WHAT DOES RENT-TO-OWN MEAN TO YOU AS THE INVESTOR?
We often work with smart, hard-working people that want to grow their investments, but don’t have time to learn, and then acquire and manage properties. We do an occasional flip, some buy and hold properties and sometimes we use Rent to Own (RTO) in our strategy.
So what does that actually mean for your investment opportunity? How is it different from and similar to a regular house with renters?
- In RTO, the people who move in are called Tenant-Buyers. Why? This is a two part strategy. The individuals or family begin as Tenants and sign a Lease with you. In part two, they qualify to Buy the home. Two parts, two contracts, two monthly payments.
- The Lease is just like with any regular tenant, and the rent is paid every month. The second contract clearly defines a monthly amount (often around $500) that goes directly toward the tenant-buyers’ down payment. There is no temptation to take some of that money and go on holiday, buy a nicer car, or splurge on other consumer items—the money is already tucked away in a secure account that the tenant buyer cannot access until they buy the house. Cashflow for the investors is typically better with Rent to Own.
- What about property management? These tenant buyers are much more committed to your property; they are planning to own that house in 2-4 years. Because they are building more and more “skin in the game” with every monthly payment, they typically take better care of all aspects of the property. This means lower maintenance bills for the investors.
- Your investment strategy generates wealth, but you also have an altruistic benefit of helping a (carefully screened) candidate succeed at home ownership.
- It can take longer to find a RTO candidate who can pass your screening process; you may need up to 90 days! But after that, you will have lower vacancy costs with this property.
- Your exit plan is built right into the agreement from the beginning. The tenant will buy the property directly from you—no realtor fees! Who doesn’t love saving $10,000 to $20,000 on average?
- The tenant-buyers agree on a price from Day 1. Both parties have some risk here. If the house appreciates more than your estimate, then your TB gets a great deal, and the investors could have made more money. If in approx. 3 years the house isn’t valued at the pre-determined price, the TB is now over-paying for the property, or may need another year to qualify. As the investor, you already know your primary exit price and approximate ROI for this property.
- Worst case scenario? The TB defaults on the lease or the Option-to-Purchase plan. Sometimes life happens beyond what we can predict or control. As co-investors, Mountain’s Edge Developments takes care of this process with as much respect and time-efficiency as possible. Plus we always have multiple exit strategies, just in case!
Sometimes we post RTO opportunities to our select buyer list. If you want to receive notices of these deals, please go to https://mountainsedgedevelopments.com///contact.
