Lease to own
- Thread starter ronaldk
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Give Mark Loeffler a shout
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www.homeinvestornow.com
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What specifically are you looking for?
QUOTE (ronaldk @ Nov 24 2010, 09:05 AM) Where can I get this form (Lease to own/rent to own)at no cost?
Any ideas? Thank you.
I`m not sure exactly what you are looking for.
In Alberta the way a Rent to Own works is essentially the following:
Tenant/Buyer purchases an option to buy the property at a future date at a pre agreed upon price (basically a Call Option like on a stock). The option does not require them to purchase but if they do not purchase (i.e. close) then they lose their deposit.
The lease is separate and cannot actually legally be related to the purchase option. Obviously you structure the lease and option so that the dates line up, but they are separate legal agreements.
In other words a Tenant could be evicted or may move but they may still have the right to purchase if they have not violated the terms of the option.
Now there are no forms that you can simply get. You will want your lawyer to draft you up the option and lease contracts to ensure they are IRON CLAD. Do not try to cheap out.
I have been involved in a couple rent to owns, but I am generally very negative on them as they OFTEN are designed to hurt the Buyer/Tenant...
That whole "Rich Dad Poor Dad" plan is partially predicated on hoping the tenant/buyer cannot close so you can keep the deposit.
I`m actually working with a family on getting them into a house for rent I`m managing. Their situation is that they put down $10,000 on a rent to own one year ago. The market in Calgary is down and they cannot close. The owner will not re-negotiate, will not extend their lease and will not give them more time. They just said, "oh too bad you can`t close, your fixed term lease is up Nov 30, so make sure you`re moved out.. Thanks for the $10,000" (They didn`t actually say the $10,000 part...)
Now even though my clients are owners, it still bothers me when I see owners blatantly taking advantage of renters who aspire to be home owners. That`s why my company does not for the most part do Rent To Owns except in rare cases where I can sleep at night knowing that the buyer is not getting hurt. My fiduciary duty is always to my client owner, but I`m not interested in making money at the expense of a family who are just trying to become home owners.
Any ideas? Thank you.
I`m not sure exactly what you are looking for.
In Alberta the way a Rent to Own works is essentially the following:
Tenant/Buyer purchases an option to buy the property at a future date at a pre agreed upon price (basically a Call Option like on a stock). The option does not require them to purchase but if they do not purchase (i.e. close) then they lose their deposit.
The lease is separate and cannot actually legally be related to the purchase option. Obviously you structure the lease and option so that the dates line up, but they are separate legal agreements.
In other words a Tenant could be evicted or may move but they may still have the right to purchase if they have not violated the terms of the option.
Now there are no forms that you can simply get. You will want your lawyer to draft you up the option and lease contracts to ensure they are IRON CLAD. Do not try to cheap out.
I have been involved in a couple rent to owns, but I am generally very negative on them as they OFTEN are designed to hurt the Buyer/Tenant...
That whole "Rich Dad Poor Dad" plan is partially predicated on hoping the tenant/buyer cannot close so you can keep the deposit.
I`m actually working with a family on getting them into a house for rent I`m managing. Their situation is that they put down $10,000 on a rent to own one year ago. The market in Calgary is down and they cannot close. The owner will not re-negotiate, will not extend their lease and will not give them more time. They just said, "oh too bad you can`t close, your fixed term lease is up Nov 30, so make sure you`re moved out.. Thanks for the $10,000" (They didn`t actually say the $10,000 part...)
Now even though my clients are owners, it still bothers me when I see owners blatantly taking advantage of renters who aspire to be home owners. That`s why my company does not for the most part do Rent To Owns except in rare cases where I can sleep at night knowing that the buyer is not getting hurt. My fiduciary duty is always to my client owner, but I`m not interested in making money at the expense of a family who are just trying to become home owners.
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There is a great book that Mark Loeffler wrote on Rent To Own.Investing in Rent-to-Own Property: A Complete Guide for Canadian Real Estate Investors
It can be found herehttp://http://www.amazon.ca/dp/0470...iveASIN=047073759X&adid=0CM6Z4G7KG2NAW0STSNR&
There are some sample forms in his book.
Good luck,
It can be found herehttp://http://www.amazon.ca/dp/0470...iveASIN=047073759X&adid=0CM6Z4G7KG2NAW0STSNR&
There are some sample forms in his book.
Good luck,
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If you can attend either of Barry McGuire`s Deal-Ready Documents or Tony Peters` Lease To Own workshops, they both provide sample RTO documents that are suitable for use in Alberta.
Joseph makes a good point, RTO does get abused a lot because the tenant/buyers can be at a bit of a disadvantage, especially if they`ve found a house they really like. That`s why it`s important to put the effort in up front (get them working with a broker & credit counselor if needed) to ensure they have the opportunity to succeed in their eventual purchase.
Joseph makes a good point, RTO does get abused a lot because the tenant/buyers can be at a bit of a disadvantage, especially if they`ve found a house they really like. That`s why it`s important to put the effort in up front (get them working with a broker & credit counselor if needed) to ensure they have the opportunity to succeed in their eventual purchase.
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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.
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.
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Lease to own & rent to own ARE the same thing. What are you perceiving as the difference?
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They are also called Lease Options by some.
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.
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.
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I`ve had extremely bad experiences with investors that were involved in Rent to Owns in the past. I was not renting to own myself but worked with three different and completely unrelated RTO investors.
Finally one of them sold a property to my friend again not as a rent to own. Basically the house was closed in February, as soon as the ground defrosted the basement started to flood continually. It was like a river in the basement apartment, I had never seen anything like it. Two large shop vacs were required to keep the flood somewhat under control.
It turned out that there was a basement addition put on the back of the house by the previous owner and that it drained the entire weeping tile system into the basement of the house. Every single time it rained it poured inside.
Then of course the guy said he knew nothing about it, then we found out that he had used neighborhood kids to demolish the last totally mouldy basement apartment. There is no way that he could not know that he sold her a house that leaked and chose not to fix the problem.
Next, different guy takes me to see his RTO house, it is a brick veneer house except all the brick veneer at the back of the house has fallen off. Oh and there`s a large doorway hacked out of the back of the garage, about the size of another garage door. Then he tells me about the last people, they gave him $15,000, then got divorced so no one got anything, he was entirely too happy IMHO to benefit from other people`s misfortune.
These situations and a few more made me very biased against the whole concept.
Rent to Own is a good idea but only in the hands of ethical people. Furthermore if this kind of unethical behavior continues the whole industry will become highly regulated. It might be a good idea for the ethical people in this industry to establish a professional organization to regulate yourselves, before someone else decides to do it for you like they did to the paralegals (now part of the law society).
I`m sure CREA wouldn`t mind if rent to owns had to be processed by a real estate agent.
Finally one of them sold a property to my friend again not as a rent to own. Basically the house was closed in February, as soon as the ground defrosted the basement started to flood continually. It was like a river in the basement apartment, I had never seen anything like it. Two large shop vacs were required to keep the flood somewhat under control.
It turned out that there was a basement addition put on the back of the house by the previous owner and that it drained the entire weeping tile system into the basement of the house. Every single time it rained it poured inside.
Then of course the guy said he knew nothing about it, then we found out that he had used neighborhood kids to demolish the last totally mouldy basement apartment. There is no way that he could not know that he sold her a house that leaked and chose not to fix the problem.
Next, different guy takes me to see his RTO house, it is a brick veneer house except all the brick veneer at the back of the house has fallen off. Oh and there`s a large doorway hacked out of the back of the garage, about the size of another garage door. Then he tells me about the last people, they gave him $15,000, then got divorced so no one got anything, he was entirely too happy IMHO to benefit from other people`s misfortune.
These situations and a few more made me very biased against the whole concept.
Rent to Own is a good idea but only in the hands of ethical people. Furthermore if this kind of unethical behavior continues the whole industry will become highly regulated. It might be a good idea for the ethical people in this industry to establish a professional organization to regulate yourselves, before someone else decides to do it for you like they did to the paralegals (now part of the law society).
I`m sure CREA wouldn`t mind if rent to owns had to be processed by a real estate agent.
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QUOTE (Berubeland @ Nov 28 2010, 11:23 PM) I`m sure CREA wouldn`t mind if rent to owns had to be processed by a real estate agent.
That is like saying all property managers need to be regulated by the CREA. An RTO owner/investor is a property manager. There is a market for RTO because there is a demand for the service. We tell all our RTO clients, we are doing our due diligence on you which means you should be doing it on us as well.
That is like saying all property managers need to be regulated by the CREA. An RTO owner/investor is a property manager. There is a market for RTO because there is a demand for the service. We tell all our RTO clients, we are doing our due diligence on you which means you should be doing it on us as well.
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QUOTE (GaryMcGowan @ Nov 28 2010, 11:28 PM) That is like saying all property managers need to be regulated by the CREA. An RTO owner/investor is a property manager. There is a market for RTO because there is a demand for the service. We tell all our RTO clients, we are doing our due diligence on you which means you should be doing it on us as well.
I`m not saying they should be regulated by CREA, I`m saying that without some type of Association to work on behalf of the ethical RTO investors to combat bad press, to put another side of the story out there, publish some best practices guidelines and ethical guidelines, you are in danger of being regulated.
Let me give you the example of the paralegals, there were unethical paralegals going around ripping people off. There were also a lot of excellent paralegals but they had no national opt in organization for paralegals to belong to. Then at some point a decision was made to license the profession to get rid of the bad apples. The law society was chosen to regulate paralegals instead of them being self regulated by a national paralegal society. Now it costs every paralegal thousands of dollars per year to practice.
I`m not saying they should be regulated by CREA, I`m saying that without some type of Association to work on behalf of the ethical RTO investors to combat bad press, to put another side of the story out there, publish some best practices guidelines and ethical guidelines, you are in danger of being regulated.
Let me give you the example of the paralegals, there were unethical paralegals going around ripping people off. There were also a lot of excellent paralegals but they had no national opt in organization for paralegals to belong to. Then at some point a decision was made to license the profession to get rid of the bad apples. The law society was chosen to regulate paralegals instead of them being self regulated by a national paralegal society. Now it costs every paralegal thousands of dollars per year to practice.
There is some talk about some regulation in the industry in Ontario at the very least. Is it just smoke at the moment most likely would it be a good thing if you had to be registered? Who knows if they would have any teeth at all?
It would definitely ensure that people who are providing this service ethically and responsibly wouldn`t have to climb such an up hill battle.
Regards,
It would definitely ensure that people who are providing this service ethically and responsibly wouldn`t have to climb such an up hill battle.
Regards,
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It would probably be a good thing for those that are serious about it
It will mean provide a reduction in competition and a more level playing field
As one example - The potential RTO buyer will still use you and choose a $150K property VS $250K that another provider might be willing to facilitate
It will mean provide a reduction in competition and a more level playing field
As one example - The potential RTO buyer will still use you and choose a $150K property VS $250K that another provider might be willing to facilitate
Interesting discussion.
There are horror stories in any line of work and with any strategy of investing. There will always be individuals with less than honorable intentions. Charlatans may be contained with legislation but never eliminated. If there is a will there is always a way...... that applies equally to the honest and dishonest.
RTO works. Here is an example from this week.
Single divorced mom,2 kids, good job/income,bankruptcy 3 yrs ago. Does not qualify for mortgage,yet. Wanted to live on same street as parents to help with her kids so can work. She did not want to miss on opportunity to buy a house on the same street as parents. Repairing credit with help of credit counsellor. Mortgage broker believes can qualify her within 3 yrs.
Deal: 250k home. 15 k down. rent 1650/mth, option credits from rent 150/mth, 3 yr deal. 1k option fee. 3 percent price increase per yr.
I purchased home with 20 percent down and used 15 k from tenant/buyer.
After taking ALL expenses into account:
1. the tenant/buyer chose her home which she loves and plans to improve AND wants to pay an additional 3 k per yr in forced savings.
2. I will make a 116% return on my money. Fully transparent.
3. i will make sure I do everything possible to make sure she can close.
Help others first and you will help yourself........ she is sending me another Tenant/Buyer.
Raj.
There are horror stories in any line of work and with any strategy of investing. There will always be individuals with less than honorable intentions. Charlatans may be contained with legislation but never eliminated. If there is a will there is always a way...... that applies equally to the honest and dishonest.
RTO works. Here is an example from this week.
Single divorced mom,2 kids, good job/income,bankruptcy 3 yrs ago. Does not qualify for mortgage,yet. Wanted to live on same street as parents to help with her kids so can work. She did not want to miss on opportunity to buy a house on the same street as parents. Repairing credit with help of credit counsellor. Mortgage broker believes can qualify her within 3 yrs.
Deal: 250k home. 15 k down. rent 1650/mth, option credits from rent 150/mth, 3 yr deal. 1k option fee. 3 percent price increase per yr.
I purchased home with 20 percent down and used 15 k from tenant/buyer.
After taking ALL expenses into account:
1. the tenant/buyer chose her home which she loves and plans to improve AND wants to pay an additional 3 k per yr in forced savings.
2. I will make a 116% return on my money. Fully transparent.
3. i will make sure I do everything possible to make sure she can close.
Help others first and you will help yourself........ she is sending me another Tenant/Buyer.
Raj.
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I don`t mean to pour water on your deal, Raj. But, every RTO deal starts out well. It sounds as if yours is a new deal.
The horror stories begin to develop months, or even years into the deal. I trust you did all your diligence and that this one closes as planned. MOST DO.
The horror stories begin to develop months, or even years into the deal. I trust you did all your diligence and that this one closes as planned. MOST DO.
"There is a market for RTO because there is a demand for the service"
There`s always demand from prospective, aspiring home owners. I`d say its a stretch to say that there is actual demand for "Rent To Owns" more like there is demand for people to buy houses when they can`t go through conventional channels.
Rent To Owns in my experience are incredibly bad for the tenant/buyer the vast majority of the time.
Also Property Management DOES require licensing (At least in Alberta). Frankly these Rent to Own companies are trending dangerously on the edge of "trading in real estate" without a license in my opinion.
They sign a lease with the home owner which allows them to sublease the property, they then market the house as a Rent To Own, act as the landlord, and the seller. All without a real estate license. I mean are what they doing illegal, maybe not, but its predicated on finding desperate buyers. Homeowners don`t really care that much, they get the rent and a purchase price they apparently are happy with, so I don`t feel too bad for them.
It seems pretty ungenuine to me to have all these companies leasing properties from owners with NO intention of actually occupying the home as a rental though, only to then sublease the property. I`m suprised RECA in Alberta hasn`t tried to clamp down on it
(or maybe they have and failed??)
There`s always demand from prospective, aspiring home owners. I`d say its a stretch to say that there is actual demand for "Rent To Owns" more like there is demand for people to buy houses when they can`t go through conventional channels.
Rent To Owns in my experience are incredibly bad for the tenant/buyer the vast majority of the time.
Also Property Management DOES require licensing (At least in Alberta). Frankly these Rent to Own companies are trending dangerously on the edge of "trading in real estate" without a license in my opinion.
They sign a lease with the home owner which allows them to sublease the property, they then market the house as a Rent To Own, act as the landlord, and the seller. All without a real estate license. I mean are what they doing illegal, maybe not, but its predicated on finding desperate buyers. Homeowners don`t really care that much, they get the rent and a purchase price they apparently are happy with, so I don`t feel too bad for them.
It seems pretty ungenuine to me to have all these companies leasing properties from owners with NO intention of actually occupying the home as a rental though, only to then sublease the property. I`m suprised RECA in Alberta hasn`t tried to clamp down on it
(or maybe they have and failed??)