Rent to Own is often called a creative real estate financing strategy. And so it is. And we all have our own templates for putting clients through the process. But sometimes we need to be even more creative than our already creative modals. We probably all have stories of stepping outside the box of our own templates, tweaking them to make things work in unique circumstances. Here are two such stories submitted by our members which we will share this month and next.
The first one for this month is;
How Creative Financing Saved the Day…10 times!
By Daniel St
One of our favourite ways to do an RTO deal is what I call “re-financing”, meaning the owners of a house get in trouble with the bank and, rather than letting the bank repossess the house, they hire us to do an RTO.
So we buy the house from them at market value, we keep them in there as tenant-buyers for 3 years during which time we help them fix their credit issues, and after 3 years they buy the house back from us at market value.
We have done 10 of those successfully.
The problem, though, is that those people don’t usually have a $10-15-20,000 deposit available to secure the RTO deal. That’s what happened to the Jenkins in Ottawa back in May 2015.
When the lady called me, she said she had been turned down by 6 other RTO operators . . . because she did not have a deposit.
So I asked her what the value of her house was, and what was left on the mortgage. It turned out there was over $50,000 of equity in that house.
So I came up with this brilliant idea: compose a letter of direction for their lawyer to send me $25,000 from the proceeds of the sale BEFORE sending those proceeds to the seller, the Jenkins.
I wrote the letter, they signed it, their lawyer signed it, so we arranged to buy the house and on the closing day $25,000 materialized in our bank account as their Option Consideration Fee for this new RTO.
Why the other 6 RTO operators didn’t think of that I’ll never know . . . but when facing an issue in real estate, the laurels often go to the ones who put their thinking cap on and do their best to come up with a creative solution.
Daniel St. Jean
SASREIG
Editor’s note: Daniel, you might not get the deal next time, since you’ve now clued in those other operators to this strategy. But, isn’t that what CAROP is all about, helping each other to succeed?
And, just so you know, I’ve done these kinds of deals, too—except I’ve bought them at under market value, just enough to pay off their debts and provide an option fee. Any equity they lose at the start, they get back when they later close. It makes it a little cheaper for them during the term, plus reduces the risk in the needed appreciation over the term.