Incentives to get a rent-to-own buyer - Posted by Anna

Posted by Anna on December 08, 2000 at 10:53:09:

Thanks Jim - can’t refi with a bank (bad credit), & original lender won’t lend long-term - he MAY extend the loan if I can get cash flowing. Assuming that finding a rent-to-own buyer is a good idea, how do I attract a good one? How do I structure the deal for minimum risk & maximum cash flow? I could use the rent payments to pay the “interest only” to the lender, if he’ll agree. If he won’t, what can I offer him? What can I offer a rent-to-own buyer? I need to make a proposal ASAP & get an ad in the paper ASAP.

Incentives to get a rent-to-own buyer - Posted by Anna

Posted by Anna on December 06, 2000 at 14:37:56:

I borrowed $$$$ from an individual, short-term, 6 months, to flip a house. I listed it with an agent for 6 months - no sale. The lender may extend the loan, if I can get some money flowing, without too much risk. Should I try to find a rent-to-own buyer? No investors have come forward in all this time. If so, what are some terrific incentives I could offer? And how can I make it very, very hard on the buyer to back out? Plus, how can I get lots of notice from the buyer, if he absolutely must back out, so I can go find another rent-to-own buyer? Should I advertise a month-to-month lease, so I can get rid of someone quickly if they’re bad? Should I advertise a 6-month lease? Should I offer to pay all closing costs? Should I take back a second? Should I take on people with poor credit? The house is nice, but it’s in an undesirable neighborhood, so the Rockefellers are not going to be beating down my door. How can I get things moving, with a minimum of risk?

Re: Incentives to get a rent-to-own buyer - Posted by Jim IL

Posted by Jim IL on December 07, 2000 at 01:59:32:

Anna,
Without knowing more details about your deal, we cannot offer you good advice that is based on anything.
But, when a home is not selling, there are generally two reasons;

  1. Priced too high
  2. No terms offered.

Correct one or both, or hold out longer to sell.

I’d love to offer more, but I need more info before doing so.
What did you pay for the home?
What is it worth now?
Any repairs?
If so, what is the value after repairs?
just some basic info and we can look closer at your deal.

Good luck to you,
Jim IL

Re: Incentives to get a rent-to-own buyer - Posted by Todd in Ohio

Posted by Todd in Ohio on December 06, 2000 at 16:39:29:

The best answer(s) to your question hinge on how you bought the house in the first place, i.e. How much below market value did you buy it? and Did you buy it “all cash” with the only financing being the money you borrowed from your private investor? and How desirable is the neighborhood for resale to Owner Occupants? and is the house in good enough shape for a rent-to-own tenant to want to move in?

Presuming that you bought the house VERY cheap (i.e. 50% - 60% of market value), in a location people want to live, you should be able to AT LEAST unload it with a small profit ($1,000 - $5,000) even if it needs a lot of repairs. Maybe you paid too much for it to begin with? Maybe you’re being too greedy and asking too much for it?

The most important thing for you to do right now, especially if you made a buying mistake in the first place, is to PROTECT YOUR PRIVATE LENDER. Even if that means you make ZERO on the deal and give your investor their money back (plus whatever interest they were promised). Worst case scenario, you will build their trust (for your next deal) even if you don’t make a profit on this one.

Details of the deal - Posted by Anna

Posted by Anna on December 07, 2000 at 09:55:08:

I bought the house for $15 cash to the buyer. I borrowed $20 from a private lender; he kept $2 for his fee, $2 was a fee to the mortgage broker who set up the deal (the lender is his rich friend), and $1 went to closing & misc. TERMS: interest only, for 6 months, or until sold, whichever came first. ADD’L COSTS, about $1: inside painted, utilities & insur for 6 months, when I had it listed with a RE agent. VALUE: The RE agent listed it for $38, based on comps. I’ve since advertised it for $28, and got calls, but no offers, except from bottom-feeders. NEGATIVES: It’s in good shape, but in an undesirable neighborhood. REMAINING FIX-UP COSTS: 1) replacing about 30 rotten-at-the-bottom pressed-wood-looking shingles (only if an appraiser says it MUST be done), 2) replacing fuse box with breakers (is this a must?), and 3) fixing front door frame (thugs kicked it in). ISSUE: Need cash flow - need to convince lender to extend loan - convince him that THIS TIME things will work. I could probably RENT it out tomorrow, but I can’t risk someone skipping out or tearing it up. QUESTION: should I advertise for a rent-to-own BUYER? Are they usually good people? Maybe I could throw in a small fee to the lender for extending the loan. Remember, he took a $2 fee up front just for making the loan. If I find a rent-to-own buyer, 1) how can I minimize my risk, and 2) how can I structure things so he’ll feel PAIN if he backs out. He’ll probably be a low-income person with poor credit, so I doubt that I could get an up-front fee. Please think - think - think - and let me know your ideas.

Re: Details of the deal - Posted by Jim IL

Posted by Jim IL on December 07, 2000 at 19:25:56:

Anna,
In addition to trying to sell this home, I’d also be looking at doing a refi for it.
Then you can pay off your hard money lender, and do whatever you choose to do with the house.
What are market rents?
Can you rent this and get a positive cash flow?
Then, see if you can sell it on terms.
Put an ad in the paper, "Seller will finance # Bedrooms, # baths, etc. xxx-xxx-xxxx"
then, when people call, pre-qual them on the phone.
Just about anyone with a job can get at least 75% LTV loans, and you can carry anything you need to in order to get this closed.
OR, just refi as I said earlier and then sell it via a Land contract or L/O.
TERMS would be the key here, since you already said it is in a not so nice area.

HTH,
Jim IL