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Rent to own VS buy and hold

JoefromTO

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Iv`e heard/read about the Rent to Own strategy a few times. Recently, on one of my other threads, there has been a long discussion about the difference between Ontario and other provinces and the fairness to Landlords issues, etc.

It seems logical, although I could be mistaken, that a Rent to Own strategy would almost completly remove all of the potential tenant issues with a buy and hold strategy.

I`d like the opinion of others what they would consider to be the pros and cons of each? The responses could also be just general comments regarding the differences between both.
 

JoeRagona

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The differences as I see them:

The profit made will be taxed as income and not capital gains. If you are doing a few of them, that may not be so bad,

Secondly, my major mistake in the first one was not anticipating the worst scenario: Tenant no longer paying option payment but wants to still rent the house for the said monthly payment amount. It JUST covers the expenses.

My saving grace in that instance was receiving a LARGE deposit that covers more than enough now over the lease term.

My new system generates the proper cash flow backwards and then ADDS an option payment so if they default on the option and still want to rent, I`m covered. I try to make it as easy for the tenant as possible knowing that things may happen for them to default on the extra payment.

Also, proper determination if they can afford the place or not in relation to their income. Anyone can SAY they want and can do it but your job is to set them up for success.

It is definitely a great tool for an investor, just make every deal win-win (edited to ensure my intention of the post)

Good luck.
 

tonypeters

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Some of the BIG differences with "Rent To Own" or "Lease To Own" versus a standard "Rental" type arrangement are as follows;
1. Large up-front initial deposit. Unlike a "Renter", you are not governed by legislation with respect to how much you can collect. The deposits I receive vary from $5k to as much as $50k down. When I receive a $10k deposit there are 10,000 reasons why a Tenant/Buyer is less likely to wreck my property, or just walk away from the agreement. If they do, they forfeit their down payment. I like to refer to the Initial Down Payment as my Tenant having "Skin in the Game"
. The MORE Skin in the Game they have, the BETTER!

2. The income I can generate from a Lease To Own arrangement is "substantially"
higher than what I can generate from a standard "rental"
type situation. They are willing to pay a higher amount, as they are NOT "renting", they are in the process of "BUYING" the property. There is a BIG difference here.

3. Unlike a standard "renter", my Tenant/Buyers fix, repair and maintain the property for me. They will even improve the value of the property for me by performing "major"
renovations. There are not too many "Renters" that will do that for you, are there?

Remember, you need to increase your CASH FLOW if you want to "Enjoy the Journey"
. By incorporating a "Lease To Own" program in parallel with your "Long Term Buy & Hold" investing strategy, you will definitely achieve both objectives!

I hope that you find this information of assistance to you? If you would like more information, please do not hesitate to contact me.

QUOTE (JoefromTO @ Sep 14 2009, 12:04 PM) Iv`e heard/read about the Rent to Own strategy a few times. Recently, on one of my other threads, there has been a long discussion about the difference between Ontario and other provinces and the fairness to Landlords issues, etc.

It seems logical, although I could be mistaken, that a Rent to Own strategy would almost completly remove all of the potential tenant issues with a buy and hold strategy.

I`d like the opinion of others what they would consider to be the pros and cons of each? The responses could also be just general comments regarding the differences between both.
 

tonypeters

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Joey,
You make some good points. Regarding "Capital Gains" versus "Income". The difference is not nearly the same from a tax perspective as it was, so it should not detract investors from incorporating this (cash flow machine) strategy. Besides, if you can generate a ton of cash flow (of which I do), I am okay paying a little extra in tax today. It sure makes…The Journey that Much More Enjoyable!



QUOTE (JDRInvestments @ Sep 14 2009, 04:03 PM) The differences as I see them:

The profit made will be taxed as income and not capital gains. If you are doing a few of them, that may not be so bad,

Secondly, my major mistake in the first one was not anticipating the worst scenario: Tenant no longer paying option payment but wants to still rent the house for the said monthly payment amount. It JUST covers the expenses.

My new system generates the proper cash flow backwards and then ADDS an option payment so if they default on the option and still want to rent, I`m covered. I try to make it as easy for the tenant as possible knowing that things may happen for them to default on the extra payment.

Also, proper determination if they can afford the place or not in relation to their income. Anyone can SAY they want and can do it but your job is to set them up for success.

Good luck.
 

JoeRagona

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QUOTE (tonypeters @ Sep 14 2009, 07:00 PM) Joey,
You make some good points. Regarding "Capital Gains" versus "Income". The difference is not nearly the same from a tax perspective as it was, so it should not detract investors from incorporating this (cash flow machine) strategy. Besides, if you can generate a ton of cash flow (of which I do), I am okay paying a little extra in tax today. It sure makes…The Journey that Much More Enjoyable!


Hi Tony!

NO that was NOT my intention. I LOVE RTO and I`m glad you brought up your points. They are all very well received.

In fact, I have been structuring my RTO strategy for over a year to perfect the way I choose tenants, how I cash flow the property etc.

In the case I wrote about, I actually received a $10,000 deposit which saved my novice involvement into the strategy without knowing to much about it.

It actually was the BEST THING that every happened to me because it forced me to re-evaluate my system.

For those thinking of Lease to Own, get in there and learn the system, it`s fantastic!
 

JoefromTO

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QUOTE (JDRInvestments @ Sep 14 2009, 06:33 PM) Hi Tony!

NO that was NOT my intention. I LOVE RTO and I`m glad you brought up your points. They are all very well received.

In fact, I have been structuring my RTO strategy for over a year to perfect the way I choose tenants, how I cash flow the property etc.

In the case I wrote about, I actually received a $10,000 deposit which saved my novice involvement into the strategy without knowing to much about it.

It actually was the BEST THING that every happened to me because it forced me to re-evaluate my system.

For those thinking of Lease to Own, get in there and learn the system, it`s fantastic!


Where do I go to learn the system?
 

JoeRagona

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QUOTE (JoefromTO @ Sep 15 2009, 10:29 AM) Where do I go to learn the system?

Hi Joe,

There are many posts here that will help guide you in the right direction. Take a look at the downloads section for Mark Loeffler`s presentation he did a few months back.

When I began, I researched and researched and fiddled around with different formulas asking many questions from people that are doing it.

The RTO presentation that is here will answer many of your questions.

I also believe Mark is designing a home study course teaching his system application. You may want to get a hold of him.

If there is any way I can help you, just email me or call directly (905-467-6800) and I can try to answer your questions.

The hardest part is getting started


Kindest Regards...
 

tonypeters

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I have been developing and implementing my own "Lease To Own" System for almost seven years now, so I would be happy to assist you. If you are interested, please initiate contact with me.

QUOTE (JoefromTO @ Sep 15 2009, 08:29 AM) Where do I go to learn the system?
 

JoefromTO

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QUOTE (tonypeters @ Sep 15 2009, 10:03 AM) I have been developing and implementing my own "Lease To Own" System for almost seven years now, so I would be happy to assist you. If you are interested, please initiate contact with me.


It seems you offer and educational program. Is this support by REIN?
 

tonypeters

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Joe, to answer your question, I have had recent discussions with Don and Russell with respect to the idea of making my System available to REIN members. I am unable to elaborate any further at this time, as we are still in the discussion stage only. Thanks for your interest.
QUOTE (JoefromTO @ Sep 16 2009, 09:27 AM) It seems you offer and educational program. Is this support by REIN?
 

JoeRagona

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Thanks for your input here Tony (and other threads) I would also love for the course to be available through REIN.

Good luck
 

GaryMcGowan

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For those in the Toronto area.
REIN member Mark Loeffler offers a one day course on Rent to Owns which he holds every few months. Many have benefited from it.
 

markl

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Hi Joe,

So the thought process I would have on this is. What stage are you at in your investment career? Are you looking for capital appreciation + cash flow? RTO`s offer this in spades. The downside is that your money will likely revolve in and out of properties over the years. So if you are at the enviable stage of capital preservation there are obviously different options available. I guess I liken it to are you deciding between doing a RTO or a 2 - 4 unit property? or are deciding between a RTO and a 20 unit building different stages in the investment game.

And how to decide well everybody is different so let`s sit down and chat.

Regards,
 
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