Amen
QUOTE (Dan_Eisenhauer @ Nov 26 2010, 11:52 AM) Joseph and Jim make very good points that I want to add to. There have been numerous RTO horror stories here recently. I have one of my own.
I have learned two very valuable lessons. The first is to qualify the TB in the same way the bank would. The TB needs to be able to qualify for the mortgage at the end of the term. If they will have a GDS of 50%, as an example, at the end of the term, there is no way they can get financing. So, we have to ensure, as best we can that the TB will fall under CMHC guidelines.
The second lesson is that where the TB has previous credit problems, we need to hook them up with someone who can work with them to rehabilitate their credit during the term of the lease. Many may not know that if they buy a new car two weeks before they are supposed to close on the purchase of the RTO ppty, they destroyed their GDS ratio, and probably will not be approved for financing.
If we act with integrity and scruples and can show a judge that when the TB applied to rent from us, they would fall w/i CMHC guidelines, and that we DID in fact hook them up with a credit counsellor, we may get a better break if we find ourselves in front of a judge. RTOs are a source of good cash flow. BUT, IMHO, we need to want to help the TB buy FIRST and FOREMOST, before we want that cashflow. (Obviously, without that cash, we would not even consider getting into the biz.) Doing this will help avoid many of the pitfalls I have been learning about recently.