The rent-to-own option or lease option investment strategy is certainly not a new strategy.
There have been a few savvy investors who got into the game years ago. For others, it was more of a gamble rather than an investment. Mark Loeffler's new book Investing in Rent-to-Own Property offers readers a step-by-step formula for interested investors who want to minimize mistakes and earn above-average returns while at the same time help tenants become homeowners.
However, Loeffler has taken the traditional strategy and added a new element that adds a safety net to the investment by finding the tenant first. Back in the 70s, the pioneers of rent-to- own were investors in the U.S. Here in Canada, the strategy was considered "shady" by many investors who felt it was a "scheme." The traditional method would see an investor purchase a house and then seek a tenant who would be willing to pay extra rent to help come up with a down payment. Yet, typically, houses remained vacant, sometimes for months, because tenants either didn't want the house or were concerned they were being scammed.
But times have changed. During the 70s, Canada met inflation. Since then, the country has weathered economic ups and downs, recessions, double-digit interest rates, soaring home prices and a global financial crisis. This has caused a paradigm shift in the way consumers use credit and how they manage their money.
With increased credit lending, the ubiquitous credit score has become much more important and with the easing of mortgage rates, more consumers could own property. This has attracted new investors into the market and now the rent-to-own strategy starts to look good as one of the systems available. But there is still the issue of homes sitting vacant, which is addressed by Loeffler's approach. The tenant-first approach means that once they qualify, they can look for the home they want to live in, rather than one already purchased. Now tenants have a vested interest in maintaining the upkeep of the home.
Loeffler covers all the bases in his book from finding tenants to finding and purchasing property and all the steps along the way. It's easy to read and easy to follow and if you have the wherewithal to try this strategy, using Loeffler's approach can pretty much guarantee success. He's been there, he's done it and he's learned the best ways to execute.
What's attractive about Investing in Rent-to-Own Property are the charts, forms and checklists that Loeffler has created. Everything is there for the investor to get started. Particularly interesting is the chapter on finding tenants. The chapter outlines some of the problems tenants may have such as a low credit score or not enough down payment. The reader learns Loeffler's system of finding the best candidates and how to qualify them. He also includes a financial analysis spreadsheet that breaks down each item and shows how to calculate your return on investment (ROI).
Loeffler doesn't shy away from what can go wrong. He offers a number of real-life scenarios to illustrate some of the pitfalls and how to guard against them. Also important is the chapter on building your network because to succeed with this strategy, an investor cannot go it alone. There is an old saying in real estate investing: "Your network is your net worth." Loeffler writes, "Real estate investing is intricate, and comprises many moving parts. There is no way one person can do it all on their own, which is why you absolutely must establish a good network." He goes on to write about how to build your network and who should be part of it. An investor needs to remember that the goal in rent-to-own strategy is to get the tenant into a position where they can purchase the home within two to three years. That means putting together a team of professionals that includes among others a Realtor, a mortgage broker and a lawyer.
Loeffler is an experienced real estate investor who has learned from his mistakes. He's put together a comprehensive step-by-step guide so that others won't make the same mistakes. He writes: "All over the world, people spend thousands of dollars each year on diets, following a plan laid out by nutritionists, doctors and, sometimes, sitcom stars from the 70s! Why do anything, especially in real estate investing, alone when you can follow the steps of someone who has done it many times before, to the point they have perfected and fine-tuned it to a quantifiable system?"
*Mark Loeffler's book is valued at $36.95 but is available for free with the purchase of a Canadian Real Estate magazine subscription for $67 plus taxes. Book here and enter the promo code CREGREETINGS.
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