Sale to an RTO client - how to prove down payment

[Dejavu]

Hi REIN members,



I am working on an RTO deal and would like to set it up such so that there is no problem later with proving down payment/credits when RTO tenants go to secure their own financing to buy the property.



What are some of the more common and effective methods investors use to prove to lenders the down payment paid in by RTO tenants during the term?



On a related note, I would love to reinvest the cash I receive from the RTO tenants and not just keep it in a savings account for 2-3 years. I am wondering if I would need to hold on to the actual cash received from tenants for proving their down payment later?



Many thanks!



Will

 

[DavidHamilton]

I'd like to know how others do this too, and which lenders are easier to work with than others on RTO repurchases.



David

 

[neill]

Hi Will - congrats on your prospective deal. Rent to own structured properly is truly a win-win.



The most common method to ensure that the monthly option credits are prove-able is to collect two cheques from your RTO tenant. Eg. if the monthly payment total is $2500 and you are giving them a $500 per month credit, collect 2 cheques - $2000 and $500 respectively.



We photocopy - I suppose in this day and age we could scan - all of the option cheques as backup for proof if requested/required in the future.



Our lease agreement shows the entire $2500.00 as rent (there are previous threads here about the benefits of separate lease and option to purchase contracts vs. an all-in-one)



As far as we have been advised (and I would be curious to hear what other opinions here are), option deposits are different than rental security deposits, and as such we do not keep them in a trust/holding account.





Cheers!

Neill

 

[neill]

Hi David - two quick answers:



1) Every RTO candidate has a different credit/employment etc status, so there is really no "formula" answer. Folks that have great credit/employment history and are just short on their down payment are easy. The challenge comes with bruised credit, self employed, previous bankruptcy (or a combination of all three).



2) That said, it is highly recommended to align yourself with a mortgage broker that is familiar with dealing with the latter group, as these folks are the majority of the RTO buyers that you will be dealing with in our experience. Don Campbell's advice on choosing your broker by expertise vs. geographical convenience definitely applies in this scenario.



We are also working hard on our relationships with the local bank/credit union branch managers, as we have seen instances where deals have been approved that had been turned down elsewhere...





Regards,

Neill