Dave Payerchin talks to us today about how the option for “renting-to-own” makes sense for real estate investors.
Rent-to-own tenants usually have more of an ownership mentality and in most cases, maintenance is deferred to the tenant.
Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.
Dave: Hey, everybody. This is Dave Payerchin with Columbus Turnkey Houses. I’m your host at the REI Classroom today and we’re going to be talking about why rent to own makes sense for our portfolio as investors.
Mike: This show was sponsored by passiverental.com.
Dave: Hey, everybody. This is Dave Payerchin with Columbus Turnkey Houses. A lot of you know us as the leading provider of turnkey properties in Columbus, Ohio. But today, I’m actually going to shift gears and teach you why we prefer doing rent to own on our own portfolio, on our own holdings.
Now, what is rent to own? Rent to own is where we move somebody in this property and we give them a lease, and then we also give them the option to purchase this property. The reason it makes sense for our own holdings and for our own portfolio is when we do a rent to own, we’re typically moving somebody in who is going to have more of an ownership mentality rather than just a rental mentality. So generally speaking, it’s to be assumed they’re going to take care of the property a little bit more.
Number two is they are coming in with a down payment. So the way we work it when we market a property rent to own, we find somebody who wants to eventually buy this property. So they come in, typically with several thousand dollars down, and we’re to hold that, and that’s going to go toward their eventual down payment in getting a loan. However, if they were to default on the agreement, we actually keep that. That’s nonrefundable, so we’re going to be able to control more money upfront and collect more money from this resident.
Number three is we are able to charge a slight premium in the monthly rent as well. So we get above average rent, which cash is king, cash flow is key, and that’s another benefit of rent to own. Generally, you can get a little bit more than market rent.
Next is this person has an option to purchase. When they’re ready to purchase, and we have had successful people in this program, when they’re ready to purchase, they’re going to be buying the property at a slight premium. Obviously, you can’t oversell a property. It’s still going to have to appraise, but you’re going to be able to sell this property at the top of the market, and, obviously, there’s going to be some profit in there.
If the person does not come through on their option of purchase, and the reality is a lot of people don’t because life happens, and people move, and people get divorced, and things like that, then they’re going to walk away from this option, and you just had a glorified rental property. It’s been cash-flowing at a premium this entire time, and you collect that nonrefundable down payment. Thanks.
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