We wanted to take a quick moment to share some valuable rent to own housing lessons with you that we've learned over the years.
It’s back to school time! As if you hadn’t noticed, with the barrage of advertisements and sales on because of it. Have you thought about using this time of year to your benefit with your rent to own housing?
You could have your very own back to school rental special.
It may sound a bit corny, but it works.
Don’t be scared to stand out from the crowd. You may even get to the point where people may think it is too much, which probably means it is just right.
The world is a busy place and sometimes we gotta stand up, wave our hands and scream to let people know that we’re here. Often the more outrageously you do that, the better.
At the recent Buskerfest in Toronto, the craziest getup's and shows managed to fill bags of money from the crowd but the ones that just barely crossed the outrageous line, just barely filled their pockets.
Last month marked the expiry of one of our RTO agreements for one of our rent to own housing properties. We had to decide how we wanted to move forward now that the official option to purchase on the property had expired.
Making matters worse was the fact that the tenants weren’t getting back to us to set up a meeting.
They had been good tenants up until now.
We worked through some financial difficulties during the previous couple of years. In fact, we even let them pay rent 5 weeks late once and 3 or 4 a couple of other times.
Because they lived up to their word.
Although it was late, when they said they would pay, they did - a crucial characteristic for us to continue to work with them.
So it was strange that they weren’t that responsive to setting up a meeting.
It turned out, that they were scared they wouldn’t be able to buy the house and they didn’t know how to approach things for this rent to own housing property.
Ironic isn’t it?
That is why we were trying to meet.
But that’s besides the point.
This rent to own housing property is about an hour drive for us, and to tie us both down together can be a bit difficult because of our schedules.
But it didn’t matter. Some tasks can’t be done by phone or email.
And renegotiating leases is definitely on that list.
At $1,600 a month, this one lease is worth $19,200 over the course of a year… We’ll drive.
An Inner Circle member recently reached out to us for options on what to do now that his rent to own housing tenants term had expired. He hadn’t been able to get a hold of them.
He had sent them two emails!
We seriously thought he was joking.
The fact that he was leaving that much income up to email had to be a joke right?
Sadly, in too many cases it’s not.
Here’s the reality.
Email, text messaging, Facebook, Twitter, etc., do not count as a reliable form of communication.
Too many things can get in the way. When it comes to your money, are you going to risk your message getting through spam filters, or not getting drowned out by everything else being thrown at someone when they are online?
You should have a relationship with your rent to own housing tenants, use it.
Pick up the phone, drop by the house, whatever it takes.
They want to give you thousands of dollars over the next year, do something about it.
When we met with the tenants they had some concerns about qualifying for a mortgage and the value of the house.
It was our job to pin point exactly what these concerns were and to not take them at face value.
This may sound a bit basic but how can you solve someone’s problem if you don't know exactly what it is?
And our jobs, as investors, is to solve people’s problems.
The only reason we are able to invest in rent to own housing that cash flows is because people have housing problems.
Investors don't rent apartments or homes to people, they solve problems.
As our meeting went on, we learned more about their financial situation and why they felt a mortgage is still a challenge for them.
We explained to them what we could do, but left all the details up to a mortgage broker that we asked them to reach out to.
Although we could have given more information and guidance, we purposely didn’t. We don’t want our tenants looking at us as the source of the mortgage so we held things back.
The responsibility is theirs, we want to leave it that way.
Now, if issues do arise, we are not involved. We are not playing a middle man in the process. They also had some common worries over the buyout price of the home.
They were scared that the home would not be worth as much as the price we had agreed to.
But after talking with them, they pointed out rent to own housing on the street and told us their appraised values. These were lesser homes that were appraised for just under our buyout price.
We realized then that it wasn’t so much the value of the home that concerned them but it was their lack of understanding of how the values were established. We had pin pointed the problem, now we had to fix it.
We explained the things an appraiser looks at, how other values impact theirs, who sends them out, etc. We also felt we might be pushing the envelope a bit if we appreciated the home a full 5% or 6% so although we were extending the contracts, we appreciated the home only slightly.
It was enough to offset any additional credits that they would earn over the year.
Some investors think this is a mistake, and they could be right. But here is why we did it in this particular case:
Yes, although we have had to often cash their post dated cheques late, we consider them good tenants.
You see, these people are building up the equity in an asset that we own.
So we tried to make it a win/win scenario, and we did.
They were very happy that we were willing to work with them and we were happy as well.
Recently, a member who tried to line up tenants with investors for a fee, told us that he felt the real asset was the tenant and not the home.
You may want to re-read that last sentence.
We feel that this type of thinking is not only foolish but dangerously risky as well.
When you invest in real estate, you should never be investing in the tenant. Tenants can be replaced much more easily that a good, solid property in a good investment area.
One goal is to build and foster the relationships with your tenants, but to think you are investing in them is a completely different story.
This may be offensive to some but investing in people is like picking a winning horse at the track.
The only guarantee with tenants is that “life happens.”
Whether it be finding out the new born baby you thought you fathered is not yours, having to commit a relative to an old age home and foot the bill, or simply losing your job, we have seen a lot of different circumstances.
With all the different scenarios we have encountered, picking a human to invest hundreds of thousands of dollars in is a very hard sell.
We have said this before and it is worth repeating a hundred times. Every time we buy a property we go into it willing to own the property forever.
Because the asset that is controlling our money is this piece of property and we want something that will hold its value and increase over time.
We want something that we can control, repair, upgrade, refinance, and liquidate.
Properties allow those things - people don't.
Be very wary if you are taking on this kind of thinking because we have seen many people be burned by it, don’t allow yourself to be one of them.
As with anything, the ultimate direction you choose should always remain yours. This quote from Buddha puts it well:
“Believe nothing, no matter where you read it or who has said it, not even if I have said it, unless it agrees with your own reason and your own common sense.”
With new media giving so many people a voice, we need to pick our sources of information carefully.