Hoping to get some direction on the structure of a rent to own deal. I read Loefflers lease book but left some gaps in the deal structure. Specifically how/why he charges monthly rent on some factor of .008-.0095 of the sell price. To be honest, the book never explains any rationale behind how he arrives at the monthly rental amount.
With that said here are my numbers. Having also read Kinch's book on investing, I should also point out that while I am paying 20% down on the deal, understand that the down payment cash will also be a financed from my LOC at say 4%. The mortgage will also be at 4% to keep it all simple.
So, for arguments sake:
Using an Option deposit $7500
House price = $250,000
Taxes = $2070
Insurance = $1500
If I use Loefflers .008 factor then I am getting a monthly rental rate of $2000. My PITI debt for $250 K at 4% over 30 years is $1517. Leaving a net monthly income of $482.
If I appreciate the house at 6% for two years, the Selling price becomes $280,900. Tenant/buyer will require $15,449 down payment (I have used 5.5% of total price to cover some closing costs).
Therefore the rent credit to meet this down payment is $331 per month for 24 months. The monthly profit after credits is $151.
Obviously, in two years, my profit on sale would be around $15K (i.e. $280900-$250000-$15449-7500). Yes, I did not factor in any payments of the principal. Therefore, I think I am correct in stating an overall return after 2 years of (24 x $482 +$15K) or roughly $27K.
Hope I have not made some basic math errors.
Questions:
How does this deal sound to you, if you are the Tenant buyer? If you are the investor / me?
Is my appreciation factor o.k. if local rates have been in around the 7-9% mark?
How would you improve my model?
Thanks all
With that said here are my numbers. Having also read Kinch's book on investing, I should also point out that while I am paying 20% down on the deal, understand that the down payment cash will also be a financed from my LOC at say 4%. The mortgage will also be at 4% to keep it all simple.
So, for arguments sake:
Using an Option deposit $7500
House price = $250,000
Taxes = $2070
Insurance = $1500
If I use Loefflers .008 factor then I am getting a monthly rental rate of $2000. My PITI debt for $250 K at 4% over 30 years is $1517. Leaving a net monthly income of $482.
If I appreciate the house at 6% for two years, the Selling price becomes $280,900. Tenant/buyer will require $15,449 down payment (I have used 5.5% of total price to cover some closing costs).
Therefore the rent credit to meet this down payment is $331 per month for 24 months. The monthly profit after credits is $151.
Obviously, in two years, my profit on sale would be around $15K (i.e. $280900-$250000-$15449-7500). Yes, I did not factor in any payments of the principal. Therefore, I think I am correct in stating an overall return after 2 years of (24 x $482 +$15K) or roughly $27K.
Hope I have not made some basic math errors.
Questions:
How does this deal sound to you, if you are the Tenant buyer? If you are the investor / me?
Is my appreciation factor o.k. if local rates have been in around the 7-9% mark?
How would you improve my model?
Thanks all