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Rent to Own Scenario - The Answer
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Posted by: Doug Pretorius
01/13/2005, 12:48:26

Edit
As I suspected, Matt Bowman was unable to answer my simple question about the Rent to Own scenario I proposed. Whether he's unable to answer because he doesn't know how to do RTOs, or he's unwilling to answer because he doesn't how to do RTOs properly, is for you to decide. Either way, the following correct answer illustrates the difference between Matt's vague and hypothetical "deals", and real life transactions.

THE GAME'S BASIS:
The game scenario I laid out to Matt was based on an actual completed transaction of mine.
The property is located at 185 Highland Crescent Unit #8, Kitchener, Ontario, Canada.
You can view it here: (it's the first one listed) http://www.homeseveryday.com/homes-realdeals.html
You can also view its exact location and even it's roll number at: http://locator.region.waterloo.on.ca/ - Click "Query", Click "Property By Address", Type in 185 Highland, Scroll down the list and Click on 185 Highland Cres 8.

The property was worth approximately $144,000 based on comparable sales and the owner had a cash buyer at that price. However, since I know how to properly structure and market Rent to Own deals, the seller choose to do a Cooperative Assignment with me instead because it was the better deal.

THE NUMBERS:
I recommended a price of $159,900 which represented approximately half of the past year's appreciation times 2 (the RTO was for 2 years). But the seller insisted on $149,900 citing his recent refi appraisel of $148,000. He agreed to leave my fee at $4,750 (3% of the recommended price) so I accepted his request.
After the deal was signed, the buyer confessed to me that they would have been willing to pay up to $180,000! So even my price was low.

In addition to the $5,900 price premium. The seller also gets over $300/month tax-free positive cash flow, and about $250/month of principal reduction.

THE REASON WHY MATT'S "SYSTEM" WOULD NOT HAVE WORKED:
If I had followed Matt's advice, the best I could have offered the seller was the price they already had in hand from a cash buyer, and they wouldn't receive any cash flow (market rent $950, RTO payment $1,250).

The seller would have had no reason to do an RTO and would have taken the cash offer. The RTO buyer would have missed out on their dream home, in the neighborhood they loved. And I wouldn't have made a quick $4,750 for sharing my knowledge.

IN CONCLUSION:
I have no doubt that structuring an RTO the way Matt suggests will result in quickly renting a house out. Unfortunately you will take on the risk of renting (trashed house, deadbeat tenants, etc.) without any upside beyond what you would get by simply selling out right today. Matt's "3 profit centers" are nothing more than delayed payment of your equity.

So if you want to RTO your properties just for the fun of it, I recommend buying Matt Bowman's material.

However, if you're in this business to make money. I suggest learning from the TRUE experts in the field: John Burley, Merle Woolley, Michael Carbonare, William Bronchick, Lonnie Scruggs, et al.

These are the same men from whom I learned the various facets of RTO investing. While I'm happy to freely share my own experience, you will do well to seek out theirs as well. They've all provided mountains of free advice based on their real world experience which ALL centers around the fact that it's simply bad business to give away for nothing the treasure that is Rent to Own Financing.


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Followups
Re: Rent to Own Scenario - The Answer
Peter Ignat 01/13/2005, 17:56:27 221 bytes +1
Re: Rent to Own Scenario - The Answer
Doug Pretorius 01/13/2005, 18:45:43 618 bytes +1
Re: Rent to Own Scenario - The Answer
Matt B 01/13/2005, 20:57:59 938 bytes link +1
Re: Rent to Own Scenario - The Answer
Doug Pretorius 01/13/2005, 22:46:53 728 bytes +3
Re: Rent to Own Scenario - The Answer
Brent 01/13/2005, 23:48:04 71 bytes +1
Re: Rent to Own Scenario - The Answer
Doug Pretorius 01/14/2005, 10:30:50 710 bytes +1
Re: Rent to Own Scenario - The Answer
Brent 01/14/2005, 15:16:16 305 bytes +1
Re: Rent to Own Scenario - The Answer
Doug Pretorius 01/14/2005, 16:37:29 356 bytes +1
Re: Rent to Own Scenario - The Answer
Brent 01/14/2005, 18:03:51 370 bytes +1
Re: Rent to Own Scenario - The Answer
Doug Pretorius 01/14/2005, 22:44:19 117 bytes
Re: Rent to Own Scenario - The Answer
Matt B 01/14/2005, 06:35:48 2550 bytes link +1
Re: Rent to Own Scenario - The Answer
Doug Pretorius 01/14/2005, 10:23:07 927 bytes +1
Re: Rent to Own Scenario - The Answer
Matt B 01/14/2005, 17:53:38 455 bytes link
Re: Rent to Own Scenario - The Answer
Matt B 01/14/2005, 07:13:22 281 bytes link
Re: Rent to Own Scenario - The Answer
Matt B 01/13/2005, 18:18:00 2257 bytes link +1
Re: Rent to Own Scenario - The Answer
rp 01/14/2005, 14:46:05 218 bytes

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