Rent to own

[clstevens]

I am figuring out a rent to own situation in Chilliwack (and am new to this) and I am unsure of how much to calculate for yearly appreciation. I am assuming the best thing is to do is to take an average over what has been the growth over the past 10 years and use that? Anyone have an opinion? Where would I find that information? I would probably do a 5 year term. I know we aren`t going to see the huge growth we had in the past few years. Guidance would be appreciated. Thank you

Cari-Lee

 

[Dan_Eisenhauer]

Hi Cari-Lee. As we discussed, historic data will be of no use for the next couple years. Thomas Beyer has posted several good posts on what he expects growth to be over the next few years. But, I think his comments relate specifically to either Edmonton or Calgary.

You are going to have to pick something out of the air. The 4% we talked about is not an unreasonable assumption for the next five years, one way or the other.

I would love to see other answers on this one.

 

[markl]

We are using 6% in REIN top 10 towns and 5% outside we take a higher down payment to offset the risk and the lower appreciation. 5 Years is a long time for a LTO for most people if they cannot get financing after 2 or even 3 years in a LTO than they probably never will. Have your mortgage broker go over you applications with you most times they are pretty good about telling you if the tenant worked at it when they would be able to get financing.

Get signed up for my new ezine @ www.homeinvestornow.com

Regards,

 

[Dan_Eisenhauer]

Good feedback. Thanks, Mark.

 

[jcab256]

QUOTE (Dan_Eisenhauer @ Feb 3 2009, 12:18 AM) The 4% we talked about is not an unreasonable assumption for the next five years, one way or the other.

Dan and Mark,

Are you suggesting 4-5% per year? or at the end of fiver years (i.e. 1% per year?)

Jay

 

[hawkey55]

We have 2 LTO`s in the Abbotsford area and are using 7% per year. Both are 2 year terms. I would have to agree with Mark that 5 years is a long time for an LTO, unless of course the client is requesting a term of that length. It comes down to what timeframe fits your strategy.

Steve

 

[Dan_Eisenhauer]

The one concern I have about using numbers like 7% per year is that the property has to appraise for that figure or greater at the time of sale to the tenant-buyer. If appreciation averages, say 3% over the next 3 years, then the value is going to be off by 12%. How can the tenant-buyer finance that deal then?

And what happens if values drop 10%? Then the sale price is off by a huge amount. Mark has given me one possible way to get around that.

Jay, that is an annually compounded rate.

 

[jcab256]

QUOTE (Dan_Eisenhauer @ Feb 3 2009, 01:59 PM) Jay, that is an annually compounded rate.

Thanks Dan. That is what I thought, but I read your post as implying otherwise.

Jay

 

[RedlineBrett]

QUOTE (Dan_Eisenhauer @ Feb 3 2009, 12:59 PM) The one concern I have about using numbers like 7% per year is that the property has to appraise for that figure or greater at the time of sale to the tenant-buyer. If appreciation averages, say 3% over the next 3 years, then the value is going to be off by 12%. How can the tenant-buyer finance that deal then?

And what happens if values drop 10%? Then the sale price is off by a huge amount. Mark has given me one possible way to get around that.

What method is this? a second mortgage?

This wrinkle is why we`ve stopped doing RTOs altogether - the "assumed" future appreciation rate doesn`t matter at all, because the tenant will only be able to get approved for what the property appraises for. In fact, the landlord/seller can only LOSE under such a scenario as the tenant will never be able to close for the higher price!

We only have one RTO in place right now... and in that one the the tenant has agreed that we need to make a miniumum of $50k on the property and the lease agreement doesn`t end until the property can be appraised for such a price.

 

[cmattric]

I am looking for a rent -to own property in Calgary with minimum 2 bedroom around 1000 sqft. I prefer a covered garage, with back garden, close to university area beacuse of my wife. Can anybody help me?