|
Win-win sounds so cliché these days, but in my mind there is
no better way to describe rent to own. The simple truth is
that when properly designed and executed, rent to own
programs present a winning scenario for both the
tenant-buyer and the investor. Of course, rent to own won’t
work as an ideal solution in every situation, but with the
right tenant-buyer everyone wins.
3 Situations Where Rent to Own Can Help
There are 3 common situations where rent to own is often a
great solution:
1.Down payment – Often times tenant-buyers have a solid
income but can’t qualify for traditional financing because
they don’t have the down payment required.
2.Credit – Tenant-buyers may also have trouble getting
traditional financing because they have not yet established
credit or have done something to damage their credit.
3.Income – Another common obstacle to obtaining financing is
income concerns. The bank does not look at self-employment
or commissioned income the same way they look at salaried
income.
There are more circumstances which may create an opportunity
for a win-win rent to own deal, but these are 3 of the most
common.
How Rent to Own Offers a Solution
In each of the 3 cases above, rent to own offers an
excellent solution. If tenant-buyers lack the down payment
they need, the program is setup to ensure their initial down
payment plus monthly rent credits will add up to the down
payment they’ll need at the end of their rent to own term.
In the case of credit problems or income concerns, the rent
to own term gives the tenant-buyer the time they need to
establish or repair their credit, or the time they need to
show a steady track record of income. In each case, a fairly
designed rent to own program will put the tenant-buyer in a
strong position to qualify for financing by the end of their
rent to own term.
How the Investor Wins
There are numerous benefits for the investor in a rent to
own transaction. First, the investor receives some sort of
deposit from the tenant-buyer which reduces their risk and
the out-of-pocket capital required to close the deal.
Second, the tenant-buyer makes higher monthly payments since
there is an option credit portion, but during the term
leading up to the eventual purchase this creates stronger
cash flow for the investor. Third, compared a regular rental
property, the investor has less to worry about because the
tenant-buyer is responsible for repairs and maintenance and
will treat the home as their own since they have provided a
deposit and their objective is for them to buy the home at
the end of the program. These 3 benefits combine to create a
more passive investment option with strong returns and a
pre-determined exit strategy.
With tangible benefits to both the tenant-buyer and investor
it is plain to see how rent to own can be a win-win strategy
for everyone involved. From experience I can tell you, it is
still possible to make returns of 30%+ per year while truly
helping your tenant-buyer and keeping their best interests
at heart. To me, that is a smart and rewarding way to create
cash flow today and long-term wealth for tomorrow.
About the Author
Andrew C. MacDonald is a financial analyst and
entrepreneur living in Toronto and loves talking about real
estate investing, wealth creation, and online business.
This
post originally appeared on
BiggerPockets.
|
