Hi there,

For those of you that are making a living doing CA's in today's market, I'd like to see how your way of doing business compares to mine. Suppose you moved to an area where Neighborhood A has houses with an average ARV of $300k and average rent of $1800/mo. Neighborhood B has houses with an average ARV of $400k and an average rent of $2000/mo. For both neighborhoods, landlords are used to getting one month rent AND a security deposit equal to one month (a total of $3600 or $4000) IN ADVANCE. By the way, we're not talking luxury homes.

With the scenario above, how would you structure your business with regards to what you require from the tenant-buyer and what you offer the seller???

Thanks,

Ronnie

PS Would your answer change if you knew that the vast majority of callers (potential tenant-buyers) say that they have a maximum of $5k (available upfront) to work with??

Ronnie, you need to make the homeowner understand that what you're doing isn't a straight rental, and that they won't be dealing with tenants but, instead, tenant/buyers. And along with this and the advantages this means to them, they receive their rent but not the deposit typically associated with a rental.
So that's the first thing you need to do.
As regards the t/b's, if someone is moving into a $300K house on a Rent to Own and they only have a total of $5K to put down, they're not going to buy that house a year down the road. These days I am usually working with 2% down and the first month's rent to move in. Meaning on that $300K house above, they'll need around $7,800 to move in.

Hey Ronnie, sounds like you live next door to me, I think the average price of a SFH around here is $315k and that house would rent for maybe $1600. The vast majority of wannabe T/Bs say they have nothing to put down, not even a security deposit, which is probably why they're being evicted from their mom's basement

So what do I do...well first I ignore rent rates. I'm not a landlord and I don't place renters in my homes. I think of myself as a very flexible and friendly bank who helps buyers purchase my homes. So I'm not competing with landlords or their rent rates. I'm competing with banks and their interest rates.

With bank posted rates for less-than-perfect credit buyers around the 6-7% range I figure I'll aim low and offer a payment based on 6% interest, with a nice rent credit, and no other fees or qualifying required that's a pretty attractive offer to serious tenant/buyers. As for the T/Bs with no money, I just tell them to come back when they have it. That means that for every 100 calls I get, I end up with maybe 5-10 people who can afford the payment, and out of that 3 or 4 who have 3% or more to put down. 2 of those will actually show up, sign up, and hand over the cash...so it's a race to see who gets there first.

On the seller side. I want a minimum of 2% interest spread between the payment I'm getting and the payment I'm making. So once again I aim low and offer them a payment based on 3% interest. I've learned over time that this is the number many sellers offer when I press them for a rent amount, so I know it's available and reasonable, so when I get those sellers who say I'm crazy and they can't afford that I just say "Thank you for your time."

Umm...I think that about covers your question from my perspective and market conditions.

Hi Michael!

I understand what you're saying. What I was doing was offering the seller the same amount they would get as a straight rental ... and keeping the balance of the option consideration for myself. This can result in more deals accepted from sellers ... but obviously less money in my pocket. And yes ... a t/b with $5k available ... is not going to buy the home ... and therefore taking such a t/b would not be fair to the seller.

Thanks Doug,

I'm typically marketing to FRBO's who are accustomed to getting an equivalent to 2 months of rent before move-in. So here we come in as offering a CA ... and I typically was offering 2 months of rent to the owner ... and keeping whatever else I could get from the t/b for myself.

Before anyone says I'm 100% crazy, I want to point out that this can get lots of deals accepted ... but at a cost (money that could have gone to me goes to the seller).

So I wanted to know if anyone does what I was doing ... or does everyone do Michael's approach ... which is to get the owner into a different mindset so that they're willing to accept someone (a t/b) who comes in with only 1 month of rent (I know ... it's really Option Consideration) going to the seller upfront instead of the customary amount equivalent to TWO months of rent.

Thanks,

Ronnie

OK I see what you're getting at now. Yes I do the same as you, give the seller first AND last. But I require a lot more down.

Are you saying that the T/Bs you're putting in place have a total move-in of only $5k??? So that's first and last plus their option money? I thought you meant they have first and last PLUS $5k, even that is low. If that's the case then you really aren't getting much of anything then are you? Like $1400? Ronnie, that's not enough for the knowledge you hold!

Thanks Doug,

No, I would NEVER allow a T/B move-in with only $5k. I don't want to do a deal if I don't get at least $5k (for myself ... and then a month or two (monthly pmt. upfront) more towards the deal which I've been giving to the seller). What I'm saying is that the vast majority of my callers say they have $5k. I only take the rare few that have first and last PLUS $5k, but these are very few.

I only mentioned the $5k because that is the 'typical' call that I get. I thought ... maybe ... someone might say "Ronnie, you need to work in an area where the majority of callers say they have $8k or more." But it sounds like it's common for the majority of callers to have too little (renter mentality). We just need one good t/b per house.

Hope I'm clear.

Thanks,

Ronnie

That's been my experience. This business is about sorting the wheat from the chaff so to speak. Putting systems in place to make that process as efficient as possible is probably the best place to spend your effort, rather than trying to find greener pastures, or attempting to do a better job of educating and selling.