Rent-To-Own payment - Posted by D.Henderson

Real Estate Investing
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Posted by d.henderson on April 29, 1999 at 19:43:00:

Thanks to all of you for replying, lots of things I didn’t know. This site helps us all to learn and not make those costly mistakes.
Thanks again.
dee-texas

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Rent-To-Own payment - Posted by D.Henderson

Posted by D.Henderson on April 29, 1999 at 10:22:31:

I am having a problem with knowing what to charge for rent-to own property. I could use some help please.
Just closed on a “grandma” house
FMV 30K
Gave 20K
payments to bank from me 169.00 month on 15 year pay out.
insurance and taxes 75 per month
If I l/o this property (which I have three people that want it offering 1-2K option money) I owe an investor 3K for down. If they pay insurance taxes and take care of everything that a home owner does. How do I arrive at the payment for them? I will let them have an option for 36 months. I hope that I wrote this where you can understand it. Thank you AGAIN for helping. This site is the BEST!
D.Henderson-Texas

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Re: Rent-To-Own payment - Posted by Bud Branstetter

Posted by Bud Branstetter on April 29, 1999 at 17:41:20:

I am not going to comment on you borrowing the down payment, borrowing from a bank and only have 7K possible profit. First I would want to get my profit as soon as possible. Instead of fairmarket rent I ask what they can afford. IF it is over the FMR then I will adjust interest rate or term to meet what they can afford. I would also sell on contract and try to get more down. I would have interest rate increases or balloons, depending on how long you want to keep that loan in your name. I would also have the mortgage broker look at their app before commiting to them. I want to know how close they are to being able to cash me out.

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Two methods - Posted by Sean

Posted by Sean on April 29, 1999 at 14:19:20:

  1. The low-tech method. Add up your mortgage payment, taxes and insurance and divide by 75 percent (in this case you get $325 – note also this assumes your tenant will not be paying for taxes or insurance). You don’t want to charge any less than that amount because if you do any bank you go to get a loan from will consider that property to have negative cash flow and that will hurt you. Ideally you should charge more than $325 to generate some positive cash flow in the bank’s eyes.

  2. The high-tech method. Grab your financial calculator and put in all the information you know:
    (N) 36 months
    (PV) $30,000
    (i%)

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Re: Rent-To-Own payment - Posted by Joe(IN)

Posted by Joe(IN) on April 29, 1999 at 11:04:33:

D.

From what I’ve read you may want to be careful about having them pay insurance & taxes. What if they don’t pay? Also, remember you want to do evreything you can to help them “feel” like homeowners so they are committed and take care of the place. BUT; at the same time, you do not want them to have any legal standing in court as a homeowner if there was ever a problem.

Observations:

  1. For the monthly payment, figure out what fair market rent is. Charge them maybe 10% or 20% more since you are helping them buy the house and giving them a credit.

  2. Another idea: I set up my last 2 L/O’s on 1 year options and a 1 year lease with the right to renew 2 times. Why? When they renew, the contract automatically increases the price by 5%, and the rent by 10%. I allow them to accumulate their credits so the price is basically a wash. I tell the tenant that this whole arrrangement is to help them buy a house in 1 year, but in the event they still cannot buy the house after a year then this will give them a additional chances. Now aren’t I a nice guy?

My $$.02 or less.
Joe