Investor · Toronto, Ontario · Member since 2014 · 320 posts · 125 votes
Looks like my tenants might want to buy one of my properties and I'm trying to determine the best way to set a price. I don't want to ask an agent for comps, cause if my tenants do buy, I won't need them. Maybe appraisers? I'm open to ideas.
Hire an independent appraiser and split the costs?
The biggest factor besides the comps, is your motivation to sell. If you don't need or want to sell, why are you selling to them at market value or under it? You can keep it and keep collecting rent.
Or maybe even structure a lease option for them to stay longer and set up a future option price to sell. So you get the best of both worlds !
Hire an independent appraiser and split the costs?
The biggest factor besides the comps, is your motivation to sell. If you don't need or want to sell, why are you selling to them at market value or under it? You can keep it and keep collecting rent.
Or maybe even structure a lease option for them to stay longer and set up a future option price to sell. So you get the best of both worlds !
@Chris T. I'm looking to get the money out relatively quickly as I want to continue moving my portfolio from Waterloo (far from me) to Toronto (my backyard). Because it's a licensed student rental, it has value beyond regular homes in the area.
Unfortunately, awesome tools like Zillow don't work in Canada. We've got MLS and that's it.
My only issue with using an appraiser, if I'm worried they'll under value the property. If it's anything like the appraisers I've used for refinancing, I have to bring comps from an agent to explain to them why I believe it's worth a certain value.
I can't speak for Toronto or even Canada in general, however in the listing contract I use, it states that if (Persons name) purchases home then I am not entitled a commission. So if you put your tenant there it would mean if they end up buying that it was between you two and best of luck.
So if I was you: first I would determine if I wanted to sell (If yes go forward, if no "Full stop")
Second I would call an agent and say "Hey I need to list my house, come give me a CMA" (go ahead and call 3 agents)
Third I would go ahead and list it at a price you feel comfortable or ask the tenant to purchase. If the tenant does not want to pay the fair price, then list. If the tenant and you come to an agreement then hey good luck.
I would not have an issue giving you a CMA, the assumption is though if it is worth 200K and the tenant says "No way" or you two cannot agree, then you would list it. If you only want to sell to the tenant and not the best buyer, then it is an emotional instead of business decision and in that case, just pick a random number you both like.
Just my 2 cents and good luck in whatever you decide.
You could set up a Rent-to-own scenario. There are some groups that specialize in that i.e. Rockstar Real Estate, they have contract templates and that kind of thing. For the record I'm not signed up with them ;)
Typically you ask for about $5000 right away, in order to have access to thy kind of deal. Then set an amount above their current rent maybe $300-400 on top. That portion and the $5000 go toward the down payment. You settle on a price that they agree to in 2-3 years. Then sell to them at that point. You get to keep collecting rent for that time and they get a house without a massive downpayment in one go. If they back out of the deal after it is started, typically they forfeit the $5000 down and all the extra money they've been paying each month...the ideal is that they end up buying so you get the sale and they get the house.
While what you out line is often how "rent-to-own" is practiced in Canada - and was practiced in the U.S.A. until recent legislative changes - that scenario could be viewed as financing and/or an instalment sale by the CRA.
You really need data to set a price. Tax assessor is good start. Then you need recent sales. A real estate agent will provide you with recent sales in a quickly generated report via email. Tell them you are thinking about selling and want 12 months of sales data in X area. Easy to get here in US. But pricing a property is one of the true values in a realtor...problem is finding a good realtor. Most do ok because the market corrects to the market price but if you do not offer your property to the "market" then it can be difficult to be sure of fair market value (unless there are a number of similar properties that have sold).
Does that mean tax implications or legal implications for applying that strategy? I know some people that have several of these on the go. Does it require any kind of registering in order to provide a financing opportunity for someone?
It could mean both, but more probably tax implications for the landlord / vendor and possible for the tenant / buyer.
I too know several folks who do these, most without issue, but a couple of have come to the attention of the CRA - initially for other matters - who concluded their "rent-to-own" deals were really just instalment sales.
@Jesse Schultz - Funny, I was just at a Rockstar meet up earlier in the week. I'm not a member either, but was curious to see what all the fuss was about. :) While rent-to-own is an interesting strategy, I think the trouble with RTO in the GTA, is the appreciation portion. Most of the deals that Rockstar is setting up are between 5-9% annual appreciation while Toronto has been closer to 10-15% per year. The guys from Rockstar fully acknowledged that a RTO can leave money on the table, but they're using it mostly because it's easier for a first time investor. They have a clear exit strategy, "guaranteed" return and only a committed 3-5 years on a property.
Also, I'm looking at buying in Toronto right now, so the sooner I get the money out, the better it is for me!
@Roy N. - Yup, the money certainly isn't the issue. Rather, I want to ensure that I'm getting a good price. My experience with appraisers has been rather poor. They've been pretty uneducated about the market place. I always have to bring my own comps (which I can easily for Toronto, but not Waterloo) and then explain why my property is worth what I believe it to be. The answer is though, just pay for more appraisals.
@Mike Cumbie - I might end up asking an agent anyway, simply because I don't know how serious my tenants are with this purchase. I think if I'm upfront that my tenants could be the ones buying the property and they're comfortable with it, then it's okay. I just don't want to be that guy who takes up an agents time for nothing. :)
Ming Lim , have you found some comparable properties to show to your tenant yet? If you give me the address of the subject property and some details about it, I don't mind helping you out. Good karma goes a long way.
Cheers!
Mike.
@Mike Jebo - Thanks a bunch for the offer! I've decided to go the agent route however, as I think my tenants didn't fully comprehend the costs involved. :) I'm focused on getting the places looking up to snuff so I can get the most return. Wish me luck on the sale!
Ming Lim
Good luck brother!! Don't hesitate to ask next time. You should have that type of relationship with your realtor anyway. LUCK? HAH we both know we don't operate on luck in this market. Nor do we need it on the selling side. Lol you will do well bro.
Cheers!
Mike.