RTO property fulfillment rates

9 Replies

Hi there,

I just finished listening to a podcast on RTO as a strategy for investment. I like the idea of being able to assist tenants become homeowners but also the business side seems lucrative.

In the podcast "fulfillment rates" were noted as approximately 6% of the tenants. This seems depressingly low for the potential of success for the renters and pretty much a cash grab for the investor.

Can or will anyone comment on their experience with RTO fulfillment rates?

Is anyone able to comment what the situation is in Ontario for RTOs? 

Thanks

Steph

It is very low. What we have found is that ongoing eduction is the best way to drive this number up. I attended a presentation at IMN SFR confernece Iin Miami and 2 panelist had success rates of 20-25%, so it can be done, but 50%+ success rate seems challenging if not impossible.

Originally posted by @William Powers :

It is very low. What we have found is that ongoing eduction is the best way to drive this number up. I attended a presentation at IMN SFR confernece Iin Miami and 2 panelist had success rates of 20-25%, so it can be done, but 50%+ success rate seems challenging if not impossible.

I've been taking a real estate investment course available through my public library and the low rates of success for renters was presented as a way in which this is a solid investment strategy. In the course the instructor cited only around 10% and the podcast on BiggerPockets cited 6%. Beyond these figures and your response it seems no one on the web wants to talk about this strategy as being reliant on failures.... or am I just being cynical? 

I'm interested in L/O or RTO as a strategy but also don't want to bank on people losing out in the end.

I appreciate your comments about providing ongoing education but it seems even this is a real gamble.... at least for the renter. 

Hi @Stephen Kuntz ,

What are you referring to?  The % of tenant/buyers who actually purchase the property?  It is all about setting up the tenant/buyers for success in the beginning.  Our whole business is centered around getting them on a path to homeownership.  For our houses it does require a significant down payment so it is very unlikely that they will walk away from it.

Hope that helps,

Chris Pre

You are correct in that I am talking about tenants who actually do purchase at the end of the option period. My concern is that the business having such a low % of tenants that complete the process that it seems as though a good part of the reason that RTO / Lease option is so popular is that the failure rate is what is driving profits.

I want to do real estate investing and I AM interested in RTO but I want to act ethically.

Originally posted by @Doug Pretorius :

@Stephen Kuntz You want to do it ethically? Simple. Don't put a time limit on it. Set it up so that if the buyer pays every month for 25 years they own the house free and clear.

Hi Doug, I had actually seen your profile and noted you were in Waterloo ON and wanted to connect with you for your perspective on good investing in Ontario.... Serendipity at play I suppose that you responded. 

Your comment, I assume, is somewhat tongue in cheek. That's a very loooong game in terms of investment strategy or otherwise known as private mortgage provision which is NOT what I am interested in.

I want a clean conscience if I offer RTO and that's why I question the ethics. The situation as I see it goes like this: I offer a way for a client to purchase a home and education/information on how that can happen for them (fixing credit, saving money, etc) and they are successful and in the end own their home...... or.... they do not follow the suggested path and they lose yet even more money.

The same type of logic goes into the business of payday loans but we all know that they are predatory and do harm to those who are struggling financially. I don't want my business to rely on strategies that I know don't work for ~75-90% of my clients. But I also know that the idea of RTO speaks to my "reasons why" (Simon Sinek) I want to do business.

Therein lies my dilemma. I can rationalize that clients make their own beds and that I am acting ethically but if I know the odds are against them and I offer the product anyway... that's seems unethical despite being perfectly ethical. Does that make sense? 

@Stephen Kuntz I was being slightly tongue-in-cheek, however for me I want the cash flow to continue for as long as possible, I really would prefer if they never cashed me out.

And yes I understand what you're saying. The fact is it takes exactly 2 years of on-time payments on all of your debts to go from bankruptcy to qualifying for a normal mortgage rate. So as long as you give your T/Bs at least 2 years and set it up so that they will have at least 5% equity (their down payment) then the only reason they wouldn't be able to close is if they deliberately defaulted on a loan (credit card, car loan etc.)

@Stephen Kuntz

Morally and ethically we want all of our tenant/buyers to get to the finish line.  However that is not always possible due to things that are out of our control.  Divorce, death, job relocation.  @Andrew Merriman is correct and thanks for the mention.  

It is right that some investors out there do not care if the buyer ever gets their own loan but that is not our business model.  I'm not saying those other strategies out there are wrong by any means.  Anyone can work however they please and I wish them all the success in the world.

You have to decide for yourself of course,

Chris Pre