Landlords: Rental Stream Financing?

Question

To all you larger landlords and apartment building managers:

Is anyone aware of a financial services provider that will "purchase" your future rental cash flows at the beginning of a lease?  I would imagine this would be done at a discount, but would afford you the predictability of getting paid a year's rent at the signing of a one-year lease.  As the tenant pays monthly rent, it would be passed on to the purchaser of the rental stream.

Does such a service exist?  If not, is there a market for one?

Jeff Takle · Answer

I'm not aware of such a service. I suspect that it's only possible (if at all) for property owners with: 1) a lot of property, say over 1,000 units; and 2) a long and very well documented history of payments / rents. The financial industry, at least the traditional large financial industry, wants to see a lot of data and be able to ascertain with reasonable certainty your long term delinquent rent rates, eviction rates, fees, rent increases, operating costs, and your (or your company's) personal financial picture and stability. In other words, how risky is the note?

However, if you have a number of properties, you should consider at least opening a sweep account and floating the money for a short period. It's good practice to have different operating accounts for all your properties, but if you reach critical mass in terms of rentals, you can gain significant benefit from temporarily pooling all rents into a central sweep account. Delay moving it to the specific operating account for, let's say 7 days. If you have 100 units @ $1,000 each, then it's the equivalent of getting 7% return * 0.25 (1/4 of year) * $100,000 = $1,750 additional revenues.  That's real money you may be currently forfeiting to the bank holding your separate accounts. Now, if you have 500+ units around a major city where rents average $1,500...

Talk to several banks and let them know you also need to open deposit (escrow) accounts for each unit's security deposits (in this example, another $100,000 in security deposits) and you want to open $200,000 in deposit accounts + operating accounts at some lucky bank. You should turn their heads. Banks can turn around and through the Federal Reserve, leverage that money 9 times over...in other words, they can take your 200k in deposits and make $1.8M in loans from it. They're taking 7% on your mortgage...I say take some back.

Your is an interesting idea...I'll noodle on it and shop it around and see if anyone has thoughts.  Lots of fun options. -Jeff