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What % of tenants acually purchase the RTO

dxg19

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Jun 4, 2008
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Just curious what percentage experienced investors are finding their tenant buyers are actually closing the deal in 2-4 years.
What is the optimum deposit to help this percentage? any other suggestions to increase probability. Thanks
 

RobMacdonald

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Sorry, I don`t have an answer for your particular question, but just a comment.

I have worked on a number of instances when the tenant buyer is looking to purchase the property at the end of the term. The success the client will have in many cases depended on the ability, skill and professionalism of the original lease to own company. Here are a few things I`ve come across that have lead to issues with the financing for the tenant buyer:

1. Original documentation not satisfactory. The option deposit and monthly credits were not clearly established and therefore the lender would not accept as downpayment
2. The monthly credit was not realistic based on the economic rent
3. The tenant buyers had no assistance along the way to help them prepare for the financing at the end of the term.

The LTO company not only has to make sure the documentation supporting the LTO will meet the standard required from CMHC and the lenders, they also need to arrange a financial plan and counseling for the buyer, in order to change their circumstances over the lease period. This is when their will be a significantly higher rate of success.

Unfortunately, in many instances the same problem that kept the tenat buyer from qualifying for financing originally, is the same problem they have at the end of the term.
 

markl

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I agree with Rob. A lot of the work is done up front with proper qualifying and creating a plan to help them get back on track. The next step is helping them stay on track. This is not a hands off investment you need to be in regular contact with your tenant or your credit repair specialist to ensure they are doing what they need to do.

We are averaging 4 out of 5 tenants purchasing the property. We would like 100% but we understand life happens. Are goal is to have the tenant buy there are a lot of companies promoting RTO where this is not their goal.

Regards,
 

ChrisDavies

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I talked to a a well known investment Realtor in Ontario who has been very involved in many deals and teaching some RTO techniques. They said the best folks they know manage a 60-70% completion rate. It often ends up being 2-3 tenants before one of them manages the close.
 

markl

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Ahh but Chris and I don`t mean to hijack the thread there is a difference with putting in the person with the highest down payment and putting in the most qualified person. It also depends if you are speaking about tenant first in which you have the tenant locate their ideal property. Or property first in which the investor locates their dream property.

But you do raise an interesting point you will get a lot of different answers to this as everybody has different techniques they use and everybody is working on different outcomes and returns they are aiming towards.

I would say most property first people I speak with say their tenants have a 50% buy out rate.
 

brad

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I have spoken to quite a few house first investors and the # that keeps showing up is 50-50 like Mark eluded too.
 
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