Welcome!

By registering with us, you'll be able to discuss, share and private message with other members of our community.

SignUp Now!

Rent to own

I have extensive knowledge and experience in this particular (real estate investing) arena. I would be happy to provide you with a few additional pointers. Please feel free to contact me.

QUOTE (spike9294 @ Nov 27 2008, 11:17 AM) Hello,

I purchased a home in June 08 that I ripped down and I am in the process of rebuilding a new home. I have been approached by an individual who would like to rent to own.

He suggested he would purchase the property in 3-5 years.

I have very little knowledge of this process, any advise would be appreciated.

A couple of questions, would the final selling price be at todays market value or the value in 3 -5 years, should the buyer put a down payment, what is the best way to structure a rent to own purchase.

Mike Finlan
 
QUOTE (Dan_Eisenhauer @ Nov 27 2008, 04:46 PM) A basic plan would be to set a market value of the ppty today. Then build in an appreciation factor that each of you can live with, say 4%. The price would be escalated at 4% each year the buying tenant does not exercise the option.
Next you need to establish what the tenant will put up as an initial down payment.

Figure out what 5% of the sale price to the tenant (this is the minimum 5% required by CMHC) will be when the tenant exercises the option. (I would recommend a 5 year maximum.) Deduct the initial down payment from that 5% figure. Divide the remaining amount by the number of months of the term of your option. This figure will be your "extra rent". NB In order for any portion of the rent to be attributed to equity build up, it needs to be over and above the going market rent in your area.

Also remember that you will be, in effect, loaning the tenant the amount of money you will invest in the property for the term of the lease. It is fair that you get paid interest on that money, at whatever interest rate you and your tenant think is fair and reasonable (5 - 7% maybe). Add this to the monthly rent, as well.

Remember that in a RTO lease, you, as the landlord, have next to no expenses, as those regular maintenance items are covered by the tenant, as if he/she owned the property. You need only cover your PIT, and insurance. Both taxes and insurance are also billed back to the tenant. So the basic rent need only be enough to cover your PI, and the interest on your investment.

SO, the tenant`s equity build up consists of the original down payment plus the monthly "extra rent" payments. It does not include the interest on your investment.

I have prepared an Excel worksheet to figure out these various payments. If you would like a copy of it, let me know. I am more than willing to share.

As has been said in other threads on RTOs, you will need two agreements... the lease, and a second option to buy agreement.

Hi Dan,

I too, am interested in a RTO for one of my properties.

My question is: In a RTO, if the tenant/buyer defaults on the agreement then does he get any of the monthly purchase contribution back?

Thanks in advance,
Terry
 
You must log in or register to reply here.
Back
Top Bottom