Would this be a good Subject to and then rent to own?

3 Replies

Hello BP!
I had a seller contact me about their property and not wanting it to go to foreclosure. They owe about 183K plus a few months of back payments, which is about 10K. Taxes are up to date, but we will see with the next installment.

It is a 4/2/1

ARV is about 230K (I need to get better comps, this is just a quick overview)

Property doesn't seem to need much work. (Have only seen pictures)

Mortgage payments are about 1600/month.

I found average rents from rentometer $2200. I think this is a bit high, found a similar house close by asking 1750/mo.

I am not sure what information I need to get or what the next steps should be, if this is even something I should look more into? Any advice is appreciated.

I would not pay $193,000 for a property with an ARV of $230,000. You are paying about 84% of ARV where the recommended % is closer to 70%. You also haven't determined the repairs needed.

At rent of $1,750 and using a 50% expense ratio you have about a 5.4% cap.  I like to have a cap rate about 3 percentage points above my cost of money.  Since my cost of money is about 4% I need about a 7 cap minimum.

Good Luck.

Bill

Bill,
Thanks for the reply. I was thinking that one could use a different guide line for the rent, since it would be a rent to own?

There are a lot of moving parts in a lease/option or rent to own.  I look at the overall return that I need.  The cash flows include the rent for the length of the contract + the negotiated buy price.  I will arrange the numbers to suit the renter/buyer.  The rent may be lower or higher than normal and it effects the ultimate sell price.  I just make sure that if the sell does not go through that I can sell on the market at a price that assures my required rate of return.

Good Luck.

Bill

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