Hello Gentlemen, I currently have a rental property, and would like to ask instead of going the conventional 20% down to get a 30 year loan to purchase more, I would like to know how to purchase rent to own homes and then turned around to rent them out for a small spread.

I would appreciate getting more information about how to find these deals.

I know cruising through town looking for rent to own signs is one way, however do you know of any other ways to find these types of deals.

Thanks

I know you're looking for a quick, easy answer here to your question.

Well I have a quick answer, but it is going to take plenty of time.

Get yourself a couple of good RE books on the subject and study them thoroughly. Then do it again and again.

Gotcha, you're on track to what I was looking for, I was hoping someone knew of some good reading material on the subject matter.

P.S. not looking for something quick and easy just a good strategy to apply over and over again.

You may want to start with books by Wendy Patton:

Probably the best one to start with,

Around here, you won't see much listed as rent-to-own. However, you might find a tired landlord that wants out of the business if you call for rent and for sale by owner ads. You will need to call many to find one willing to negotiate. You will have to guarantee (minimum) that they will get enough rent from you to cover their debt payment, and guarantee that they will no longer have any maintenance or tenant responsibilities. Of course you need to be able to rent it for a good profit to make it worthwhile. Be sure to calculate ALL potential expenses.

Hi John,

Not a fan of RTO's. The deed stays with the Seller. Let's imagine for a minute that the Seller or his kid runs a red light and t-bones someone in the intersection. Law suit awarded to the injured party for $5 million. Seller is broke and can't pay. The house is still in the Seller's name and will have a $5 million lien placed on it. You have to clear that lien to get title.

Also, as has been discussed on this board many times, RTO's fail 95% of the time. The Seller takes back the house and "sells" it to someone else 7 or more times in most cases. Too many things can go wrong with these kinds of deals. Unless you are getting a slam dunk steal and massive cash flow, don't do it. A "little spread" isn't worth it.

Craigslist and Facebook are the places where our local rent-to-own guys peddle their wares. However, our local RTO guys also take a $30k house and sell it for $50k. Or $60k. Or whatever. Because the higher price is to take advantage of people who can't apply for a traditional "bank loan"... and so they explain that it's the cost of dealing with a "high-risk population." So if you're okay with the inflated price that comes with the territory...

Likewise, I would not feel comfortable subletting a RTO place that I didn't have full control over. My handyguy was renting a RTO place, and all of a sudden, the landlady went and changed all sorts of terms. This kitchen renovation, which was on her dime, because it was "what her mother wanted"-- yeah, she wants $4k by the end of the month, please. And it was supposed to be $x/month? Oh, now it's going to be $y/month. And that year's worth of yard maintenance she was going to pay for with her tax refund? Yeah, not happening. They left, rather than challenge her--- she's very elderly, and we're suspecting these are early signs of dementia or something-- but you, I, and everyone else on this forum knows that if she had tried pulling that against someone who knew the rules, they would own that house before the summer was out, with all the penalties that would get slapped on her.

Me, I like to buy from motivated FSBO's. People who need money, right now. Sometimes it's people who have inherited a house they don't want, and would rather sell it to the first person with cash so they can spend the money on something they do want. Sometimes, it's house flippers who have chosen poorly and are just anxious to be rid of the place. Sometimes, it's people who want to move hundreds of miles away... and are willing to get rid of their house at a low price, just to be rid of it. Sometimes, it's someone going to jail, and they want to get that money in their account before they go away. I've also had good luck with tax foreclosures in the last few years, although that only works in smaller towns... the competition in more urban areas tends to drive up the prices to near-market-value.

The downside, of course, to this approach is that the savings that you get on the initial house are usually offset by the amount of money that you have to put into the house to get it habitable and ready-to-work. These houses are never turnkey. They usually have to be de-junked, painted, floored, light and plumbing fixtures updated, etc, but good deals can be had if you go for things that are structurally sound, but need cosmetic work. If you get things that need structural work-- a new roof, a rewired house-- that can add up pretty quickly, so structural damage is something that shouldn't be tackled too early, unless you have a very specific DIY skill set that can handle it affordably.

John, *IF* you do this, a Lease with the Option to Buy is the way to go. It works both ways.

When you "buy" from the seller, he gives you a lease with the option to buy the property. Make sure the option gives you the exclusive right to buy the property for a 2-3 yr time period. Best way to structure it(for you) is for you to agree to pay the sellers mortgage mortgage payment (incl esgrowed taxes/ins) for those years, and then the purchase price will be whatever is left of the orig mortgage at time of actual purchase. The seller doesn't make any money on the sale but he gets out from under the mortg and unloads the home with his credit intact, free to go on with his life. You get a lease with the rent payment the same as the sellers mortg payment and you pay that, and have control of the property.

You put a tenant in that pays you MORE than you pay the seller. You give your tenant an Option to buy the property, where they pay you an Option Fee of several thousand dollars, and where the price of the property is JUST over fair market value. If the tenant/buyer cannot/does not purchase the property at the end of HIS Option period, the Option is void and you can continue him as a tenant or get thehouse back to re-option out.

I did this 3 times. Example: bought an option on a home with a lease stating the rent amt was the amt of the existing mortg. I paid that mortg down for 4 years (my 3 yr Option and a 1 yr extension) decreasing the mortg amount. I leased out the home for $100 more than I was paying plus I took in a $3000 Option Fee. The tenants stayed the 3 years but couldn't purchase the home so they left. I immediately re-leased and re-Optioned the property with a $25 increase in rent and another $3000 Option Fee.

At the end of the 4th year I took the rents collected (@$5000) and the Option fees collected ($6000) and put that down on a loan to buy the property from MY seller--for the amount left on the mortgage--which was only $65K by that time. My new mortg was $585 and I was collecting $925 in rent and I had bought a prop of $100K value for $65K.

Thanks to you all for the good advice on Rent to Own". All of you had very good principle points and I'll be sure to consider every last one. I know your many years of experience have made you wiser real estate investors today and I will surely take heed to your advice.

Also in the future as I reach out for advice I'll be sure to address the ladies as well as the gentlemen.

Thank you!

John,

Come to National Convention to learn this and other techniques. Full info on the home page.

Many multi millionaires in the room using such methids.