Rent To Own - what happens if property values decrease

[VicChung]

Hello everyone,

In the case of rent to own, the assumptions that are made based on the property value increase (say 3% over 5 years).

What happens if the property values have actually decreased over that period of time? What price does the tenant pay?

thanks,

Vic

 

[PeterKinchMortgageTeam]

QUOTE (VicChung @ Apr 14 2009, 10:02 AM) Hello everyone,

In the case of rent to own, the assumptions that are made based on the property value increase (say 3% over 5 years).

What happens if the property values have actually decreased over that period of time? What price does the tenant pay?

thanks,

Vic


That is always a challenge with the lease to own as the success of the program, for the largepart rides wih the borrowers ability to qualify - and an important factor in that, is the property value

Since the lender will only lend on market value at the time that the tenant exercises their option, if the agreed upon price is higher, the tenant will have to make up the shortfall. Since most tenants struggle just to come up with the minimum 5% - 10%, this may not be an option.

Your decision, as the owner would be to either let the agreement lapse, or the reduce the price to the level that the lender will lend on.

Hope that helps,

 

[Dan_Eisenhauer]

You can also extend the term to allow the Tenant-Buyer to build up more equity, or hold a VTB to cover the difference.

 

[markl]

Or depending on your motivation and the appraisal price you could sell it to them for the exact price you bought it for years earlier just without the deposits.

Every case you get to the end will be different there is no hard and fast rule to what happens in this situation and it will vary depending on your goals and needs and the tenants goals and needs. There are always options we just need to be open to them and flexible around them.

 

[VicChung]

QUOTE (markl @ Apr 14 2009, 02:33 PM) Or depending on your motivation and the appraisal price you could sell it to them for the exact price you bought it for years earlier just without the deposits.

Every case you get to the end will be different there is no hard and fast rule to what happens in this situation and it will vary depending on your goals and needs and the tenants goals and needs. There are always options we just need to be open to them and flexible around them.


Thanks everyone for your help. I have been studying RTOs for a few months and have not been confident implementing one for the reason that if the tenant might trash my place at the end if they lose their deposit. Any feedback on how tenants react if they lose their deposit at the end if they fail to exercise their option

REIN has been promising a presentation on RTOs. REIN staff, do we have a date for a presentation on RTO and Lease to Own?

 

[JohnS]

QUOTE (VicChung @ Apr 14 2009, 07:02 PM) REIN has been promising a presentation on RTOs. REIN staff, do we have a date for a presentation on RTO and Lease to Own?


I guess it depends on where you are, Vic. Mark did a good one here in Ontario in March, and he was interviewed in the downloads section as well.

Have a good one!

JohnS