Rent To Own

[Mike31]

First off I just registered and this forum seems to be very informative.

I am considering purchasing another rental property in Cambridge, ontario but this time I want to advertise it as a rent to own. I understand the basic concept of recieving a down payment and collecting monthly credits that will be used towards the purchse of the house.

My question is at the end of the lease agreement when it is time to sell the house, do you return the down payment and credits to the tenant or forward it to the bank? Do I physically write them a cheque?

I am a bit confused on the logistics of the purchase deal. Any info would be appreciated

 

[RebeccaBryan]

Read Mark Loeffler`s book, "Investing in Rent-to-own Property".. that will give you all the info you need to make your decisions.

 

[nguyento2468]

The initial security deposit and the monthly security deposit will be refunded to your tenant. They will use them toward their morgage downpayment. These deposits should be clearly specified in the contacts signed between you and your tenant.

Tommy
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QUOTE (Mike31 @ Sep 9 2010, 07:49 AM) First off I just registered and this forum seems to be very informative.

I am considering purchasing another rental property in Cambridge, ontario but this time I want to advertise it as a rent to own. I understand the basic concept of recieving a down payment and collecting monthly credits that will be used towards the purchse of the house.

My question is at the end of the lease agreement when it is time to sell the house, do you return the down payment and credits to the tenant or forward it to the bank? Do I physically write them a cheque?

I am a bit confused on the logistics of the purchase deal. Any info would be appreciated

 

[Mike31]

QUOTE (RebeccaBryan @ Sep 9 2010, 07:21 AM) Read Mark Loeffler`s book, "Investing in Rent-to-own Property".. that will give you all the info you need to make your decisions.


Thanks. I will pick it up asap

 

[Mike31]

QUOTE (nguyento2468 @ Sep 9 2010, 09:01 AM) The initial security deposit and the monthly security deposit will be refunded to your tenant. They will use them toward their morgage downpayment. These deposits should be clearly specified in the contacts signed between you and your tenant.

Tommy
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Thanks Tommy. So the benefit to the seller is mortgage pay down, guaranteed appreciation and a guarteed sale.
What is the standard if the tenant backs out of the purchase. I assume the owner keeps the intial down payment and
monthly credits, but is this legal?

 

[GaryMcGowan]

QUOTE (Mike31 @ Sep 9 2010, 04:30 PM) Thanks Tommy. So the benefit to the seller is mortgage pay down, guaranteed appreciation and a guarteed sale.
What is the standard if the tenant backs out of the purchase. I assume the owner keeps the intial down payment and
monthly credits, but is this legal?


Nothing is guaranteed. Read Mark`s book and it will be a lot clearer as to how to proceed.
You can also partner with a RTO company that will find and place a tenant for you or they will partner with you on the property. The advantage to this is you get all their recourses that they have taken the time to put together eg: Mortgagee Broker that knows how to qualify tenants, Credit Specialist that will take the time to improve the tenants credit score, experienced investor, all the paper work and legal documents, and so on...

The owner in a RTO does take a non-refundable deposit and the monthly credits are also non-refundable but only when the RIGHT legal paperwork is in place.

 

[Mike31]

Thanks everyone. Looks like I have some reading ahead of me

 

[markl]

Just some adjustment in wording. The initial deposited is credited to your client when they exercise their option to buy.

I don`t like the word refunded.

The main feature of a RTO and why we love it so much is two fold. Cash flow - We get great cash flow. Second we are managing people not a property

Regards,

 

[Mike31]

"Second we are managing people not a property"

I never looked at it this way.......but it makes sense. I am also learning that wording can play a big part in how people percieve things. Thanks Mark

 

[Dan_Eisenhauer]

I also was going to comment about the use of the word "refund". Mark covered it well.
I do want to comment on the use of the term "security deposit". Anyone who uses this term in their agreements or when speaking with a potential TB is asking for trouble. Security deposits are refundable, in most circumstances, if the deal does not come together. If a TB decides not to close, for whatever reason, he/she may ask for a refund of their "security deposit", in the same way a normal tenant does. if it goes to court, a judge may very well agree with the TB simply because of the use of that term.

The initial deposit should be called the Option Fee, or some other term. It is what the TB pays to get the Option Agreement. Options are used in many areas of business, and understood by the legal community. A refund of an Option Fee is unlikely.

The monthly contribution is referred to as the "monthly purchase credits" in my agreements.

As I said in another similar post recently, my agreements all have stand alone clauses requiring the TB to acknowledge and initial that they:
* have been advised to get independent legal advice
* they forfeit the Option Fee plus accumulated Purchase Credits if they do not exercise the Option
* they accept the property "as is", and are responsible for its maintenance.

Someone above said an RTO was a guaranteed sale. NO IT IS NOT! It gives the TB an Option To Buy; that is all. They need to qualify for financing at the end of the contract, and we have no control over that. The TB can backout at any time, without penalty, other than the loss of the Fee and Credits.

I have had two TBs back out on me recently, one because of a job loss, and the second because an expected legal settlement award did not arrive as quickly as expected. The latter cost me some big bucks, and is still before the courts.

 

[nubiwan]

QUOTE (Dan_Eisenhauer @ Sep 12 2010, 11:44 AM) I also was going to comment about the use of the word "refund". Mark covered it well.
I do want to comment on the use of the term "security deposit". Anyone who uses this term in their agreements or when speaking with a potential TB is asking for trouble. Security deposits are refundable, in most circumstances, if the deal does not come together. If a TB decides not to close, for whatever reason, he/she may ask for a refund of their "security deposit", in the same way a normal tenant does. if it goes to court, a judge may very well agree with the TB simply because of the use of that term.

The initial deposit should be called the Option Fee, or some other term. It is what the TB pays to get the Option Agreement. Options are used in many areas of business, and understood by the legal community. A refund of an Option Fee is unlikely.

The monthly contribution is referred to as the "monthly purchase credits" in my agreements.

As I said in another similar post recently, my agreements all have stand alone clauses requiring the TB to acknowledge and initial that they:
* have been advised to get independent legal advice
* they forfeit the Option Fee plus accumulated Purchase Credits if they do not exercise the Option
* they accept the property "as is", and are responsible for its maintenance.

Someone above said an RTO was a guaranteed sale. NO IT IS NOT! It gives the TB an Option To Buy; that is all. They need to qualify for financing at the end of the contract, and we have no control over that. The TB can backout at any time, without penalty, other than the loss of the Fee and Credits.

I have had two TBs back out on me recently, one because of a job loss, and the second because an expected legal settlement award did not arrive as quickly as expected. The latter cost me some big bucks, and is still before the courts.

Is the one still in court because you did not have the appropriate terms indicated above, or does it still contain this wording?

Wouldn`t care to share your RTO agreement with a layman would you? I am currently renting properties but have one (curently for sales) that I`d rather RTO than rent. You can PM me if you arenot averse to sharing.

Thanks
Tony

 

[Mike31]

Dan, Your above post has highlighted some very important items for me. Rto`s are not as simple as they seem. I definatly have alot to learn