setting up the rent 2 own

[stevie-o]

Anyone use rent 2 own as a way to quickly fill a property after they rehabbed it?

I'm considering using this option to drive the people to my properties. I've heard people will come by the droves for a rent 2 own house. Is that true?

Also, I'm a mortgage broker as well - so it will be easy for me to figure out whether or not they can qualify for a purchase now, and whether they will be able to qualify 12 mos down the road too.

[AJ290]

Stevie, Rent To Own will usually perk up interest in a property.  Of course, it all depends on how aggressively you market, and how well your terms reflect the local market reality.
But overall you will find a greater response and a better quality of prospects who come calling.  Assuming you have good contracts/paperwork to set it up, I see no reason why you shouldn't go this route as opposed to a straight rental and the associated tenant and toilet issues you're sure to have.

[stevie-o]

Stevie, Rent To Own will usually perk up interest in a property.  Of course, it all depends on how aggressively you market, and how well your terms reflect the local market reality.
But overall you will find a greater response and a better quality of prospects who come calling.  Assuming you have good contracts/paperwork to set it up, I see no reason why you shouldn't go this route as opposed to a straight rental and the associated tenant and toilet issues you're sure to have.

So this would definitely be a good route to drive up interest in a property..and then my plan would be to prequal them just as I would for a mortgage and if they can qualify...they're buying. If they can't, then I determine if they would be able in 12 mos.

Also, would you consider cashing out some of your equity before or shortly after you put a tenant in there?

[AJ290]

. . .then my plan would be to prequal them just as I would for a mortgage and if they can qualify...they're buying. If they can't, then I determine if they would be able in 12 mos.

Are you a mortgage broker?  If not, I wouldn't go to such extremes regarding prequalifying.  I have my t/b's complete my Lease Application and run a credit check.  Standard due diligence.  Assuming they can afford the rent and, more importantly, have enough option money to put down to make me warm and fuzzy, I'll do the deal.

Also, would you consider cashing out some of your equity before or shortly after you put a tenant in there?

Possibly.  But that's up to you and your investment strategies and personal finances.

[stevie-o]

Yeah, I'm a mortgage broker full time now. Eventually wanna phase out to part time and go full time investing. It wouldn't take me but a few minutes to figure out if I can get someone prequalified or not.

And the reason I am asking about cashing out some equity is, it's tax free if you do it that way right? So why not cash out what you can and just make sure to leave some room for buffer.

[LuckyBuysYuckyHouses]

We have done tons of rent to owns, generally they always pay. we always did no credit check too! we always asked more down and charge a little more per month. you will get lots of people stopping by.. but let me ask you something, why are you so concerned on weather or not they get approved at the end? That would be their resp. to make happen. People can find a way if they really want to. So what if you get your house back with more equity then before, and in a better market at that!

[stevie-o]

I guess I'd never looked at it like that before; probably b/c mainly I'm just looking at an alternative to rehab/retailing....I don't know that I want to be a full time landlord down the road.

If the tenant cannot get financed in the end, is it standard that they forfeit their down payment (option)?

[AJ290]

. . .If the tenant cannot get financed in the end, is it standard that they forfeit their down payment (option)?

Yes.  Option consideration is nonrefundable.

[stevie-o]

so do they typically stay in the house renting for another 12 months or are they out on the street at that point?

[LuckyBuysYuckyHouses]

Anything can happen at that point. I have had them just move on their own... no questions asked- which always shocks me. Then you get the house back with more equity and start all over or list.

I have had people freak out in a panic they were not approved, then you just re-negotiate. You can get a little more down, up the payment and up the price, or just keep it all the same. up to you- at that point the ball is in your court.

[AJ290]

so do they typically stay in the house renting for another 12 months or are they out on the street at that point?

That's your call.  Have they been good tenants?  Do you want them in the property still?  But you control the situation.

[stevie-o]

A little more help here 

I've seen the option consideration called a an upfront profit.

If this is going towards their down payment for purchase, doesn't it have to be put in account for them to show when they go to get their loan?

Or as long as they can show that I was given the funds, it counts as a down payment even if I've spent that money they gave me?

Sorry if I'm asking too much 

[stevie-o]

bump

[LuckyBuysYuckyHouses]

If this is going towards their down payment for purchase, doesn't it have to be put in account for them to show when they go to get their loan?

No it does not need to be kept in an account for them, you can spend the money...

[PaulBroni]

Interesting question, though, and one to which I don't know the answer.

If a lease-option buyer makes good on the option and wants to buy, how does that initial "down payment" make it to the HUD-1 (or does it?), and if it doesn't, how does the lender get comfy that there's equity in the deal?