Offer To Tenants

[MarkTorgerson]

Hello

I am working on putting together an offer letter for some of my current tenants for the opportunity of rent to own.
The tenants are long term tenants and I wanted to somehow reward them for their years of support within the rent to own offer.

I would like to put specific numbers into the letter to tenants.
Can a person offer "retroactive" credits towards long term tenants to help reduce their amount of deposit?

For example.... something like this:

Dear: xxxx

I wanted to thank you for the past 3 years of support as a valued tenant. In doing so, I also wanted to offer you a unique opportunity that could help you purchase the home you are currently living in....(then talk about rent to own)

We are willing to offer you $100/month credit for each of the months that you have been under our tenancy agreement. That means you have already built up $3,600 in equity credits which significantly reduces the deposit you need to us and also helps you build for the bank required down payment when the lease agreement comes to term. (summary version)

The underlined part is obviously the area of concern. Can I do this? If not, is there another way of structuring it to show that they have built some equity over the last several years of tenancy other than a flat price reduction?

Any feedback is much appreciated...

 

[MarkTorgerson]

QUOTE (MarkTorgerson @ Feb 25 2010, 02:49 PM) Hello

I am working on putting together an offer letter for some of my current tenants for the opportunity of rent to own.
The tenants are long term tenants and I wanted to somehow reward them for their years of support within the rent to own offer.

I would like to put specific numbers into the letter to tenants.
Can a person offer "retroactive" credits towards long term tenants to help reduce their amount of deposit?

For example.... something like this:

Dear: xxxx

I wanted to thank you for the past 3 years of support as a valued tenant. In doing so, I also wanted to offer you a unique opportunity that could help you purchase the home you are currently living in....(then talk about rent to own)

We are willing to offer you $100/month credit for each of the months that you have been under our tenancy agreement. That means you have already built up $3,600 in equity credits which significantly reduces the deposit you need to us and also helps you build for the bank required down payment when the lease agreement comes to term. (summary version)

The underlined part is obviously the area of concern. Can I do this? If not, is there another way of structuring it to show that they have built some equity over the last several years of tenancy other than a flat price reduction?

Any feedback is much appreciated...


Any RTO experts out there????

 

[markl]

Sorry Mark busy taking advantage of the last days of CMHC insured rental properties. Although I am hearing of people being turned down already.

Great plan and your approaching tenants that have never been late on a payment this will be a great way to sell it.

What happens if they can qualify and want to buy right away would you consider that option as that may happen as well.

I think the letter will have it`s desired effect though.

Regards,

 

[MarkTorgerson]

QUOTE (markl @ Feb 26 2010, 10:00 AM) Sorry Mark busy taking advantage of the last days of CMHC insured rental properties. Although I am hearing of people being turned down already.

Great plan and your approaching tenants that have never been late on a payment this will be a great way to sell it.

What happens if they can qualify and want to buy right away would you consider that option as that may happen as well.

I think the letter will have it`s desired effect though.

Regards,

Thanks Mark

I am guessing that the issue with my tenants is not one with qualifying, but rather having the down payment. If they had both the down payment and could qualify, I think I would have already lost them.
I would without question let them buy right away.

My main concern and the area of grey to me is rewarding a long term tenant equity in the form of monthly credits over the term of the tenancy. I thought if I kept the amount low ($100 per month), the credits would be within reason and not inflated just to get the person a down payment. For example, if the rent they paid me was $1,000 per month, it would not be unreasonable to say market rent was $900 per month and I was crediting them back $100 per month during their tenancy.

The question is can I do this? If not, is there another way of rewarding a long term tenant equity other than just a flat reduction in selling price???

Thanks

 

[MarkTorgerson]

QUOTE (MarkTorgerson @ Feb 26 2010, 10:44 AM) Thanks Mark

I am guessing that the issue with my tenants is not one with qualifying, but rather having the down payment. If they had both the down payment and could qualify, I think I would have already lost them.
I would without question let them buy right away.

My main concern and the area of grey to me is rewarding a long term tenant equity in the form of monthly credits over the term of the tenancy. I thought if I kept the amount low ($100 per month), the credits would be within reason and not inflated just to get the person a down payment. For example, if the rent they paid me was $1,000 per month, it would not be unreasonable to say market rent was $900 per month and I was crediting them back $100 per month during their tenancy.

The question is can I do this? If not, is there another way of rewarding a long term tenant equity other than just a flat reduction in selling price???

Thanks

RTO experts?
Mortgage brokers?
Real estate lawyers?

 

[MarkTorgerson]

QUOTE (MarkTorgerson @ Feb 25 2010, 02:49 PM) Hello

I am working on putting together an offer letter for some of my current tenants for the opportunity of rent to own.
The tenants are long term tenants and I wanted to somehow reward them for their years of support within the rent to own offer.

I would like to put specific numbers into the letter to tenants.
Can a person offer "retroactive" credits towards long term tenants to help reduce their amount of deposit?

For example.... something like this:

Dear: xxxx

I wanted to thank you for the past 3 years of support as a valued tenant. In doing so, I also wanted to offer you a unique opportunity that could help you purchase the home you are currently living in....(then talk about rent to own)

We are willing to offer you $100/month credit for each of the months that you have been under our tenancy agreement. That means you have already built up $3,600 in equity credits which significantly reduces the deposit you need to us and also helps you build for the bank required down payment when the lease agreement comes to term. (summary version)

The underlined part is obviously the area of concern. Can I do this? If not, is there another way of structuring it to show that they have built some equity over the last several years of tenancy other than a flat price reduction?

Any feedback is much appreciated...


Does anyone out there have any information regarding how CMHC view RTO deals??

 

[gwasser]

QUOTE (MarkTorgerson @ Feb 28 2010, 10:43 PM) Does anyone out there have any information regarding how CMHC view RTO deals??


Hi Mark,

I think your idea of crediting them retroactively $100 per month rent or a `initial downpayment` of $3600 is generous. But, what if they decide they want the downpayment paid out instead of doing an RTO? You better make sure that this credit is conditional on an RTO satisfactory to both parties involved.

Also, how do you expect them to build the downpayment up in the future? Reducing their effective rent by $100 - what does that do to your positive cashflow? RTOs are intended to increase your cashflow because your renters add deposits ON TOP of market rent. So if their current rent is $1000 and that is market rent, then do you expect them in the coming months to pay $1100 and credit $100 to their downpayment?

I guess, your reward may lay in the ultimate price the Rent-to-owners have to pay at the end of the RTO. If not, what is in it for you?

 

[MarkTorgerson]

QUOTE (gwasser @ Mar 1 2010, 10:38 AM) Hi Mark,

I think your idea of crediting them retroactively $100 per month rent or a `initial downpayment` of $3600 is generous. But, what if they decide they want the downpayment paid out instead of doing an RTO? You better make sure that this credit is conditional on an RTO satisfactory to both parties involved.

Also, how do you expect them to build the downpayment up in the future? Reducing their effective rent by $100 - what does that do to your positive cashflow? RTOs are intended to increase your cashflow because your renters add deposits ON TOP of market rent. So if their current rent is $1000 and that is market rent, then do you expect them in the coming months to pay $1100 and credit $100 to their downpayment?

I guess, your reward may lay in the ultimate price the Rent-to-owners have to pay at the end of the RTO. If not, what is in it for you?

The $3,600 would MOST DEFINITELY be subject to the successful completion of an RTO. If not they would be forfeiting that as well as any other credits built. Typical to any RTO agreement.

I would also be "increasing" their monthly rent if they were to sign the RTO. Probably by something like $200 per month. I would match that with $100 (maybe more) of my own money in the form of credits. I can easily afford to do this as I am getting my price, not paying realtor fees and would organize timing with my bank so that there would not be any mortgage penalties.

So at the end of the day I am increasing my cash flow and getting my exit price. The $3,600 is absorbed easily and it is used as a selling feature to loyal long term clients.

Question is what CMHC will allow me to do regarding reteroactive credits in the form of equity as well as me matching monthly credits from the rental increase??

 

[markl]

Hi Mark,

I would assume you would consider that $3,600.00 as the initial down payment. CMHC looks at the borrower most of all at the end of the transaction. But if CMHC does pull the plug would you be willing to hold a 2nd mortgage to cover the difference? Have you factored that into your numbers for appreciation?

Regards,

 

[MarkTorgerson]

QUOTE (markl @ Mar 1 2010, 03:05 PM) Hi Mark,

I would assume you would consider that $3,600.00 as the initial down payment. CMHC looks at the borrower most of all at the end of the transaction. But if CMHC does pull the plug would you be willing to hold a 2nd mortgage to cover the difference? Have you factored that into your numbers for appreciation?

Regards,

Hey Mark

Yes, the $3,600 would be considered as the initial down payment so they would be in essense be executing the RTO contract for "zero down". They would then already have $3,600 in equity built. This should work as a great selling feature for them moving forward with a RTO agreement.

I would have no problem holding the $3,600 as a 2nd if need be. The question is how CMHC views the credits as a down payment.
If CMHC did pull the plug, would the tenant buyer have to come up with that extra $3,600 for a downpayment? I am OK with holding a 2nd but how does the buyer show the downpayment without having to come up with extra cash??

I have already factored the $3,600 into the sell price. I have owned these units for a very long time so I have lots of room to play with.

Thanks

 

[gwasser]

QUOTE (MarkTorgerson @ Mar 1 2010, 03:21 PM) Hey Mark

Yes, the $3,600 would be considered as the initial down payment so they would be in essense be executing the RTO contract for "zero down". They would then already have $3,600 in equity built. This should work as a great selling feature for them moving forward with a RTO agreement.

I would have no problem holding the $3,600 as a 2nd if need be. The question is how CMHC views the credits as a down payment.
If CMHC did pull the plug, would the tenant buyer have to come up with that extra $3,600 for a downpayment? I am OK with holding a 2nd but how does the buyer show the downpayment without having to come up with extra cash??

I have already factored the $3,600 into the sell price. I have owned these units for a very long time so I have lots of room to play with.

Thanks

I am not quite sure why you would be concerned about CHMC regarding the source of the downpayment money? If your renters would qualify based on the downpayment size they have accummulated plus a qualifying income, why would CHMC care whether that downpayment was saved through you or that it was a gift from their grandparents?

 

[Luong98]

QUOTE (MarkTorgerson @ Feb 25 2010, 02:49 PM) Hello

I am working on putting together an offer letter for some of my current tenants for the opportunity of rent to own.
The tenants are long term tenants and I wanted to somehow reward them for their years of support within the rent to own offer.

I would like to put specific numbers into the letter to tenants.
Can a person offer "retroactive" credits towards long term tenants to help reduce their amount of deposit?

For example.... something like this:

Dear: xxxx

I wanted to thank you for the past 3 years of support as a valued tenant. In doing so, I also wanted to offer you a unique opportunity that could help you purchase the home you are currently living in....(then talk about rent to own)

We are willing to offer you $100/month credit for each of the months that you have been under our tenancy agreement. That means you have already built up $3,600 in equity credits which significantly reduces the deposit you need to us and also helps you build for the bank required down payment when the lease agreement comes to term. (summary version)

The underlined part is obviously the area of concern. Can I do this? If not, is there another way of structuring it to show that they have built some equity over the last several years of tenancy other than a flat price reduction?

Any feedback is much appreciated...


If I understand this correctly, your concern is will the bank/CMHC accept the retroactive credits. If this is the case, your best bet is to talk to your mortgage broker.

 

[retiredby50]

Hi Mark,

For the record, I am NOT NOT NOT an expert on RTO`s, but I have had reasonable success with something I learned from Ron Legrand. It goes something like this. I`m kinda paraphrasing what he said:

Ron asks: How much do you think you could put down per month on the lease option portion?

Tenant: maybe $300,

Ron: Okay, but since you`re a good tenant, I have a program where if you`re willing to bump that up to $500 I will kick in $300 of my own money, up to a maximum of $XXX. That way each month you are actually taking $800 of the price even though you`re only putting in $500. Does that sound good to you?

He explained to us that his objective was to get the monthly payment, and therefore his cashflow, up as high as possible. The hit he would take from the purchase price would only go to the maximum set amount, but the extra cash flow would come in for the duration of the contract.

Just something to consider. Maybe instead of offering them `credits` you could get their payments higher, which will benefit you both?

Keith