I got a free copy of Mark Loeffler’s book Investing in Rent-to-Own Property: A Complete Guide for Canadian Real Estate Investors“. I asked for the book during the last Canadian Real Estate Blog Carnival A few days later I gratefully received it and read it right away.
Rent To Own Is Great For Investors
To summarize, Mark tells us to find the tenants first then make a rent to own deal with them, decide how long it’s going to take for them to clean up their credit and make a rent option to buy with them. It’s only at this point that the tenants go out with their real estate agent and buy whatever house they like as long as they qualify for it. This eliminates the problem of finding tenants for a place you already have.
Steps To Rent To Own
- Find Tenant
- Qualify Tenants
- Buy The House the Tenants Like
- Tenants put down 2% to 15% for the “down payment”
- Investor Factors in 6% to 9% for appreciation
- Tenants pay “Rent”
- Tenants pay “Option Credits” to grow their “Down Payment”
- Tenants work on their qualifying for their mortgage by fixing their credit
- In a few years the Tenants buy the house
In the meantime the investor gets the best of both worlds because he doesn’t have to fix or maintain the place because the “tenants” own it. I can see the point of it. I also want to point out that in his book Mark discusses extensions of the lease option, which can happen. Rent to own is very good for investors.
I Didn’t Like The Book
I wanted to like it and the book was highly recommended. It seems like it’s a prerequisite these days to advertise for networking with other real estate investors and in particular the Real Estate Investment Network. I’ve read the entire series of REIN books and the only one I liked was 81 Financial and Tax Tips for the Canadian Real Estate Investor: Expert Money-Saving Advice on Accounting and Tax Planning. I know too much about this business to stomach the happy, happy, joy, joy and “lifestyle” propaganda. There’s actually a decent amount of necessary information in these books, it’s the way they are written I take exception with. Still if you like Don Campbell’s books you’ll like Mark Loeffler’s book as well.
Rent To Own Investing Is Subject To Abuse
Although it is great for the ethical investor and can help certain people get a home, rent to own goes contrary to what I’ve learned about personal finance and my own ethics. The target market for this investment strategy is a “get it now” high income earner that has lived beyond their means and messed up their credit. Another potential rent to own tenant would be someone who has just had a financial windfall and wants to buy a house but again doesn’t have the credit. Divorced people and people who have suffered a bankruptcy are also prime candidates.
I’m a live in a basement apartment and save kind of gal. Furthermore, I haven’t exactly hidden the fact that I believe that the real estate market is headed for a correction. While Mark does address this issue a little bit by proposing to extend the term of the option period, it doesn’t address any significant price corrections. This is how the math would work for a sample house.
Price Paid By Investor $100,000
Appreciation over 2 years $18,000
Tenant pays 10% down -$10,000
Tenant pays usually above market rent
Tenant pays option credits of -$4800 ($200 per month)
At the end of two years the tenant has put down $14800 plus has paid rent but has $-3200 equity. If the market is flat it will be very challenging to get a mortgage. If the investor is a nice guy and I mean very nice, he’ll extend the option to purchase. There is no requirement to do so. In fact if the investor kicks the tenant out, she/he ends up $14,800 plus mortgage paydown over the two years to his/her benefit.
The rent to own investors I’ve known in the past do not employ the tenant first strategy. Some bought houses and did very nice cosmetic repairs, one didn’t even bother to do that and the entire back wall of the house had the brick veneer removed, and the previous tenant had also removed the back wall of the garage to allow a drive thru to the back yard. The “price” proposed for the house was well above market value. A great number of their deals fell through – on purpose I felt.
My Personal Issues
I can’t stand rent to own furniture, rent to own computers or even rent to own cars (most people would call this a car loan) I think these kinds of businesses take advantage of the financially vulnerable among us. I’m aware that my views on this are very unusual. It speaks to the “have it now” mentality in all of us. I don’t have any lack of entrepreneurial spirit however and for investors this may well be a way to have your cake and eat it. It’s certainly a better deal for investors from a management perspective than a buy and hold strategy in many cases. If you have no problems with the whole “rent to own” scenario as a whole, then this book will get you started. Everything you need is in there including the forms although I suspect that each province would require different documentation so you’d want to get a lawyer to look the contracts over. (Also mentioned in the book)
Affiliate Link Advisory
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