Why rent to Own from a tenant perspective?

4 Replies

Hi All!

I am looking into establishing a business around the rent to own model. I feel as though there is certainly a market for such a model and it has the potential to be great on both sides of the deal, that being 'tenant and landlord,' or however you prefer to phrase it. 

What I am looking to establish is, as a rent to own landlord/investor, what is my competition? Assuming that the target group is unable to attain a conventional loan and put 20% down, why wouldn't they just go with an FHA or other type that offers low down payment options?

Any advice or knowledge on the subject would be greatly appreciated!

Thank you!

@Brianna H.  , a lot of times the issue isn't the down payment, it is poor credit so that they won't be approved for any mortgage at the current time.  The potential tenant needs some time and effort to repair their credit.

@Brett Russell  

You live in MI where houses are cheap and 3% in MI aint 3% in the North Shore of MASS or 3% in the valley of LA CA (ex $900K for a small lot, 1500 ft 3 B 1 B Studio City CA).

https://entp.hud.gov/idapp/html/hicostlook.cfm

Link above is the FHA loan limits. Many nice areas are over those limits for FHA.

@Brianna H.  

I coach seller financing on BP See http://www.biggerpockets.com/blogs/3-reiskills-and...

Here is what I would do:

1. Get a good Real Estate Attorney in MA, contact http://www.biggerpockets.com/users/BunkerHill for a referral

Account Closed  is awesome.

2. Learn about financing, both conventional and FHA. Get down payment assistance in MASS info, start here http://www.massresources.org/down-payment-assistan...

3. Get a RMLO (Registered Mortgage Loan Originator) for underwriting the tenant buyer to see if they can qualify down the road.  You need the RMLO for lease optionss.  Contact [email protected] if you have trouble for a name of a RMLO.

Here are some benefits:

Benefits For Buyers

  • Low initial monies to take possession of a nice home.
  • Qualification restrictions are not as great as in conventional financing.
  • Past credit problems are not usually a road block.
  • The option consideration monies can be fully credited to the purchase price.
  • Purchase price is usually locked-in ahead of time, and with 3 to 5 years to
  • pay.
  • Gives you sufficient time to check out all the features and faults of the
  • house.
  • Time to check out the neighborhood.
  • Puts you in legal control of a property for a specified period of time.
  • Time to shop for and obtain the best financing.
  • Major maintenance and repairs are the responsibility of the owner-landlord; you take
  • care of nothing.
  • Profits, in case the property appreciates, are yours, if you decide to sell in the future.
  • Benefits For Sellers
  • Usually top sales price for the property.
  • Better quality tenants.
  • Top Market Rent payments every month, yielding GREATER MONTHLY CASH-FLOW.
  • Non-refundable option consideration money payment.
  • Seller remains on the deed, keeping control.
  • Seller retains the tax benefits, providing tax deductions.
  • No property manager or agent sales fees.
  • Benefits For RE Investors
  • Maximum leverage.
  • Minimum cash outlay.
  • Minimum risk.
  • No maintenance.
  • Wonderful cash flow.
  • Excellent profit potential. 
  • Note 1: Buyers can Lease then Purchase or Lease then have an option to purchase.

    A lease purchase is not an option to purchase.  Buyer must get financing before end of lease or lose the down payment, usually 3%.

    Note 2.  As an Investor, 

    a. you can assign either a Lease Purchase or a Lease and Option for a fee, generally 3%.

    b. you can do a sandwich lease option, stay in the middle of the deal.  See http://www.biggerpockets.com/blogs/3/blog_posts/42...

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