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Rent to own

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spike9294

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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
 
Dan_Eisenhauer

Dan_Eisenhauer

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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.
 
brad

brad

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THANK YOU DAN!!!!

I love how you broke that down nice and simple.

Brad Hamilton
 
S

spike9294

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QUOTE (spike9294 @ Nov 27 2008, 12:17 PM) 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

Thank you,your break down is very clear. this will be very helpful if I choose to go the RTO route. I am interested in your spread sheet, you could email it to [email protected]

Thanks again

Mike Finlan
 
V

VicChung

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QUOTE (jarrettvaughan @ Dec 7 2008, 12:09 PM) Great post Dan, that was very helpful.

Hi Dan,

Excellent post. I would be interested in a copy of a spreadsheet, lease, and option to buy agreement. Can you please email me a copy at [email protected]?

thanks for sharing, Vic
 
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SanjivSheth

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QUOTE (Dan_Eisenhauer @ Nov 27 2008, 05:46 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.
 
C

chauhan

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Aug 30, 2007
Messages
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Hi Dan:
It is posible to get that worksheet and the rent to own agreement too??

Please email to [email protected].

Thank you,
Chau


QUOTE (Dan_Eisenhauer @ Nov 27 2008, 03:46 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.
 
M

Mystique

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Sep 25, 2007
Messages
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Thank you Dan for sharing VERY helpful worksheets.
Hari
QUOTE (Dan_Eisenhauer @ Jan 15 2009, 07:46 AM) I have posted the worksheets here.
 
J

jholt

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Jul 18, 2008
Messages
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Hi, can you email me a copy of the spreadsheet you mentioned re: rent to own? [email protected]Thanks for the great info. Judy


e name=`Dan_Eisenhauer` date=`Nov 27 2008, 03:46 PM` post=`43356`]
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.
 
R

rlfyten

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Jun 1, 2008
Messages
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Would you be able to send me excel spreadsheet at [email protected]
Thank You





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.
 
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