Rent To Own Organizations

[AndyLuchies]

Hi all,



Been investing in real estate for a while and want others to do the dirty work, lol. We're open to being a money partner in certain deals, but even better, I'm looking for Rent-to-Own organizations who set up the deals for a fee (like Home Owner Soon). Can anyone here post ones they're familiar with? Most appealing to us are the Re-finance rescues--people who already own the home but can't get their mortgage renewed

We're looking to expand our portfolio and ideally snag up 2-3 properties by end of year, if we can find some that fit our specs.

 

[Joel]

That's a great idea! what's bad with HOS?

 

[AndyLuchies]

Nothing, just looking for more options as well. HOS only has so many deals they release each month.

 

[Joel]

How is your experience with HOS deals?

 

[Sherilynn]

Have you any experience with RTO? My concern with buying a "turn-key" RTO deal is that the money partner is now responsible for the whole process once the deal is initiated. That is fine if everything goes swimmingly and the sale to the tenant closes as planned. But what happens if a renewal is required? Who helps the tenant with credit repair? What if something goes wrong (examples: tenant walks away; or the house doesn't appraise for the agreed price)?



Turn-key RTO deals may be a great idea for someone with RTO experience, but I would caution newbies against them as RTO is an advanced strategy; and due to the short-term nature of an RTO, any problems become amplified over what they would be with buy-and-hold.



Another alternative is to be the money partner with an RTO company that stays in the deal and manages the investment. Returns are still excellent and there is no work or worry involved.

 

[bruynjustin]

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That's the great idea but
rent-to-own(RTO) home is also the best option. Renters pay a certain
amount each month to live in the house. Buyers who can't yet afford a house may be able to get more quickly.

 

[DavidHoot]

We've done several RTOs and lease option refis (www.cardinalhomeinvestments.com). We either JV with investors where they own the property and we manage everything for them. Or, we do all the upfront work and then pass it on to an investor, like HOS. But we do things a little differently... very stringent and rigorous qualification criteria, and we hold the lease option payment in trust, just as examples.



I'd be happy to chat and see if there are opportunities to work together in the future.



David

www.HootInvest.com

www.cardinalhomeinvestments.com

 

[durhamhome]

Although I have yet to do a real estate transaction with them, I really like Sandstone Management. They take a sophisticated approach to RTO, and are focused on the full transaction, including having the tenant close in 2-3 years.



http://www.sandstonemanagement.ca/index.htm



You can speak with Elizabeth Kelly at Sandstone. It is my understanding that they have now taken on 50+ RTO deals.

 

[Joel]

So far it seems to me that HOS is the most successful and trustable RTO company.

 

[MarkTorgerson]

HOS is the largest company that I am aware of executing RTO. They have signed hundreds of deals and have a high success rate of closing. Credit counselling is mandatory and their appreciation rates are very attainable. They have large option deposits and typically run at 2.75% per year in appreciation. Many companies out there are trying to appreciate their deals at 6% or more. While this looks great on paper, they are likely setting up the tenant/buyer for failure. HOS's focus is setting up the tenant/buyer for success.

 

[Sherilynn]

Good points by Mark, but appreciation rate (markup) isn't the main determining factor in whether or not an RTO will succeed or fail. Markup % should be adjusted for the local economy, and some economies should easily bear a 6% markup over the next couple of years.



Thorough tenant screening is by far the most important factor in determining the success of an RTO. If a substandard tenant is chosen, the RTO is almost certain to fail.



I would say that property choice is the next factor. If one sets up a lease option on a property in an area with below average growth, then one must adjust appreciation rates accordingly. For example, one should not expect the same appreciation rates for Calgary as for Camrose.



However, even if the appreciation rate is set too high, the RTO can still succeed if a solid tenant is chosen and there is enough 'cushion' built into the deal to adjust for potential issues.



This is where investment management comes into play. If an RTO company designs a deal and then sells it as a "turnkey investment" to someone unfamiliar with RTO (or real estate investment in general), then that person could be ill-equipped to handle potential issues. That alone could spell disaster for an RTO.



I have no personal knowledge of HOS, and therefore I would not question their methods or their integrity.



However, I have seen many other "turnkey" RTO deals presented that have a very low chance of success because of the tenant qualification and/or the deal structure. What does one do once one discovers that the deal he bought is poorly structured or the tenant is substandard?



If a person unfamiliar with the intricacies of RTO bought a turnkey
deal that went south, would the company that sold him that deal step in
and fix it?



On the other hand, my (Alberta) RTO's have a solid success rate, and almost all have annual markups of 5% or 6%. One major difference is that we stick around to ensure that the deal is completed. We don't get paid unless the deal works. And in the rare instance that a tenant must walk away, we do what must be done to ensure that the money partner gets an acceptable return.



One should approach all RTO's with caution, whether the RTO company is staying in the deal or selling it as a turnkey investment. Personally, I would lean towards a company that has a vested interest in ensuring that the deal succeeds rather than a company that gets paid in advance whether or not the deal succeeds.

 

[DavidHoot]

I completely agree with Sherilynn.



I have invested in a few RTO "turnkey" type deals with the aforementioned HOS. Some have worked well, others have not. If you're an experienced investor, then you likely have the skills and team to handle problems along the way, but unless there is some kind of formal ongoing support from the RTO company, then this is probably not the best investment vehicle for new investors.



When considering a rent to own or lease option refi, a lot of moving parts have to come together smoothly. I spend a lot of time qualifying the tenant and the property. I use a strict set of both mandatory and evaluated criteria I'd be happy to share with anyone - just email me. This helps weed out potential problems. Also, an experienced property manager is worth their weight in gold if things go horribly wrong, and an eviction specialist.



David



_________________________________

David Hamilton

HootInvest. com

Author of "The 7-Step Lease Option Refinance Strategy"

 

[MichaelDunbar]

Andy,



I think there's some really valid points here. I agree that Rent to Own has some challenges along with it, however, I don't think it's reserved for an 'Advanced Investor' only. Bottom line: If you don't get your feet wet, then how will you ever become an advanced investor? That being said, there are inherent risks in investing in Rent to Own, as there are investing in the stock market.



If you opted to go the turn-key route, you have lots of support through REIN and the knowledge of good people on the forums, to help you through difficult situations. The other option is to have the RTO company maintain a vested interest in the deal. Because they are involved, they have an interest in seeing the deal through, or fixing any problems that may arise during the term. This can give many investors more comfort knowing this but, also takes away from your bottom line ROI.



The truth is, if you find a good RTO company, they should stand by their investments regardless of whether they pieced together deal and sold it off to you. We have repeat investors who have a great working knowledge of RTOs and require little to no input on our side. They are the majority of investors we work with. However, we cannot assume that we'll always have a steady stream of experienced investors, so we look to groom new ones too.



Generally, we'll keep at a safe distance and 'help' out where needed. We work with the Tenant Buyers on credit repair ALWAYS, regardless of whether we have a continued money interest in the deal. Our interest is our company's name, which the investment was sold under, so it's common sense to do whatever it takes to make the deals solid.



There are only a handful of financial institutions that will touch these RTOs upon completion. These same institutions are laying their heavy hands down in an effort to regulate RTOs more as a valid method of purchase. This is a good thing in my mind, as it develops standards. So I would add, that the success of a deal is very dependent on having all the paperwork(contracts, caveats etc.) set up properly at the beginning.



Don't comply with their standards? Then no financing at the end of the term and the deal falls through.



I wouldn't be too timid about taking on an RTO or two within your portfolio, just make sure you are working with a reputable company who will help you out if you need it. I'm sure you can find one within REIN. That's the advantage of having a tighter knit community!



Good luck.

 

[HomeOwnerSoon]

My name is Guy Lew, President of HOS Financial or Home Owner Soon. I was referred to this post by one of our investors that noticed our name being tossed in this thread. We have been in business since 2006, we have transacted over 500 homes now across Canada. We push out between 10-15 deals a month in mainly Ontario, Quebec, Alberta and B.C. We don't list them all in our deal releases because we fill many deals direct with standing orders.



Has all HOS deals gone successful to the end? I can tell you now when we started the company the default rate hit close to 50% pretty much like all rent to own firms I am seeing now. Through time our underwriting guidelines has toughen up over the years to mirror the current lending rules. Being a mortgage broker, and private lender, we see what is going on with financing trends ahead of the game and we price into our deal of what is required in the future for the tenant requiring financing. Our down payment requirements has surely risen, not because we want more down, it is because insurers want to see more down before they approve the deal. It is working backwards and knowing what the insurer/lender wants at the end. Credit rebuilding is essential and this is why we are trending away from third party companies and taking it under our own roof so we have more control. Our default rate has dropped significantly and now sitting below 10% now that it is more refined and that came from experience. We cannot control death, divorce and debt from loss of job, we would like to but that is unrealistic.



I don't entire agree on higher appreciation of 5-6% when CMHC has provided guidelines on appreciation. I feel that is a bait for investors seeing higher ROI figures, Don Campbell always mention to always leave some money on the table. As a mortgage lender I know when I send out an appraiser, they will price the home conservatively. It is the nature of the times, every mortgage agent and banker out there knows they have deals that collapses due to valuation with reports coming in $10-30K lower that the offer price. I see a lot of rent to own deal collapse and end up in court due to this. I see a lot of bad contract end up in court with wording that is non-compliant. I still get files with people in rent to own programs with 2-3% down and mortgage insurers saying no way we are funding this and now they are requesting they can enter HOS's program or loose all their money. The head of Escalation for Genworth mentioned to me, we were the first contract he approved in Alberta. Our contracts constantly change with new rule changes and expectation from lenders.



About investment companies like ourselves, yes you can package up your own deals for free, so why even pay a fee? HOS sees about 4-10 deals per day and our acceptance rate is about 20% now. Through experience in underwriting mortgage files, rent to own files become easier when you know what the bank guide lines are. Individual investors don't have this experience unless they work for a mortgage company, lender or a bank so the tendency to take the first applicant in is pretty high. I was speaking to a Rockstar investor and they told me they have a revolving door in front, it is that bad. Within our company we have a debt collection and default manager that handles defaults or missed payments. We assist the investor when they have issues, we don't simply walk away. We are constantly providing legal advice to tenant facing a power of sale and that is now 80% of our business. HOS is the lender of last resort to many of our referring mortgage agents and we are now listed as sub-prime lenders for several major mortgage brokerages across Canada.

 

[AndyLuchies]

Thanks for all your replies; however, I think somewhere along the way this thread was hijacked. I have been investing in real estate for 9 years, done well and poorly with different properties, even invested in the States (which I don't recommend). I wasn't looking for advice on how to do an RTO or whether or not I have enough experience to do one successfully.



Additionally, I tried to make clear that I have no issue with HOS, I subscribe to their deals and have bought 2 of them since I began. Hoping to get a third as we speak... I was asking for contacts/organizations in Ontario that do similar RTO package deals so I have more deals to look through.

HOS is a great organization, we have grown with them through some turbulent times and are pleased with what they've become. As I said earlier, they simply don't sent out enough deals that fit our specific profile to keep us busy (namely refi's in southern Ontario in urban communities). I'm looking to buy 2 more houses by the end of the year. Possibly 3 if one of our current properties sells (if the tenant decides to purchase).



In regards to some of the other comments, I like HOS and similar organizations because of what they offer. I did not get into real estate investing because I don't work enough and wish I had 2 jobs instead of one. I don't want another job. I got in real estate investing to make the most money doing the least amount of work. People that find their own deals are great, but I work 12 hrs a day and have more important things to do than the leg work. HOS is a great fit for us because they do the leg work and I just pay them a few grand when I find a file I like. Money well spent.

Let me be clear, this does not mean that I don't do my due diligence. Even men like Guy Lew make mistakes on occasion and so I read over the numbers, visit the property, talk with the potential tenants, etc. But if I'm spending more than a few hours a week on my real estate, I'm working too much. This is why I like RTOs. The tenant is taking care of the property, you have a decent chance of selling the property at the end, you get higher cash flow until it sells and ideally you buy below market value so that if the tenant takes off you can always sell it quick and break even.



All that being said, again if anyone knows of organizations/individuals that like leg work and go around packaging RTO deals for sale, please pass on their information. Until then, I will simply wait until HOS has the deals that work for us, thanks! I have always enjoyed REIN as an organization, I'd loved the relationships I made while I was a member and will likely join up again when I transition from work to retirement.



God bless!

 

[AndyLuchies]

 

[AndyLuchies]

Sorry, the above post should have been a PM.....oops