Comment Requested from this sandwiched RTO deal

[llee]

Hi,

I am presented with this sandwiched RTO deal (single family) in Gatineau, QC, 20 minutes from Ottawa.

The return is 24%. The RTO agent (in the middle) will receive $1250 from the tenant-buyer (hence $200 x 36) = $7200, and the 3-year Option price of 163,000 (hence rare-end profit of (5,000). What I get in return is a hands-off investment.

Could some RTO experts comment on this deal?

 

[nadjam123]

I`m not an RTO expert, but I do own two properties this way. The spreadsheet presented to you is very much the same as what I have looked at to decide whether to purchase my own RTO deals (along with a ton of other information on the actual tenant - the tenant story is just as important as the profitability of the deal). The numbers look funny to me. In the bottom section, the monthly numbers don`t even total up right. In the two deals that I am currently doing, I have paid an up-front fee to the company that puts the deals together. I don`t see that listed in your spreadsheet. That fee needs to be considered as part of your initial invesment in order to truly reflect your bottom line ROI. RTOs can be very profitable, but before you can consider entering into this kind of deal, all the numbers have to be displayed up front, and they need to be as accurate as possible, not rounded. It`s okay that some of the numbers may be estimates (you don`t always know the exact amount insurance will be, for example), but at the very least, the spreadsheet should be calculating accurately!

Just my humble opinion.

 

[bizaro86]

My only comment would be analyze the property without the RTO component as well. If, for some reason, the RTO tenant-buyer doesn`t complete at the end of the term, will you still be happy you own this property at the purchase price minus their deposit?

Michael

 

[markl]

How is this a sandwich lease deal? In a sandwich lease deal you never take possession of the house you lease option it off the seller and your client lease options it from you.

Hence your the meat in a LTO Sandwich.

Too comment on the deal itself I am unfamiliar with the rules in QC on how it works there. But other than that if you are comfortable with the house and comfortable with the tenant and feel the return works for you.

Regards,

 

[Thomas Beyer]

QUOTE (llee @ Apr 20 2010, 03:04 PM) Hi,

I am presented with this sandwiched RTO deal (single family) in Gatineau, QC, 20 minutes from Ottawa.

The return is 24%.
The ROI is 24% only if all goes well !

What happens if
a) tenant leaves ?
b) tenant doesn`t leave and doesn`t pay rent ?
c) tenant trashes the place ?
d) tenant does not exercise the option to buy ?

Who watches over tenant and his payment while holding ?

How do you exit in either scenario ? Are you on the hook for more cash or worse, mortgage and/or property value loss ?

Ensure that risk and reward is in line !

 

[llee]

QUOTE (markl @ Apr 22 2010, 11:30 AM) How is this a sandwich lease deal? In a sandwich lease deal you never take possession of the house you lease option it off the seller and your client lease options it from you.

Hi Mark,

In my scenario, I am the buyer of the property. My tenant-buyer is actually my property manager. She will sublease it to the couple for 3-year term. I have met all of them.

The live-in tenant will pay my sandwiched "tenant-buyer" $4000 down-payment, and $1250/mo. My sandwiched "tenant-buyer" will pay me $7000 down-payment, and $1050/mo. My "sandwiched" tenant-buyer has signed a 3-year lease with me, with an option to buy at 158,000. The live-in tenant will sign a 1-year lease with my tenant-buyer, with an option to buy at 162,000.

My sandwiched tenant-buyer said she`s responsible for the sublease, as she`s on the hook (and willing be) for 3-year.