Sell Cash Flow Properties on Rent to Own
Real estate investing can make large profits but there is always the scary possibility the property you bought, rehabbed, and now have money tied into, just won’t sell. That risk alone keeps many people from investing in real estate but it shouldn’t.
There is a smart way to guarantee you can always make a profit on real estate investing ventures. It’s called an Exit Strategy and every type of investment has one; real estate is no different. You are never stuck losing money when you understand this exit strategy that places the property on the market as a Rent to Own.
Understanding a Rent to Own from the Investing Viewpoint
While Rent to Own situation may seem complicated, in all reality, it is a simple way to recoup the initial investment and make a substantial profit. Here is a quick breakdown of how to work a Rent to Own situation so you come out ahead.
Let’s say you’re in a house for $70k after the initial purchase and rehab and the house just won’t sell. You’ve lowered the asking price and still no buyers. This is when most people begin to panic but it’s really the time to put into play your exit strategy.
1. Take the house off the market, for about 2 weeks. This is your time to regroup and work through your plan. It gives you the chance to reintroduce the property in a fresh way at a later date.
2. Refinance the house with a private mortgage for a higher amount so you can pay off the initial investments, improvements, and pay off everyone involved with the property. This can be anywhere from $90-120k.
3. Work on a rebranding of the property. Have signs made, ads completed, open houses planned, and input the property as a Rent to Own in the MLS, online ads, email blasts, and any other medium you can to get the word out about this opportunity.
4. Ask the renter/future buyer for 5-10% down on the property and ensure the rent amount is over and above the carrying costs. In this scenario, the costs would be about $850.00/month so you can easily charge $1300/month in a rent to own scenario. This provides a positive cash flow of $350/month. Remember, this is after you’ve pocketed $20k on the refinance in Step 2 and received the down payment of 5-10%.
5. The renter/future buyer will pay all of the utility bills so the house will remain in working order and they will have invested interest in the property. This usually means they will care for the property because it will be theirs in several years.
The major upside to this type of transaction is you can charge full market value for the property in a Rent to Own situation when in a typical retail buyer’s market, you would probably have to lower the price and offer concessions. You can come out ahead with a Rent to Own investment so don’t let the thought of being stuck with a house keep you from achieving your real estate goals.
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