RTO tenant candidates as a % of population

[TangoWhiskey]

RTO serves a very nebulous and difficult to define sector of the buying population. If there are say 100 home buyers actively looking for every 1000 adults (just a guess, must be lower), out of those 100 home buyers, how many might work for RTO? 1? 2?



Anybody have any thoughts or wisdom or direct or anecdotal experience with how big of a group inside the overall home buying population the RTO buyer group is?



thks!

 

[JimWhitelaw]

I'd be shocked if the RTO group was more than 0.02% of all home buyers.

 

[Sherilynn]

I have no idea how big the group is, but I'd say it's growing.



We have had several clients come to us this summer because they have been approved by the bank but denied by CMHC. Many have reasonably good credit scores, excellent income, and 10% down. These people would have been approved by CMHC only a few months prior but now they are coming to us.



In one case, the reason given for denial was: "property is too expensive for a first time home buyer." (The property was a basic, older starter home in Fort McMurray, which naturally has a $600k price tag attached to it.)



If CMHC is getting stricter, the RTO population will grow.

 

[invst4profit]

I agree the RTO business is poised to grow with the new 25 year mortgage rules. House prices are moving farther beyond the reach of first time home buyers. This is exasperated by the fact that employers, having so many university graduates these days to chose from, are lowering entry level wages.



Lower wages and higher monthly mortgage payments combined with higher down payment requirements makes RTO possibly the next big investment growth area.



This of course will introduce a seedy element to the field which will taint the business and bring about increased government interference. I mean regulation.



Just this past Monday I meet a landlord at the Ontario landlord tenant board hearings attempting to evict a RTO tenant where the RTO had gone bad. It was good for the investor but bad for the tenant. After less than a year the landlord kept a $17,000 down payment plus the rent owing and successfully evicted the tenant. The good thing was the landlord did nothing wrong it was simply the tenants personal life that went south.



Lather, rinse, repeat.

 

[Sherilynn]

[quote user=invst4profit]

This of course will introduce a seedy element to the field which will taint the business and bring about increased government interference. I mean regulation.



Just this past Monday I meet a landlord at the Ontario landlord tenant board hearings attempting to evict a RTO tenant where the RTO had gone bad. It was good for the investor but bad for the tenant. After less than a year the landlord kept a $17,000 down payment plus the rent owing and successfully evicted the tenant. The good thing was the landlord did nothing wrong it was simply the tenants personal life that went south.





There was recently a CBC story about a similar situation. What grabbed my attention were the comments on the article, all basically saying that the nasty rich landlord is taking advantage of people (or their situation or their stupidity). I tried to post a very professional comment from the perspective of a reputable RTO company, but apparently it didn't match the tone of the article because it was never posted.

 

[invst4profit]

I can not speak to other provinces but in Ontario at least news articles will generally portray the landlord in a negative light. This is something we simply must accept as Ontario is very much a nanny state. Anyone perceived as having money and being in a position of power over the lives of others is viewed as bad, manipulative, dishonest, etc.



Regrettably Ontario is increasingly viewed as negative to both industry and personal investment. We are/will be a have not state as long as our present governments continue down the path of increased social assistance for all. In our industry there is a growing reluctance to provide any form of private housing for those on assistance and this may well trickle down to impact the RTO business if landlords continue to be viewed in a negative light. Although RTO candidates are not likely on welfare they are considered as being of higher risk and therefor more likely to cry foul when things go south. Our nanny state and political/tenant activist groups will of course be there to point the finger of blame in the direction of investors. Hence increased government regulations designed to molly coddle the tenant. The government generally believes tenants are too dumb to understand what they are doing or protect themselves. This is the primary reason we have no damage deposits and generally are unable to terminate leases or evict tenants in Ontario.

 

[JimWhitelaw]

I don't think that the RTO strategy is fundamentally different than other RTO businesses like furniture and electronics or "buy here, pay here" auto sales or even cheque cashing services. The core business is providing a form of financing to high-risk borrowers while holding the underlying asset as collateral. Regardless of market conditions, there will always be a group of people who can't qualify to purchase things they want using conventional means. Providing those people with options is no more exploitive than any other business that provides customers with goods or services they are willing to pay for. As far as I know, no tenant/buyer has ever been forced at gunpoint to enter into an RTO agreement.

 

[nubiwan]

My experience has been this. I have 2 houses on rent to own. I initially listed both houses for sale on the MLS, mainly because they are in areas considered a little distant from the city, and the commute is further than average. I had maybe 10 veiwings in each home over 3 months. As an investor, this is simply too long to wait and, to be perfectly honest, I cringe when I have to pay an agent a 5% fee. I see people recommending agents all the time as part of "your team", but personally, I have never use an agent any more to buy or sell houses. A different topic, though somewhat related to my RTO experience.



Anyway, once I told my agent to pull the property off the MLS, I put up a Rent to Own ad on Kijiji. The response, in comparison, was pretty impressive to say the least. I had about 50 calls inside a month. Now, not all these people qualified, for one reason or another, but I went down the path (to the contract stage) with about 2-3 different potential buyer tenants on each of my homes. Each qualified in their own way, each had resources to afford my house, and each had different reasons for not wanting or being able to buy through the bank. You'd be amazed the stories you hear.



I have actually had one of my clients / tenants transfer their interest between the two homes I own. I make sure that they go into the entire process with no doubt as to what would happen if they decide to back out. To the extent that they sign the actual line in the contracts that specifiy that they forfeit their deposit and rent credits if they have to walk away. This has happened to me twice as people have moved to Alberta (imagine that!), and I have been able to quickly re-list and pre-sold my houses on RTO all over again.



The answer to your question is have you advertised an RTO? Have you tried to sell a house? Are those two classes of people the same? I'd say not. Many people respond to RTO who are not able to be in the market to buy a house. From my experience, there are a great more people out there that really want to own their own place, but just do not have the appropriate situation to be able to do it. RTO is an option that these people can look nto.



Finally, I take a little umbrage (spelling?) to posts claiming landlords like myself take advantage of misinformed buyers. I personally tell people what they need to be making in order to buy my house 2-3 years down the road. My contracts clearly outline the terms, and I tell them upfront, in plain English, that they are essenatially makign a decisiont oday, to buy my house in 2-3 years, and they have the keys to their home today, instead of waiting for 'never' with a bank. All my RTO clients / tenants have had 6 figure incomes, and for various reasons, cannot qualify or have other reasons for not wanting to buy the house today.



Sorry got carried away. While I am not in the business of RTO per say, I do have two properties that I consider necessary to RTO, simply because of logistics. I found it easier (and more lucrative) to find RTO buyer / tenants, than sell the bloody things on the MLS.

 

[nubiwan]

Per my previous post. Felt I should clarify why I have properties in areas in which they are both hard to rent, and sell. Here is the 30 second answer.



Property 1 was a shack that I bought for 60K. Town was about to comdemn it. Perhaps I should have held out for a lower price. Anyway, the original intent was to sink $60K into it and flip it. That is where the MLS story / RTO story comes in.



I listed the house for $219K. Think I had one offer at $195K. I turned it down. My current RTO is earning me $1500 rent per month, and will sell the house in 24 months for $235K. No agent fees. All my own work.



Second property was that I bought a piece of land in tha same town for $45K. I subdivided into 3 lots an quickly sold 2 lots for $70K. I wanted to get some experience building and subcontracting a new house from the foundation up. So that is what I did. It was a good experience and, from my point of view, opened my eyes as to what it really cost per square foot to build homes. Some people around here must be making a killing.



Anyway, when it came times to sell my new home I was getting few bites, so I just did another RTO. My total build cost was maybe $200K. I listed on MLS for $305K, not even a sniff of interest compared to the RTO ad I put on Kijiji. It is now on RTO at $2200/month and sell in 2 years for $345K.



My major concern with RTO is how I manage the income versus capital gain on disposition. Another topic altogether....