My First Deal (ca)

[Walter 0]

Finally I am getting my first CA to work on.

How do you determine the value of rent for t/b?

 

Here are the monthly numbers:

Mortgage - $785

Tax - $93.1

Insurance - $33.5

Hydro - $75

Gas - $155

Water - $40

Water heater rental - $13

 

It is 3BDRM older renovated house with a nice landscaping and cool first floor with open concept. (1500sqFt).

 

When you calculate the rent, you look only at Tax and Insurance values or anything else?

 

Is there anything else one should know about this house?

 

 

Thanks for your feedback,

 

Walter

[JCannon 0]

Walter, congrats, find out what other like properties in the area are renting for and go from there. From what I understand, a T/B will pay a little more per month than just a straight renter because you are giving them an option to purchase and rent credits. Hop that helps.

[Mr Saint 0]

Walter,

 

Here's where I usually go to find market rent...because that's what you need to go by; what the market rent is for that type property. People aren't going to pay 1500/mo for your house when they can go down the street and pay 800 for the same thing...no matter if is a lease purchase. The first thing I do is go online. I hit the major ad sites that feature houses for rent in the area. Then I call some management companies and tell them I have a house that I'm thinking of renting out; after a few questions, they can usually give me a general idea of the market rent for that area.

 

Hope that helps,

[Kimberly 0]

Walter,

 

You can't base the rent off the property expenses. Although the ideal is to have the expenses covered plus a little something extra.

 

You need to know what the market rate is for a similiar type property in that area. Yes, you can probably get a little more than that.

 

Mr. Saint has already given you what I think is the best way to go about finding out.

 

Kim

[Doug Pretorius (ON) 9]

Mr Saint & Kim, what do you believe is the reason that you can't get more than a slight premium for RTO? My first CA would have rented for about $950, I got $1,250 without a peep. And my first RTO (I own the house) would have rented for $850, while I got $1,150.

 

Is it just my market that allows this, or is it something else?

[Kimberly 0]

Doug,

 

Keeping it close to the going rate is fills it faster. Could I get more? In certain cases yes, in others no.

 

The rental market here is slow, as is traditional home sales, the exception is luxury homes which continue to boom.

[MichaelC 160]

Congratulations, Walter! That's great news! Is it official yet, or are there still a few details to lock down? Let us know so we can help you bust that ol' cherry.

Determing the rent isn't nearly as scientific as determining purchase price. Here in the States, anyway, sales prices are a matter of public record, (with the exception of six states). However, rent rates are not. That's between landlord and tenant, and no public database of information exists.

In lieu of this, you can do as Mr. Saint suggested. Contact a local residential property management company. Act like a homeowner who may have a property for rent, and give them the details of the subject property. Not the address, mind you, but the general specs and location. After a few minutes of going back and forth, and listening to them tell you why they are the best for your needs, ask for an approximate rent. Do this again with another management company or two, and maybe the rental office in a Realtor office, and you'll have a good idea of what rents are going for.

You can also go through the newspapers to see what the asking rents are for similar properties. And don't forget to rummage through old ads, call, and explain to the owner you, too, have a similar property for rent. He'll more than likely share some information with you.

Finally, don't make the mistake that rent is based on the property monthly expenses. In other words, the PITI is $1,200 and expenses are another $300, therefore the rent is $1,500. That has nothing to do with what you can expect to receive each month. A little due diligence now, Walter, will go a long way towards moving your deal along quickly.

[Mr Saint 0]

Mr Saint & Kim, what do you believe is the reason that you can't get more than a slight premium for RTO? My first CA would have rented for about $950, I got $1,250 without a peep. And my first RTO (I own the house) would have rented for $850, while I got $1,150.

 

Is it just my market that allows this, or is it something else?

<{POST_SNAPBACK}>

 

 

Doug,

 

As what Kimberly said, I try to stay as close to market rent as possible, if not than just slightly higher. There is so much competition in my area that I need to be as competitive as possible. That's not to say that a LO doesn't have value built in and with a hefty credit we can't get a better monthly rent. The last CA I did, I think real market rent for the house was about $900 and we got $1050 for it. We were also giving a $315 rent credit as well, but I'm not going to up the rent by $300 or $400 just because I can...it would have taken a lot longer than it did (2 months) to fill. I may push the market a little, but I'm not going to be the most expensive guy on the block either. But that's just the way I do it, others may be able to accomplish thing differently.

[Doug Pretorius (ON) 9]

Kim & Mr Saint, that's awful! In my market, RTO wouldn't be worth doing if I had to base the payments on rent rates, because rent rates are generally at or below costs. So I've always based my RTO payments on what it would cost to buy the house, and that's how I sell it to my buyers.

 

Maybe that won't work when the selling market slows. But it is working despite the fact that rental vacancies are the highest I've ever seen.

[Kimberly 0]

Doug,

 

You OWN most of those properties, don't you? I'm doing CAs. Even so, if they've got a reasonable mortgage payment their expenses are generally covered.

 

Kim

[Doug Pretorius (ON) 9]

Kim, yes I own most of them, but either way the payments are about the same. Most sellers don't have much equity, and I buy with little or nothing down. Around here no single family homes will cash flow as rentals, unless you have a huge amount of equity.

 

For example, the CA I mentioned would have total expenses of $1,130/mo with an interest rate of 5% (100% financing). While it would rent for only $950/mo. As you can see I can't possibly base my RTO payments on rent rates.

[Carmine - NV 0]

I always thought RTO was kind of like owner financing with a much lower % down.

 

When I advertised my last house, I based the monthly payment on what the principle and interest would be on a 30yr amortization (at 8%) of the balance of what their exercise price would be, and explained it by saying "this is what you would pay if you got a loan to buy this house yourself, except you have no closing costs and don't have to qualify. And of course you pay taxes and insurance." Every single person who called agreed, and said "of course", and I ended up selling the house to the first person who looked at it.

 

My thoughts are...you're not "renting" the house so much as providing 95-98% financing for people who can't qualify for bank financing. So why would their payments be based on market rents and not on what they would be paying as if they got cheap, no qual financing...since it's what they will be paying in year or so when they exercise anyways?

 

In my opinion, it kind of seems like a disservice to the T/B when they go to refinance and they realize their PITI payments are now 20% more than they were just paying.

[-Tony- 0]

Carmine,

I use that exact same thing when explaining why they pay more, along withthe rc they recieve. But still I am only about $100-150 above market

[Kimberly 0]

In my opinion, it kind of seems like a disservice to the T/B when they go to refinance and they realize their PITI payments are now 20% more than they were just paying.

Carmine,

 

Their mortgage payment would still be at or under their rent rate.

[Carmine - NV 0]

In my opinion, it kind of seems like a disservice to the T/B when they go to refinance and they realize their PITI payments are now 20% more than they were just paying.

Carmine,

 

Their mortgage payment would still be at or under their rent rate.

<{POST_SNAPBACK}>

 

Maybe I'm missing something here then. I'll post numbers on an example and you can see where I'm coming from.

 

If you finance a 200k house at 8% on a 30yr amort....the payment is $1,467 PI. Throw in taxes and insurance which may be around 200-300 per month, and you're looking at a payment of around $1,700/mo give or take.

 

If the market rent on a 200k home is only around $1,150 or $1,200...even if you base your RTO payment on that plus a $200 premium, you're still about 20% less per month than what their payment will be when they refinance.

 

Maybe it depends on the market though.