I am looking to specialize in Lease to Own

[markl]

QUOTE (MarkTorgerson @ Jan 23 2010, 01:28 AM) I have been doing lots of research on various lease-to-own companies and which ones seem to be successful. For the most part, the successful ones are very different than the Legrand style.
I have seen many of them being basically a "middle man" on the transaction. This is where they will say pay $300,000 to the seller (through lease to own) and then advertise the same property for around $350,000 on a 3 year lease-to-own (for example). What I am seeing is that they will advertise the sellers property but not committ to it until they find a buyer. If a buyer doesn`t committ to the property being advertised, it simply goes back to the seller. This does seem like a great business model as the inventory is always high with zero risk. Do you do these types of transactions and would you consider this a "sandwich lease"?

Thanks!

Hi Mark that is exactly what I would consider a sandwich Lease option. If you can turn this into a system where you are getting consistent leads and consistent tenants this can be a great business as there is very little risks. The one thing I would caution is lease optioning a house from a person who has no equity in the property. There is nothing holding them back from defaulting on the mortgage except perhaps their credit report. The more equity they have the more likely the deal will complete from their stand point.

The other thing is make sure your agreement is registered on title so they cannot sell the house with out you knowing and if they do go in default you will be the first to know.

Regards,

 

[gwasser]

QUOTE (tonypeters @ Jan 23 2010, 02:55 PM) Lucas,


I don`t mind admitting it, I am one of those "two fingered" typers. The funny thing is, I can type at an amazing speed!


Hi Tony, are your typing skills back in demand now with the rise of the Blackberry?

Just trying to be cute!

 

[tonypeters]

Hey Godfried,

You are 100% correct! I tried to stay away from purchasing a Blackberry, but I eventually had to give in.

QUOTE (gwasser @ Jan 24 2010, 11:25 AM) Hi Tony, are your typing skills back in demand now with the rise of the Blackberry?

Just trying to be cute!

 

[MarkTorgerson]

QUOTE (markl @ Jan 24 2010, 07:38 AM) Hi Mark that is exactly what I would consider a sandwich Lease option. If you can turn this into a system where you are getting consistent leads and consistent tenants this can be a great business as there is very little risks. The one thing I would caution is lease optioning a house from a person who has no equity in the property. There is nothing holding them back from defaulting on the mortgage except perhaps their credit report. The more equity they have the more likely the deal will complete from their stand point.

The other thing is make sure your agreement is registered on title so they cannot sell the house with out you knowing and if they do go in default you will be the first to know.

Regards,

Hi Mark

Thanks for the info.

What do you do if your tenant / buyer doesn`t close the deal when the lease expires? You have your own lease-option that you committed to and the seller is looking for to get paid. Do you still close?

By the way, I just started your book. Great value for the price!!

 

[markl]

QUOTE (MarkTorgerson @ Jan 24 2010, 10:52 PM) Hi Mark

Thanks for the info.

What do you do if your tenant / buyer doesn`t close the deal when the lease expires? You have your own lease-option that you committed to and the seller is looking for to get paid. Do you still close?

By the way, I just started your book. Great value for the price!!


That`s the thing you have an option to buy it you can do 1 of 3 things.

#1 Buy it at the option price which you may do if you are getting a pretty good discount.
#2 Walk away you only had an option to buy it. You are not contractually obligated to do so.
#3 Negotiate another couple of years as a LTO

And Thanks I look forward to hearing from you when you have finished the book.

Regards,

 

[llee]

A general question: how do you set the RTO rent? Should it be the market rent, or slightly lower?
For example, for my $185,000 townhouse, my rent is $1300-$1350/mo (for normal rental). For a RTO, is it common (or as an incentive to the tenant-buyer) to set it a bit lower?

 

[tonypeters]

Lucas,

One of the "KEY" benefits of Lease To Own is "increased" monthly cash flow. With this in mind, your combined "Lease and Option" monthly payment should be substantially higher than any rent you would collect. Remember, you are dealing with a "Tenant/Buyer" and not a "Renter". I have this personal rule: If your monthly (LTO) cash flow is anything less than $500 per month, you are NOT doing it right!

Hope this helps!

QUOTE (llee @ Jan 25 2010, 10:21 AM) A general question: how do you set the RTO rent? Should it be the market rent, or slightly lower?
For example, for my $185,000 townhouse, my rent is $1300-$1350/mo (for normal rental). For a RTO, is it common (or as an incentive to the tenant-buyer) to set it a bit lower?

 

[markl]

Is it a Condo Town? If so probably the biggest difference you will see is the tenant pays the condo fee`s. On that value of home Tony is correct $500/mth is not an unreasonable number.

How to determine or what is the correct ratio for down payment savings or future purchase price? The amount you are going to have them save per month is directly correlated to the purchase price you will have them buy out at. So for instance $185k X 2 years X 6 percent a year you could probably give 20 - 25% of the rent back therefore making their effective rent lower than market value if they buy at the end of the term.

For you it is a paper transaction as you have just taken it into account with your appreciation on the property.

 

[therealpotentials]

Tony,

If you`re doing "wrap" mortgage, does the monthly rent tend to be comparable to, higher, or lower than the current rental market?

And which is better to push to your tenant`s table, the 3-5 year lease to own or the wrap mortgage in which you get to be your own bank to your tenants?


QUOTE (tonypeters @ Jan 25 2010, 10:35 AM) Lucas,

One of the "KEY" benefits of Lease To Own is "increased" monthly cash flow. With this in mind, your combined "Lease and Option" monthly payment should be substantially higher than any rent you would collect. Remember, you are dealing with a "Tenant/Buyer" and not a "Renter". I have this personal rule: If your monthly (LTO) cash flow is anything less than $500 per month, you are NOT doing it right!

Hope this helps!

 

[tonypeters]

Vener,

In cases where I have not already established a "relationship" and or a "track record" with the person or couple in question, I ALWAYS start off by structuring a "Lease To Own" type contract, as this process provides me with sufficient time to "test drive" the individuals in question.

With this in mind, I would highly recommend that you do NOT venture down the path of creating mortgages for people you don`t know! WHY? Because it is much easier to regain (vacant) possession and control of a property as a "Landlord", than it is as a "Bank". How do you think I know this?

With respect to your question regarding "monthly rent"; when I elect to "Become the Bank", my income (mortgage payment) is ALWAYS much higher than anything I could ever generate from rental income. As a result, my net monthly CASH FLOW helps me to Enjoy the Journey that much more!

Hope this information is of assistance to you?

QUOTE (therealpotentials @ Jan 25 2010, 11:31 AM) Tony,

If you`re doing "wrap" mortgage, does the monthly rent tend to be comparable to, higher, or lower than the current rental market?

And which is better to push to your tenant`s table, the 3-5 year lease to own or the wrap mortgage in which you get to be your own bank to your tenants?

 

[dxg19]

how do you guys structure your RTO with regards to Property Tax. Who is responsible for this payment?

 

[markl]

QUOTE (dxg19 @ Jan 25 2010, 07:31 PM) how do you guys structure your RTO with regards to Property Tax. Who is responsible for this payment?

The Investor always pays property taxes and insurance. You factor this into your numbers for monthly lease payments. You have to pay these if you have the tenants pay they can claim ownership rights to the property.

 

[tonypeters]

Mark is 100% correct!

I ALWAYS take control of making sure the Property Taxes, Insurance and Condo Fees (if applicable) are paid, that way I have full control of the property. I also like to disclose these numbers with my Tenant/Buyers, that way I have the ability to increase my monthly Lease amount if there is a substantial increase in any one of these areas.

Hope this information is of assistance to you?


QUOTE (dxg19 @ Jan 25 2010, 05:31 PM) how do you guys structure your RTO with regards to Property Tax. Who is responsible for this payment?

 

[MarkTorgerson]

QUOTE (markl @ Jan 24 2010, 09:30 PM) That`s the thing you have an option to buy it you can do 1 of 3 things.

#1 Buy it at the option price which you may do if you are getting a pretty good discount.
#2 Walk away you only had an option to buy it. You are not contractually obligated to do so.
#3 Negotiate another couple of years as a LTO

And Thanks I look forward to hearing from you when you have finished the book.

Regards,


I am better than half way through and the content is brilliant!! You have completely changed my strategy for the lease to own system and saved me thousands of dollars. The price is truly a fraction of the value it is giving me. I only wish you would have had your book out a couple of months earlier and I could have saved myself 5 grand on a system with "similar" content. Basically 200 times the cost of your book is what I paid for a system solicited on this forum. Thanks Mark!!
I will finish the book and give you my final review which will no doubt be a testimonial.

Cheers!
Mark

 

[ChrisRudd]

Hello RTO/LTO experts. When the tentant-buyer is ready to get bank financing, what does the bank need to see in terms of proof of a downpayment? Would I as the seller-landlord have to keep all of their deposit/downpayment money in a bank account to show that it exisits? Or, is a written letter from me with supporting documents that this has already been paid sufficient?

Does this change at all with a sandwhich lease option (where I am the meat)?

 

[markl]

Chris,

If that is the case they need to see 3 months of deposits. Since we do not want to put it back in their hands typically we will put it in a lawyer`s trust account for 3 months if necessary to complete the transaction.

We have the tenant work with our mortgage broker to complete so we know before they move forward with the option and can make appropriate arrangements.

Regards

 

[markl]

QUOTE (MarkTorgerson @ Jan 26 2010, 01:43 AM) I am better than half way through and the content is brilliant!! You have completely changed my strategy for the lease to own system and saved me thousands of dollars from going down the wrong path. The price is truly a fraction of the value it is giving me. I only wish you would have had your book out a couple of months earlier and I could have saved myself 5 grand on a system with "similar" content. Basically 200 times the cost of your book is what I paid for a system solicited on this forum. In additional to the excessive variance in price, I still found myself going down the wrong path. Thanks Mark!!
I will finish the book and give you my final review which will no doubt be a testimonial.

Cheers!
Mark

Sorry about that I will try to write my second book a little quicker. I am looking forward to the feedback

Regards,

 

[Mvarga]

Is it typical to do a RTO with only 5% down payment?? What would be the advantages to tying up more of your money with a larger down payment? How do you pro`s typically structure your down payment? Do you do 5% CHMC mortgage or put down 20% to avoid the CMHC insurance fee? For example if the customer is able to provide 5% would you just use that and not tie up your own funds? I`m unclear about that particualr part. And I also finished Marks book, finished it in a day and a half, great content and a great starting point for someone who knew nothing to begin with.

 

[markl]

If you are doing a tenant first deal you get your greatest return on a 3 year or longer deal with 5% down. On a 2 year 10% or more. On a 1 year 20% or more.

This is all related to the CMHC fee and how much pay down you get in comparison with the appreciation on the property.

That is a view a high level when you drill down to it you have to sit down with a mortgage broker who knows investments and can help you create a plan. If your plan is to buy say 10 properties then maybe doing 1 with 5% will hurt your chances or may not. A good mortgage broker in today`s lending environment is gold.

 

[Cargren]

QUOTE (Mvarga @ Jan 26 2010, 12:11 PM) Is it typical to do a RTO with only 5% down payment?? What would be the advantages to tying up more of your money with a larger down payment? How do you pro`s typically structure your down payment? Do you do 5% CHMC mortgage or put down 20% to avoid the CMHC insurance fee? For example if the customer is able to provide 5% would you just use that and not tie up your own funds? I`m unclear about that particualr part. And I also finished Marks book, finished it in a day and a half, great content and a great starting point for someone who knew nothing to begin with.

To echo Mark, consider the CMHC premium as an expense that you amortize over the length of the RTO contract. The longer the period over which you amortize the better as you bring down the monthly cost. I would never do less than 20% down on a one year deal, unless the ROI is sufficient to warrant it.

Rob