Pat VA RTO
Click here for Top Ten Discussions. CLICK HERE for Q & A Homepage
Receive Free Rental Owner Updates Email:  
MrLandlord Q & A
     
     
Pat VA RTO (by BRAD 20,000 [IN]) Jun 19, 2019 12:10 AM
       Pat VA RTO (by Steve [MA]) Jun 19, 2019 6:06 AM
       Pat VA RTO (by Ken [NY]) Jun 19, 2019 6:47 AM
       Pat VA RTO (by plenty [MO]) Jun 19, 2019 7:21 AM
       Pat VA RTO (by Roy [AL]) Jun 19, 2019 7:45 AM
       Pat VA RTO (by myob [GA]) Jun 19, 2019 8:12 AM
       Pat VA RTO (by Roy [AL]) Jun 19, 2019 8:21 AM
       Pat VA RTO (by Ken [NY]) Jun 19, 2019 8:22 AM
       Pat VA RTO (by myob [GA]) Jun 19, 2019 8:26 AM
       Pat VA RTO (by S i d [MO]) Jun 19, 2019 8:46 AM
       Pat VA RTO (by Roy [AL]) Jun 19, 2019 8:48 AM
       Pat VA RTO (by Roy [AL]) Jun 19, 2019 8:55 AM
       Pat VA RTO (by Ken [NY]) Jun 19, 2019 9:00 AM
       Pat VA RTO (by Pat [VA]) Jun 19, 2019 9:02 AM
       Pat VA RTO (by Roy [AL]) Jun 19, 2019 9:15 AM
       Pat VA RTO (by S i d [MO]) Jun 19, 2019 9:21 AM
       Pat VA RTO (by S i d [MO]) Jun 19, 2019 9:35 AM
       Pat VA RTO (by Deanna [TX]) Jun 19, 2019 10:35 AM
       Pat VA RTO (by myob [GA]) Jun 19, 2019 11:14 AM
       Pat VA RTO (by Vee [OH]) Jun 19, 2019 2:24 PM
       Pat VA RTO (by Barb [MO]) Jun 19, 2019 7:37 PM
       Pat VA RTO (by JR [ME]) Jun 19, 2019 7:57 PM
       Pat VA RTO (by JR [ME]) Jun 19, 2019 7:57 PM
       Pat VA RTO (by JR [ME]) Jun 19, 2019 7:58 PM
       Pat VA RTO (by JR [ME]) Jun 19, 2019 8:30 PM
       Pat VA RTO (by BRAD 20,000 [IN]) Jun 21, 2019 12:08 AM
       Pat VA RTO (by razorback_tim [AR]) Jun 21, 2019 12:50 AM
       Pat VA RTO (by BRAD 20,000 [IN]) Jun 21, 2019 11:08 PM

Click here to reply to this discussion.
Click Here to send this discussion to a friend

Pat VA RTO (by BRAD 20,000 [IN]) Posted on: Jun 19, 2019 12:10 AM
Message:

Pat,

The quote marks on your post’s subject line will block all responses.

State laws vary greatly so seek wise legal counsel if you choose to proceed.

We ONLY do RTO on our single family homes. Only 2 out of 1,000 have purchased the home. Most drop out due to divorce, eviction, or moving out of town. We use it as a “hook” to grab their attention to increase the value of the lease.

Usually the folks who casually ask are hoping you will apply every penny of their payment to the purchase price. They are asking because their credit is terrible and they know there is no chance of getting a bank loan.

BRAD --73.102.xxx.xxx




Pat VA RTO (by Steve [MA]) Posted on: Jun 19, 2019 6:06 AM
Message:

Even with a decent down payment, it's never worked for me. As Brad said it's usually people with poor credit or not enough income for a conventional purchase. Also once you go this route in my area & I imagine most places when things turn sour, you need to do a foreclosure not just an eviction. Costs & wasted time for a foreclosure add up quickly. --96.237.xx.xx




Pat VA RTO (by Ken [NY]) Posted on: Jun 19, 2019 6:47 AM
Message:

Brad,I have been doing rent to own again lately primarily on houses needing work.I am buying them so cheap that I do give them 100% credit toward payoff,as an example partner and I bought a house for $9000,i sold it for $35000 with $5000 down and $700 month payment plus they pay me for the tax and insurance so I know it gets paid and the $700 portion comes directly off what they owe.I do this with houses where they will have to do a bunch of work just to move in and it is working better than the old way,they can see a deed coming to them in a few years this way and I get a better class of persons.If they ever go running to the govt what are they going to say when they realize 0% interest? not such a bad guy now --72.231.xxx.xxx




Pat VA RTO (by plenty [MO]) Posted on: Jun 19, 2019 7:21 AM
Message:

You are young enough to do a rent to own for a short period of time. I would ask his what the goal is... pay more than they are paying now to shorten the length? Do they have down payment? Or are they struggling to get by and want to reduce their monthly payments and lengthen the time... at your age i would not be interested in that. You are young enough to accept a downpayment and up rent and get this property sold within 5 years. Think terms and time. --99.203.xx.x




Pat VA RTO (by Roy [AL]) Posted on: Jun 19, 2019 7:45 AM
Message:

Brad20K,

Would you mind explaining (again) how you increase the value of the lease with RTO? I have sought counsel with my RE attorney on doing RTO and he thinks most RTO deals are nothing but scams (one party selling impossible dreams to another).

That being said, my attorney will does advocate a good well documented Owner-Finance deal where the Deed is held by the buyer and a foreclosure is required if there is a Default.

From my point of view, local landlords love RTO deals because they can transfer all maintenance to a tenant. Is this actually true? --68.63.xxx.xxx




Pat VA RTO (by myob [GA]) Posted on: Jun 19, 2019 8:12 AM
Message:

We did a 2 year. Tenant added 200.00 a month EXTRA toward down payment (non refundable) we gave matching 200.00 credit when sale consummated.

2400.00 X 2 years= extra from tenant = 4800.00 and same from us 4800.00. Deducted 9600.00 from sales price 24 months after original contract. Purchaser went through 5 lenders before finding one willing to do deal-- with tenants credit history. Tenant was promptly foreclosed on 5 months later by lender.

We've done (Roy sorry to get to long on this I know how you hate that) maybe 10 of these and all except 1 has come back to us-- since we now hold the notes-- the one still out there is going into foreclosure paper for the 4th time starting July.

Up side---- all property's have been fixed up-- roofs HVAC systems-- cause they think it's their new home forever. Of course it's not!!!! DEED IN LIEU OF FORECLOSURE. --99.103.xxx.xxx




Pat VA RTO (by Roy [AL]) Posted on: Jun 19, 2019 8:21 AM
Message:

Myob,

Explain how 'Deed in Lieu of Foreclosure' actually works. It would seems to be a benefit to both parties in the event of a default. --68.63.xxx.xxx




Pat VA RTO (by Ken [NY]) Posted on: Jun 19, 2019 8:22 AM
Message:

Roy,he increased cash flow by getting a down payment,yes in theory maintenance responsibilities are transferred to buyer but when you get it back that did very little actual maintenance and you get it back often in rough shape which is why I don't do rent to own on nice houses but I do it on dumps that I buy cheap --72.231.xxx.xxx




Pat VA RTO (by myob [GA]) Posted on: Jun 19, 2019 8:26 AM
Message:

Forgot. Very important to have 2 contracts-- standard rental contract AND separate option paper showing how the option money is paid, if missed payment what happens and a drop dead date on purchase-- usual stuff.

If and when you go to court it's much easier if you don't comingle RTO papers. RENTAL/OPTION. --99.103.xxx.xxx




Pat VA RTO (by S i d [MO]) Posted on: Jun 19, 2019 8:46 AM
Message:

Roy,

By "increase the value of the lease" tehre are two factors in play.

First, for the Seller/LL, there is almost zero chance of losing. The option fee is large ($2K-$5K), rents are above market and if tenant fails to fulfill the contract there is no refund of that extra amount, and you can evict vs. foreclosure. From a Seller/LL perspective, that's a big win.

Second, for the Buyer/Tenant, there is a PERCEIVED value of being able to be a homeowner. This is referred to as "The Dream." People will hand over a lot of money in exchange for a dream. But as you see from the stats, that dream hardly ever becomes reality.

We have debated this issue before so I don't care to get into all that again. I don't do RTOs....'nuff said. --173.20.xxx.xxx




Pat VA RTO (by Roy [AL]) Posted on: Jun 19, 2019 8:48 AM
Message:

This question needs to be asked here. Why do so many RTO deals fail? You are dealing with a person (renter) who most lenders would not touch with a 10 ft. pole. What financial rewards does a LL get in doing RTO deals with super high-risk people who have dreams of owning a home and never having to pay rent again. --68.63.xxx.xxx




Pat VA RTO (by Roy [AL]) Posted on: Jun 19, 2019 8:55 AM
Message:

Sid,

With RTO deals and a 'small or large down payment',..at what point can the tenant/buyer claim an 'Equitable Interest' in the property?

RTO Tenant: No, you can't evict me,...I paid you a $5,000.00 down payment which you called 'Option Money'. I call it a down payment. --68.63.xxx.xxx




Pat VA RTO (by Ken [NY]) Posted on: Jun 19, 2019 9:00 AM
Message:

Roy,the benefit is the seller gets a large down payment.Generally I am dealing with class c type tenants who want to be a home owner,they get a tax check and give it to me for the right to rent to own a house,then when they have a life event like divorce,lost job etc hese people do what they would have done as a class c tenant meaning no communication,stop paying etc and move out or get evicted and loose there equity.They could sell the house and get some money but they don't they simply leave and the seller just does it again.A friend of mine got $11000 down and a year later they split up and just walked away,he then sold it and got $8000 down,2 years later they moved out and trashed the place which was a dump all along anyway and so he sold it and got $2000 down and these people are actually fixing it up quite nicely and paying on time etc. --72.231.xxx.xxx




Pat VA RTO (by Pat [VA]) Posted on: Jun 19, 2019 9:02 AM
Message:

Thanks Brad, I did not know about quotation marks. The only sale we have done was to buy a property our tenant wanted, & financed it for him at 6% interest for 15 years. The lawyer held the signed deed, and the tenant signed a paper in the event he misses 2 payments. He has to pay taxes & insurance & keep the place up. We got no down payment except we paid less than what we financed it for.

It is a good deal if you have a history with payments (we did). Plus he took care of rental well while he rented a different property from us. We were going to lose him if we hadn't done it, he was going to keep hunting for a property of his own.

--71.219.xx.xxx




Pat VA RTO (by Roy [AL]) Posted on: Jun 19, 2019 9:15 AM
Message:

Ken,

I understand where you are coming from. I am tempted to do my first RTO deal based on the down payment numbers you provided. --68.63.xxx.xxx




Pat VA RTO (by S i d [MO]) Posted on: Jun 19, 2019 9:21 AM
Message:

Roy, that is a risk that others have mentioned. A judge can take an option contract and say, "I don't care what you call it: if it looks like a duck and quacks like a duck, it's a duck." So in Brad's words, you have to "know your judge."

That said, Option to Purchase contracts have long been recognized as valid instruments in the real estate world, so in and of themselves they are legit. I think where Sellers get into problems is when they try to tie the two deals together, making one contingent upon the other.

For example, let's say that in your Option contract you include this clause:

"For an option fee of $5000, Owner X agrees to give Potential Buyer Y the exclusive right purchase the property at 123 Anywhere Ave up until June 19th, 2021 for a price of $99,999. If Buyer Y defaults on the lease held at that property, however, this right is null and void and option fee shall not be refunded."

That last sentence puts a condition on the Option contract that "ties" it to successful performance of the lease. A judge might look on that and say, "Hey, what you were really doing is overcharging that tenant in their lease and so they have equity."

A BETTER way to do it would be this...

"Buyer Y must satisfy any money owed or other contractual obligation to Seller X before exercising the option to purchase."

That accomplishes two things: 1) there is no specific mention of any lease agreement and 2) it is open-ended to a variety of possibilities that would terminate the option contract rather than specifying violating the lease. Let's say the Buyer owed you $50 for a lawn mower you sold him and had signed a Promissory Note for that. That would void his option just as surely as if he broke the lease. By keeping the two transactions COMPLETELY separate, you reduce the chance that a judge will overrule your deal and say, "This in fact is what was really happening."

As always, state laws will vary. Consult a competent attorney if you want to go this route. --173.20.xxx.xxx




Pat VA RTO (by S i d [MO]) Posted on: Jun 19, 2019 9:35 AM
Message:

Roy, another thing worth mentioning--and please understand I am NOT accusing anyone who does RTO's of having evil purposes--for a tenant/buyer to prevail in court regarding their option fee, they'd have to pay an attorney and go to court. How many broke tenants/buyers will have the $2,000 - $3,000 retainer fee to hook an attorney's interest? These deals can be complex to unravel and take time to litigate. There may be a few Pro-Bono laywers who would take these cases, but my guess is that is rare.

Poor Tenants sometimes get access to free attorneys when they are named as defendants in an unlawful detainer cases, but I am not aware of any lawyers acting as free consultants for plaintiffs in RTO deals gone bad. So the Seller knows he most likely won't get sued, regardless of whether a judge would grant equity.

If you collect 50 RTO fees and only get sued and lose on 1 deal, you can pay out and still make a huge profit. It's a numbers game.

So the bottom line is: you have to pay to play, and most RTO buyers have no money. --173.20.xxx.xxx




Pat VA RTO (by Deanna [TX]) Posted on: Jun 19, 2019 10:35 AM
Message:

We've only done owner-finance twice in Texas-- both times as personal favors to someone we knew to keep them from losing the house they were already in the process of paying for from someone else. We bought them, allowed the people to stay, and allowed ourselves to be reimbursed. The first one, they were kicked out within 90 days, though if he had kept his nose clean, he could have had it paid off in less than two years. (Big convoluted dramallama story goes here.) The second one, he's been good for about a year, and has about five left.

In Texas, because RTO has been abused so much by people who don't want to sell a house, but want to sell a house over and over and over and over-- it's possible for someone who "does it wrong" to lose more than the value of the house in court. So if you don't have everything exactly correct--- if you don't know at what point their ownership interest kicks in-- you can be majorly penalized.

So we avoid it in general. If we were at a point to sell something, we'd sell it to someone who's stable enough to get a regular mortgage, and we'd get our money and get on with life. --96.46.xxx.xx




Pat VA RTO (by myob [GA]) Posted on: Jun 19, 2019 11:14 AM
Message:

Roy Deed in Lieu of foreclosure keeps the foreclosure from #1 dragging out and # 2 getting to costly for Lien holder.

I've done all my foreclosures with this. The one going to foreclosure July may be a different story.

We agree -- if they vacate "immediately" and give us keys to accept the property AFTER we inspect inside. We explain as long as there's no fraud or underhand dealing we will take back with agreement not to "go after" any deficiencies. We had one with this type of agreement-- that was in shambles. The owner was crying in my office begging to take it back. So rather than wait we did take it and all signed the agreement and deeds. Got back 6 homes five of them with tenants- new roofs new HVAC's new carpeting. Perfect condition. 1 not so good.

About 3 weeks later my insurance man calls wanting to know about a claim made on the property for 10K and paid by his parent company. The check was cashed the same day the guy was crying in my office that he couldn't pay. I do mean in tears. (He probably had the check in his back pocket) So I called him and asked him about the payment and he kinda laughed-- well he laughed until I mentioned the signatures on the back of the check. HOW DID YOU GET MY SIGNATURE ON THAT CHECK? Yes, THAT'S RIGHT FOLKS THAT CHECK WAS PAY TO THE ORDER OF HIM, ME AND HIS PARTNER. BINGO

He forged the check and deposited it into his buddys bank in a different city. Needless to say -- it was either the Sheriff arresting them for forgery-- or you know who gets that money? Monday noon I had the 10K in hand. Called the pres of the bank-- his buddy and reminded him about the IRS and their banking oversight on fraud checks. --99.103.xxx.xxx




Pat VA RTO (by Vee [OH]) Posted on: Jun 19, 2019 2:24 PM
Message:

Here less than 5 percent make it, the limitations are 20 percent or 23 months - then -ownership- rights are created resulting in a 18-24 month foreclosure if no continuances are granted by the court. The short story is I will take 95 percent of market rent as down payment and worry about the 5 percent in 23 months. --76.188.xxx.xx




Pat VA RTO (by Barb [MO]) Posted on: Jun 19, 2019 7:37 PM
Message:

I don’t.

I bought a property off a guy in my area who did a lot of RTO. I wanted the lot. He offered to show me how it was done, and said he made a lot of extra $$$ off RTO.

I asked him how often someone actually successfully bought a property and how often he got them back after a couple of years. Over 95% were unsuccessful. I’ve got nothing against making money, but being a sleeze is another story. --64.251.xxx.xxx




Pat VA RTO (by JR [ME]) Posted on: Jun 19, 2019 7:57 PM
Message:

Pat, you say you don’t want to do RTO, due to your age and what have you. Tell your tenants; “No”. Practice saying it in the mirror until you are comfortable with the word.

All the stories above were the right thing for their authors, but they have little in common with your situation. --98.13.xx.xxx




Pat VA RTO (by JR [ME]) Posted on: Jun 19, 2019 7:57 PM
Message:

Pat, you say you don’t want to do RTO, due to your age and what have you. Tell your tenants; “No”. Practice saying it in the mirror until you are comfortable with the word.

All the stories above were the right thing for their authors, but they have little in common with your situation. --98.13.xx.xxx




Pat VA RTO (by JR [ME]) Posted on: Jun 19, 2019 7:58 PM
Message:

Pat, you say you don’t want to do RTO, due to your age and what have you. Tell your tenants; “No”. Practice saying it in the mirror until you are comfortable with the word.

All the stories above were the right thing for their authors, but they have little in common with your situation. --98.13.xx.xxx




Pat VA RTO (by JR [ME]) Posted on: Jun 19, 2019 8:30 PM
Message:

Pat, you say you don’t want to do RTO, due to your age and what have you. Tell your tenants; “No”. Practice saying it in the mirror until you are comfortable with the word.

All the stories above were the right thing for their authors, but they have little in common with your situation. --98.13.xx.xxx




Pat VA RTO (by BRAD 20,000 [IN]) Posted on: Jun 21, 2019 12:08 AM
Message:

Roy,

Nothing sleezy about it. I give folks an opportunity to move ahead when the banks won't even talk to them. I offer to help them clean their credit. I recommend they take Dave Ramsey's course and learn how to succeed financially. I even report their good payment history to the credit bureaus.

Here's the problem - life happens. They usually shoot themselves in the foot - for the same reasons they cannot get a bank loan.

If that person had bought a home thru the bank the bank would hit them with $5-10,000 in additional fees, smashed their credit, and taken back the home.

Me? We let them walk away if they choose. Most people want their freedom and are happy to walk away.

Yes, I re-rent quickly and start again with someone else.

NO ONE is harmed.

There are many versions of the generic term RTO.

Mine is simple: instead of a deposit they pay the same amount (+$1) to join the RTO program. They handle repairs for reduced rent.

(Note: a big company is MO charges a "Leasing Fee" rather than a deposit. No value for the res)

For those posters giving equity of ANY kind - double check Dodd-Frank and Securities&Exchange Commission rules. Granting any amount toward the purchase or offering seller financing can easily be considered making a loan. Need a license to do that.

Why RTO? It is a marketing hook to catch their attention and offer more than other LLs. The extra value is the opportunity to move ahead when the banks refuse to talk.

70% of folks cannot qualify for a bank loan but with proper screening they CAN qualify for out RTO program.

Our RTO gives them time IN THE HOME to pay off some debt, improve their credit, rack up time on the job, build a solid payment history...all the things the bank wants to see.

Check YOUR state law. Indiana law is very clear: an option fee is NOT a deposit and does not have to be refunded.

Don't impose your own values on other people. Find what they want, help them get it, and let them pay you for it.

BRAD

--73.102.xxx.xxx




Pat VA RTO (by razorback_tim [AR]) Posted on: Jun 21, 2019 12:50 AM
Message:

Well said Brad. --69.46.xxx.xxx




Pat VA RTO (by BRAD 20,000 [IN]) Posted on: Jun 21, 2019 11:08 PM
Message:

PS

The res can apply the Option Fee to their closing costs. Every penny.

BRAD --73.102.xxx.xxx



Click Here to send this discussion to a friend
Report discussion to Webmaster


Reply:
Subject: RE: Pat VA RTO
Your Name:
Your State:

Message:
Pat VA RTO
Would you like to be notified via email when somebody replies to this thread?
If so, you must include your valid email address here. Do not add your address more than once per thread/subject. By entering your email address here, you agree to receive notification from Mrlandlord.com every time anyone replies to "this" thread. You will receive response notifications for up to one week following the original post. Your email address will not be visible to readers.
Email Address: