help them move in today this is a huge emotional win for them. This gives them a plan and a goal. We help them save for the down payment and to repair their credit at the same time. But they have a physical goal that keeps them moving forward towards their goals.

On another note we are helping a lot of people now who have gotten into a bad situation with say a high interest 2nd mortgage and have fallen behind but they have some equity in the property to essentially refinance into a rent-to-own and the payments are more affordable and they are able to save more towards their property this way as well.

Regards,

 

[nav1940]

QUOTE (WadeFenner @ Nov 18 2009, 03:48 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
I would like more info on setting this up. I would like to know who is on title and what happen when they want to move out after say 5 years.