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DanielSun

new type of L/O business model?

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I looked at 4 local rent to own businesses, and they all say that (as a buyer) "You can pick any house that is listed" and they will let you rent to own it.

 

At first I thought wow, they must have a lot of capital, to be able to say that. Maybe they buy it themselves and then resell it? But that doesn't sound very safe at all.

 

I am kinda intrigued as how they structure their deal. lol and I can't buy one from them just to find out. (I am not looking into following their model, but I want to know what I can learn from their business)

 

 

any ideas? brain storm session!

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I'm curious as to what they are doing, also. Give 'em a call, play ignorant, and pick their brains. Let's see what their angle is.

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There is one in my area that just started doing the same thing. The buyer picks any house on the open market and the investor buys it and places the tenant/buyer in the house to purchase from the investor. Or the investor goes on the hunt to find a house (I think it's more of a hunt to find a deal).

 

The tenant/buyer has to "qualify" and is heavily screened and participates in an ownership program to improve credit, works with a lender and gets coaching (monitoring really). The t/b needs to go ahead and begin the ownership program before getting a house at a cost of a few hundred dollars (cost of credit restoration). The t/b has to have proof of 3.5% down payment for FHA and the price of the house and payments need to fit their income and debt-to-income ratio (now with buyer in-hand, pre-approved, needing just a tweek up of their cedit).

 

If the t/b finds a house is on the MLS the investor's agent will show the house, and the agent represents the investor. (to work a deal with the seller showing they have a buyer in-hand) There is a refundable deposit paid by the t/b for the investor to find a house for them. If the investor does not find a house the deposit is returned. The deposit is based on the price of the house somewhere between $2,500. to $5,000. If a house is found, the deposit is credited to the purchase price. (working capital or profit)

 

The investor states to buy the house and places the tenant/buyer in the house to purchase from the investor.

 

This is what the investor advertises anyway. Sounds like somekind of sandwhich if he can make it work. This investor does some foreclosure and short sale rehabs then L/O them, but I know he doesn't do the volume for all cash buys in our small market.

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There are a pile of these businesses in my area now. They simply charge the TB a premium price if they want to buy. In most cases they don't even charge a premium rent or anything down. I doubt many of their tenant's ever become home owners through their programs.

 

Unfortunately between these companies and landlords offering 'rent to own' with nothing down and same as rent, there's no money to be made on the sale side of RTOs anymore. The only way to make money is the good old fashioned buying below market, and then you might as well just flip it, unless you want to be a regular landlord.

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Unfortunately between these companies and landlords offering 'rent to own' with nothing down and same as rent, there's no money to be made on the sale side of RTOs anymore. The only way to make money is the good old fashioned buying below market, and then you might as well just flip it, unless you want to be a regular landlord.

 

Doug, I can agree with you on this. I've been advertising for "rent to own" buyers for over a month and haven't received a single decent lead.

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Unfortunately between these companies and landlords offering 'rent to own' with nothing down and same as rent, there's no money to be made on the sale side of RTOs anymore. The only way to make money is the good old fashioned buying below market, and then you might as well just flip it, unless you want to be a regular landlord.

 

Doug, I can agree with you on this. I've been advertising for "rent to own" buyers for over a month and haven't received a single decent lead.

That means one of two things: your marketing is inadequate or your terms are unacceptable.

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MC is right. I just picked up a SLO last week. Before I got the property the seller place one ad "for rent" on CL and they were beating down the door. His rent amount was lower. I get the property and priced it at the Top of Market and top of market rents and all last week no calls, not one. I was like "damn what's up with that!" Fortunately there is equity in the deal, so I increased the rent credits to 75% and placed one of the big red rent to own signs with an arrow on a busy street about a mile away. I kept the pricing the same and the phone started ringing. First showing yesterday. Go figure.

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Doug, would you get into that kind of business? Are you sure they don't even charge TB a down or/and a premium rent? That's essentially a landlord job. And if that's what they are doing they are not looking for the same type of buyer as us anyways.

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That means one of two things: your marketing is inadequate or your terms are unacceptable.

 

Well, since I've stopped mentioning the actual terms in the ads, I can only assume I'm not marketing well enough. Daily ads on craigslist, ebay classifieds & backpage must not be effective anymore. I need to come up with a new budget-friendly method...

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David, not mentioning terms can sometimes be a drawback as readers assume you are hiding the terms because they are bad. I think the mindset of most tenants and buyers is that if it's a good deal the owner would be bragging about it.

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David, not mentioning terms can sometimes be a drawback as readers assume you are hiding the terms because they are bad. I think the mindset of most tenants and buyers is that if it's a good deal the owner would be bragging about it.

Well fiddlesticks!! There must be a middle ground here somewhere.

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Well, the following are a part of the explanation for their rent to own program, So they do BUY it themselves, they also do 2 closings, 5% option requirement. Man this must be a very expensive program for the buyers.

 

 

With consultation with a mortgage broker, we determine the price range of a home, the initial deposit and monthly lease payments you can afford. The fun then starts as you go find the home you want to live in with the help of the realtor. Once you locate the home, we (or one of our associate investors) purchase the property on your behalf and determine the final option purchase price at the end of the lease term.

 

When you move into your dream starter home, you live in it as a tenant paying monthly lease payments but maintain it as if it was your own property. So you can renovate and repair it as you desire. After all, this will likely be the home that you will buy and own at the end of the Rent-To-Own Homes Program.

 

 

During the lease period, we will work with you with the help of the mortgage broker and sometimes a credit repair specialist to rebuild your credit. With a committed credit repair program including consistent savings as well as expenses control, you will finally be in a great position to qualify for conventional mortgage financing for your home by the end of the lease period.

 

So in essence, you pick your home. We buy it in the meantime and you rent from us. At the end of the lease period, you buy it from us at a set price when you finally become a homeowner!

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