Recently I’ve been talking more about rent to own since I am pretty well sold on this being the best investment strategy for me at the moment. To demonstrate why I am such a fan of rent to own investing, I want to share 3 real life reasons based on my experience over the first couple of months for the last deal I put together.
The moral of this story is that investing in rent to own is a little more work up front, but it makes life much easier for the investor. Most of us are looking for the most profitable and passive strategy, so read on to learn more about why I <3 RTO!
Reason #1 – Tenant-buyers don’t call me
Shortly after closing my last rent to own deal, some of the tenants in my buy-and-hold properties started to call about little problems that popped up. My property manager got calls about various issues such as roofing, clogged plumbing, a furnace that wouldn’t cycle, and an emergency hot water tank replacement. All this action at my buy-and-hold properties was in direct contrast to a peaceful month with my new rent to own property.
The reason for this difference is that rent to own tenants are responsible for their own repairs and maintenance. Not only does this setup add to the cash flow, it saves time and hassle for the investor as well. Having tenant-buyers cover their own repairs and maintenance prepares them for home ownership because when their term is over and they take title, there won’t be a landlord to call when they clog their drains or their hot water heater starts leaking. They are learning to deal with problems themselves like a real homeowner.
Reason #2 – Tenant-buyers improve the property
Opposite of buy-and-hold tenants who will call to have the landlord fix problems they may have caused themselves, tenant-buyers will fix problems regardless of the cause and even make improvements to the property. With buy-and-hold we usually spend a couple thousand dollars to get the property “rent ready” but with rent to own the tenant-buyers take responsibility for the condition of the property from day one.
When putting together each rent to own deal, we make sure the tenant-buyer is present for the home inspection and ensure they are fully aware of any issues with the home. If they want to address any of the deficiencies outlined by the home inspector or make improvements to the home, it is up to them to do so.
My tenant-buyer decided the existing walk-in garage door was too flimsy to protect his belongings so he decided to upgrade it to a steel door at his own expense. For a regular buy-and-hold investment this would seem strange, but with rent to own this type of thing is the norm. At the end of the day, the tenant-buyer is purchasing the home so they feel comfortable making it their own and have a real incentive to take great care of the property.
Reason #3 – Tenant-buyers want to pay (on time)!
Tenant-buyers have a different mentality than regular tenants. They are looking to achieve home ownership at the end of the day, and that means doing whatever it takes to complete the deal. Instead of rent being another annoying bill, it becomes a financial priority for the tenant-buyer. As a landlord, this is good news.
Our option agreement states that the tenant-buyer will earn rent credits for every month the occupancy payment is received on time. If payment is late, no option credit is earned in that month. This simple term means tenant-buyers want to pay, and especially want to pay on time so they do not lose out on any monthly option credits.
With my recent rent to own deal , the tenant-buyer requested that we setup pre-authorized debits from his account to make sure his rent would always be received on time. Not having to chase cheques, wait for them to clear, or even make deposits is a huge win as a landlord so I was thrilled to work with the tenant-buyer to get this setup.
Rent to Own is a Different Game
These 3 real life examples are a good sample of the differences between rent to own and traditional buy-and-hold tenants. Sure, there is more work involved upfront to put together a rent to own transaction, but the ease of management and financial benefits justify that extra work in my mind. Tenant-buyers come into the transaction with a much different mindset than tenants, and that is a game changer. When is the last time your buy-and-hold tenants took care of all of their own maintenance, made improvements to the property and requested to setup pre-authorized debit to ensure prompt payment of rent?
