"Rent-to-own" as a seller
Posted: Fri Oct 12, 2012 12:26 pm
I think there might be some people here with experience, I'd like to open a discussion on this. We're getting everything finished up in our home, and when we're done we'll own everything outright, including the 3.5 acres of land. That means we'll have a whole bunch of equity sitting here doing nothing.
I have renovated a few houses now, and now this mini home which was my first foray into the mobile/mini home stuff. My thought was that I can possibly pick up another mobile/mini around here cheaply, reno it, and sell it... but of course the market for lower end homes includes those with marginal credit. I have seen "rent-to-own" deals advertised before, and I know I was approached on each house I had about it, seems there's lots of people eager to buy a home but need "alternative" financing. Because of the lower amounts that mobiles go for, I figured that was a good market for it.
Is anyone here into that business? I know there are all kinds of different variations on it, but it seems like it goes something like this: home is sold for a premium price given what it is, there is a large (non-refundable) down payment required, the interest rate is generally high and the term is short, like 5 years. Either the "buyer" (actually a tenant) pays it off and gets the home for $1 at the end of the term, or they don't and the home gets repossessed and the cycle starts all over again.
Doing the math:
[*]Buy home for $7000 cash
[*]Spend $3000 fixing it up, total investment $10,000
[*]"Sell" for $20,000
[*]Collect $2000 deposit / down payment
[*]"Finance" $18000 as $500 a month for 5 years (around 22% interest rate)
[*]Tenant pays lot fee and all utilities, maintenance and upkeep because they're "buying" it.
[*]Possibly also require legal fees for financing to be paid by buyer too
The catch on the financing is that there is no "equity" build up for the client, they own 0% until it's paid in full, thus the "rent-to-own" term.
So assuming I borrow the initial $10,000 at 8%, my monthly payments are around $200, so my positive cash flow is $300 a month plus $2000 up front. Because they are "buying" as opposed to renting, theoretically they should be better tenants in that they might look after the place a bit better and stay longer, plus they maintain it, not me (hopefully). Any default in payment means they get kicked out of course, written in the contract, and the cycle starts over.
Does the above sound about right? I can see advantages over just straight out renting. Sure, you don't have a home to collect rent from at the end of 5 years possibly, but after 5 years of rental any older mobile would probably be in need of that much in repairs anyway I would think. I'd love some feedback on this.
I have renovated a few houses now, and now this mini home which was my first foray into the mobile/mini home stuff. My thought was that I can possibly pick up another mobile/mini around here cheaply, reno it, and sell it... but of course the market for lower end homes includes those with marginal credit. I have seen "rent-to-own" deals advertised before, and I know I was approached on each house I had about it, seems there's lots of people eager to buy a home but need "alternative" financing. Because of the lower amounts that mobiles go for, I figured that was a good market for it.
Is anyone here into that business? I know there are all kinds of different variations on it, but it seems like it goes something like this: home is sold for a premium price given what it is, there is a large (non-refundable) down payment required, the interest rate is generally high and the term is short, like 5 years. Either the "buyer" (actually a tenant) pays it off and gets the home for $1 at the end of the term, or they don't and the home gets repossessed and the cycle starts all over again.
Doing the math:
[*]Buy home for $7000 cash
[*]Spend $3000 fixing it up, total investment $10,000
[*]"Sell" for $20,000
[*]Collect $2000 deposit / down payment
[*]"Finance" $18000 as $500 a month for 5 years (around 22% interest rate)
[*]Tenant pays lot fee and all utilities, maintenance and upkeep because they're "buying" it.
[*]Possibly also require legal fees for financing to be paid by buyer too
The catch on the financing is that there is no "equity" build up for the client, they own 0% until it's paid in full, thus the "rent-to-own" term.
So assuming I borrow the initial $10,000 at 8%, my monthly payments are around $200, so my positive cash flow is $300 a month plus $2000 up front. Because they are "buying" as opposed to renting, theoretically they should be better tenants in that they might look after the place a bit better and stay longer, plus they maintain it, not me (hopefully). Any default in payment means they get kicked out of course, written in the contract, and the cycle starts over.
Does the above sound about right? I can see advantages over just straight out renting. Sure, you don't have a home to collect rent from at the end of 5 years possibly, but after 5 years of rental any older mobile would probably be in need of that much in repairs anyway I would think. I'd love some feedback on this.