I have a ½ duplex that I would like to rent out as a RTO. I have never done a rent to own deal but was considering doing one for this property that is currently in the negative for cash flow. I did a test ad just to see whether someone would be interested and received a few replies. One person, in particular, has approached me asking to do a deal but that he would need at least 7 years to clean up and build back his credit. I’m personally not ready knowledge-wise and so do not know what to do and what to avoid in RTO deals. I have Mark Loeffler’s RTO book but I’m seeking guidance from the community on this situation. Was hoping to attend a course on this at REIN, but my life is full and so have not had the time to do the training. Any advice would be highly appreciated. Thanks in advance.
RTO HELP
- Thread starter akinyioj
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RTO is not a junior strategy with many pitfalls for the inexperienced. That is why REIN, for example, puts on an extra course by the very capable and affable Barry McGuire, but even with this intense course some real world experience is useful.
As such, consider hiring an RTO expert - like Sherilynn - for a TBD fee ( or share of equity upside ) or make many mistakes yourself, and pay triple down the road.
Critical within RTO is:
a) tenant selection
b) down payment size & monthly option size
c) price in the future
d) credit repair program and progress monitoring
e) legal contracts and clauses
f) mortgage application, with associated down payment verification
g) knowledge how to deal with non-payment issues with credit challenged individuals, often with poor money management habits, divorces and/or language problems of recent immigrants
I have done one RTO .. so ask me how I know the cost of not hiring an expert !
As such, consider hiring an RTO expert - like Sherilynn - for a TBD fee ( or share of equity upside ) or make many mistakes yourself, and pay triple down the road.
Critical within RTO is:
a) tenant selection
b) down payment size & monthly option size
c) price in the future
d) credit repair program and progress monitoring
e) legal contracts and clauses
f) mortgage application, with associated down payment verification
g) knowledge how to deal with non-payment issues with credit challenged individuals, often with poor money management habits, divorces and/or language problems of recent immigrants
I have done one RTO .. so ask me how I know the cost of not hiring an expert !
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Two recommendations:
1) Have a qualified mortgage broker that understands RTO approvals confirm the timeline that any applicant gives you - how long will it truly take for them to be approved.
2) We personally would not enter into an agreement with someone that needed seven years to qualify - too much can happen in that amount of time - to the applicant, to the property, the property value, the economy, the qualification parameters, etc. etc. We typically try to stay within a two-year timeframe.
1) Have a qualified mortgage broker that understands RTO approvals confirm the timeline that any applicant gives you - how long will it truly take for them to be approved.
2) We personally would not enter into an agreement with someone that needed seven years to qualify - too much can happen in that amount of time - to the applicant, to the property, the property value, the economy, the qualification parameters, etc. etc. We typically try to stay within a two-year timeframe.
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Hi Janepher:
I definitely 2nd Thomas's "hiring an expert" idea, as for your test ad, you'll find yourself talking to just about every renter in town if you don't screen many of them out.
Qualified RTO clients are usually in 1 of 2 situations
1. They have money and fair credit (but really bad credit is out)
2. They have good credit and some money (but no money is also out)
Of course, you would always give some advice on when they should call you back. As Neill so very well explained, 7 years is not a prospect, but I would also ensure the information that made them aware of 7 years, was not from One bank only.
If negative Cash Flow is the biggest issue, the Landlord Secrets binder has everything in one chapter on acquiring tenants, especially since your property is staged the best, marketed the best, and the most pristine. Of course they get the best Landlord in the area as well! As Don has taught, these are the times we spend money on vacancies to meet the criteria above and be the best! Find your potential tenants "Pain" and deliver their "Why" into your suite!
I definitely 2nd Thomas's "hiring an expert" idea, as for your test ad, you'll find yourself talking to just about every renter in town if you don't screen many of them out.
Qualified RTO clients are usually in 1 of 2 situations
1. They have money and fair credit (but really bad credit is out)
2. They have good credit and some money (but no money is also out)
Of course, you would always give some advice on when they should call you back. As Neill so very well explained, 7 years is not a prospect, but I would also ensure the information that made them aware of 7 years, was not from One bank only.
If negative Cash Flow is the biggest issue, the Landlord Secrets binder has everything in one chapter on acquiring tenants, especially since your property is staged the best, marketed the best, and the most pristine. Of course they get the best Landlord in the area as well! As Don has taught, these are the times we spend money on vacancies to meet the criteria above and be the best! Find your potential tenants "Pain" and deliver their "Why" into your suite!
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One other thought: a lot of folks that are either filing for, or in, or just discharged from bankruptcy believe that it will take seven years to qualify, and that is not the case if there was no mortgage included in the bk. Post-discharge, they typically need to have two "trade lines" - eg, a credit card (for at least 1500-2000) or a vehicle loan (preferably not for a high pmt as that affects debt servicing), a personal loan, etc - established for two years on their bureau.
AND - no late payments post bankruptcy, or collections. These make approvals super tough...
AND - no late payments post bankruptcy, or collections. These make approvals super tough...
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Agree with the above. 7 years is a very long time. Divorce,death ,change of jobs can happen during that time.
RTO is a strategy you need to be experienced or educated in fully. A lot of what ifs are involved.
Also consider how you will benefit if you put a short term tenant with the current economic situation in Alberta. How much appreciation would you be using,all those kinda need expert advice or experience.
All the best!
Thembi
RTO is a strategy you need to be experienced or educated in fully. A lot of what ifs are involved.
Also consider how you will benefit if you put a short term tenant with the current economic situation in Alberta. How much appreciation would you be using,all those kinda need expert advice or experience.
All the best!
Thembi
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- Oct 22, 2007
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- 2,803
I agree with everything written so far. (And thanks, Thomas, for the mention.) 
As for hiring an RTO expert, one possibility is to JV with the expert and have him or her handle all aspects of the deal from start to finish. You would give up a small share (such as 25%, if that works for everyone) of the future gains on the property including future mortgage paydown, value appreciation, and monthly cashflow. And you gain an expert with a vested interest in making the deal work.
Often you will find the potential gain outweighs the cost of the portion you give up.
If the property is in dire straights or has only a small potential future upside, you may need to give up some of the equity already in the property. Still, you could find the numbers may be better with RTO than selling through a realtor.
As for hiring an RTO expert, one possibility is to JV with the expert and have him or her handle all aspects of the deal from start to finish. You would give up a small share (such as 25%, if that works for everyone) of the future gains on the property including future mortgage paydown, value appreciation, and monthly cashflow. And you gain an expert with a vested interest in making the deal work.
Often you will find the potential gain outweighs the cost of the portion you give up.
If the property is in dire straights or has only a small potential future upside, you may need to give up some of the equity already in the property. Still, you could find the numbers may be better with RTO than selling through a realtor.