I have tenants who have been renting from me for over a year now and one of them has asked if they can buy the MH they rent from me. Of course, they have no cash reserves for a down payment, however, they have proven they can pay rent on-time once a month.

So far, after 6 years in the business, I have never done one RTO deal with a tenant but I have always wanted to just to see if the benefits are any greater to me than just a straight rental.

Questions: What are your min. reguirements for an existing tenant to enter into a RTO deal with you? Would you ever do any RTO deal without a down payment?

More important: What are the real benefits to the property owner who does a RTO deal with existing tenants? There has to be a good reason some LL's love these deals with tenants.

Jeffrey on his CDs makes a good case for a voucher system that accuminates dollars toward a house. If they pay rent on time and inspections pass they get $ in voucher toward the purchase of a house. If they fail either they go back to zero. No equity in the house or any strings.

You'd be crazy to think you can pull a deal like this off without an Attorney! And I'm going to tell you why! In my State, California, like many others, a tenant who pays their rent, plus an extra amount each month towards ownership -- by contract has an "interest in the property" and legally be considered a "co-owner". Most Cities won't allow someone to evict a co-owner for non-payment of rent.

Roy, I finance MH's in my park, and I love the business...I avoid the term RTO as it typically is equated to "no money down" in the buyer's eye.

As for the reasoning behind selling vs. rental - no maintenance issues- no expenses- nothing to do but go to your mailbox and get a check each month....so, if your folks have no money- can't ever seem to save up any- the deal may fall apart over need of a water heater.

You really need people with the right mindset (desire for debt-free house)in order to have success.

I did a successful rent-to-own about 7 or so years ago. It was a young couple, hard-working man working overtime. They couldn't qualify for a mortgage unless he kept that same level of overtime for 6 months. Here is how It worked for me:

They became tenants, and paid a little more than market rent each month(they did qualify as anyone else would). If they chose to buy the house in the next year, then $X.xx of rent already received would be credited to them as downpayment. If they did not purchase, they were just tenants paying a higher rent all that time. They were grateful for the opportunity, always paid on time & bought the house.

On a similar concept: how about an option to purchase? They should be able to get a few thousand together to use as option money, but then just keep them on a lease. You can help them save towards the remaining purchase by using Jeffrey's voucher system, as detailed above.

At the very least, have your attorney review the document. Also, if this is the tenny requesting this, I'd make them responsible for at least 50% of the legal fees to draw up the deal, just like you pay if you are purchasing a property.

I'd demand at least 10%, if not more (20% would be nice). Otherwise, they don't have enough skin in the game for when things go south. That's why so many folks are "strategically defaulting" on loans these days. 0 down = 0 incentive to keep the deal.

Roy, we are 95% RTO. 1% actually buy the place.

Ken's post is right on target. The maint is sometimes delayed, but no more than you would have had as a simple rental. Some actually take pride of ownership and make improvements.

On our low end, we charge $1 over the normal deposit. They don't have any more money. "$1 puts you on track to own a home".

For $100K+ homes we charge $2000-5000 RTO fee.

For us it's a "hook" to grab their attention and let us offer something the competition does not. This is an invisible and free "amenity" that makes OUR homes more valuable in their eyes. Some people want to become owners and this helps them believe they are on track. It's simple, honest and true. But as we well know, some life event usually knocks them off the rails.

In Indiana, we are allowed to keep the "Non-Refundable Option Fee" because state law says is is NOT a deposit. Check your state's deposit laws.

Just had a family move from one of our small houses to a larger home. They placed a $651 RTO fee on the first house, then paid $2000 for the move up house just 4 months ago. This weekend they moved out, leaving me with $2651 I do not have to return. Darn.

We have a new res ready to pay $3000 RTO fee and move in.

That's $5651 pure cash money in 5 months, in addition to the monthly cash flow from rent.

Keep the lease and the option separate - a lease and a separate piece of paper for the Option to Buy (the Own of RTO).

To help me if challenged and show this true separation, we even use a different business name for the option.

Mark the lease as "NO DEPOSIT - SPECIAL MOVE IN PROMOTION", and "Maintenance and repairs by resident, not management."

Mark the monies received as OPTION FEE, never as deposit or downpayment.

DO NOT!! use a lease option on a single form.

We offer $50 per month of the rent toward purchase with a 3 year max. (on houses)

We used to offer $100 but it did not make any difference in keeping people.

Just bump up the price to cover what you have given them.

I use the Option form from Lou Brown's course.

Try it! It can increase your income on the units you already have.

Brad 20K and others - Thank-you very much for the information.

Special thanks to Brad20K - I received your e-mail,...I will have my AL attorney review it for validity in AL.

I have a good relationship with an attorney who is well versed in RE law. I would like to have my attorney create a boiler-plate type document that I can use for all tenants who ask about RTO.

One of the questions my attorney will ask me point blank is: why do I want to do RTO with a tenant instead of a straight rental? Why do I want to complicate my life with additional paperwork with a tenant?

Well according to Brad20K, those extra option fees just seem irresistable. Personally, I would like to keep tenants in the house making payments for life. Once you realize that a vacancy is your highest cost in this business, RTO deals seem to make sense if they will keep the tenant in the house paying rent until they have paid it off. Revolving door tenancies of less than 2 years is a waste of time and resources.

I want to set-up my first RTO deal to encourage the tenant to stay in the house and pay it off but that will take a min. of 5-7 years. I see no reason to gouge the tenant/buyer on grossly inflated house prices or interest rates like many LL's do.

I really don't want the tenant to default and me have to take the house back. I want the monthly payments,...not the house or MH in this case.

When I talk RTO,...I am referring to a situation where no bank or mortgage company is ever involved. I become the tenant/buyer's bank here and I will accept payments from the tenant/buyer until the debt is paid off. However, I want to be able to Evict when necessary and not have to Foreclose.

Roy, your benefit is the large downpayments you get to keep. You will get those houses back, just like a renter moves out with the change of the wind. Look at BRAD's ratio of how many stay. 99 out of 100 leave. I know another investor, he says 25% follow through, which is one of the highest %'s I have every heard.

Roy, you are thinking too hard!

It's one extra paper/signature. In my case a second paper with incentives.

That's all.

Period.

Done.

Just made MORE money by calling my rental an RTO.

They come back the same way ANY rental comes back. Evict the same way.

Find what people want and let them give you money for it.