I have a townhome in Frisco Texas where I am looking to capitalize off the recent run ups in home prices and sell it to a rent to own tenant. The drivers for this decision is that in the 14 years that I owned this townhome (I lived in it for the first 11 years) the property value remained constant at around $155k. In the last three years, the property values have exploded to a level I did not think I would see until I was well into my old age. Currently they are selling for around $230k. My townhome is 2100 sq foot and is a corner lot with one of the larger yards in the neighborhood. Though I see the value in using a realtor, I cringe at the commissions I would fork out if I sold it on MLS. I currently have a renter that has been there for 2 years and has stated they would like to rent it out for another year. They are looking to purchase a home after that but is not interested in my townhome for that first purchase. I have been reading the book More Than Cashflow by Julie Broad and I am very intrigued by their plan around creating additional cashflow through the rent to own process.
Being I am already flabberghasted at the current price of my townhome, I want to see how far I can maximize the market to get even more out of it. The reason why I would be selling the townhome is to cash out for other ventures that will require all the equity in the home. Based on the structure articulated in the book, if I structured the deal to be a 24 to 36 month rent to own lease and incorporated the 3% increase in price each year, the property would be around $250k. That number is even more unbelievable to me. I have lived in the same Dallas suburbs for the past 30 years so I am very familiar with the area. I have to think that eventually there will be a pull back. (probably when / if the Fed raises rates)
However, until then, I want to pursue the rent to own option so that I can lock in a higher price than the market yields today and not have to pay 6% commissions in realtor fees. The question is how do you market for a rent to own population. Is it Craigslist or some other website. Also when you find interested parties, what are the main things you look at that they have to give you some level confidence that they will be able to get financing within the next 2 to 3 years. If they need a little more time, I am open to extending the lease to get their affairs in order. The things I see that they need to get the deal done from a banking perspective is credit score, low debt to income, and down payment. Taking that the down payment should be resolved through the rent to own process, I would opt that the credit score be the only thing out of whack because that is easier to fix.
Anyway, I would appreciate any advice from those that have any experience at this. Mainly, how do I find good tenant prospects that are genuinely on the mends from their financial situation versus someone that will continue making poor financial decisions down the road.
My ideal scenario would be:
2 to 3 year lease with the option to purchase. Lease would be $1675/month
Purchase Price of $250k
$500 over the rental price per month as credit towards the down payment making the total rent $2175. This is a lot in Texas which is a concern.
They pay for any repairs $300 or less
Thanks in advance!
@Ben H. I'd like to know the same. One established investor swore by using signs around the home/ main streets nearby to find interested rent-to-own tenants and a phone line/voicemail dedicated to taking just those incoming calls. I'm working on getting a second google voicemail now. It's been three years ago since your post. What happened with this property. How'd you find your rent-to-own tenant?