Crazy Thomas Rent-to-own training video #3 - Pulling IT Together
Post on 09-May-2015
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Sieze the opportunityMake the World your Oyster
FREE Rent-to-own Training #3Pulling it together
CRAZY THOMAS
Lease Option Specialist
Who am I?
• Crazy Thomas• Thomas Wong• Your rent-to-own
specialist• A real estate
investor with a process improvement background
• Have done over 30 rent-to-own projects in the last few years
What did we cover so far?
• In our first video, we covered– The basics of RTO– What is rent-to-own/Lease Option?– Why RTO is good for tenant and
investor?– What are the risks of RTO?– The basics of making money with RTO
projects
What did we cover so far?
• In our second video, we covered– The marketing of your RTO business
• For RTO clients• For investors
The Rent-to-Own Process
What do you need for a Rent-to-Own project?
• To put a Rent-to-Own Project together, you need:–A qualified Rent-to-Own tenant
–A good property
–Investor or investors to buy the property
The “Bag of Tricks” of Crazy Thomas
• The key steps to pull a rent-to-own project together– Qualify the tenant– Find the right property for the tenant– Decide on the property– Negotiate the purchase– Structure the deal– Communicate with investors
Rent-to-own Client Qualification Checklist
Process for finding a house for RTO client
• 3 steps process to find property– Meet with real estate agent
• Schedule a showing (5-6 prop.) Observe what is important to tenant!!
– Search again to meet their criteria and our criteria.• Find motivated sellers.
• Go and see properties with realtor without tenant.
– Present 3-4 selected properties to tenant
• Start negotiation on the chosen property
Analysis of the property• Input (about the property):
– Market value of the property– Market rent of the property– Any renovation cost– Property tax of the property– 5 year average appreciation rate– Any other on-going expenses (condo fee …)
• Input required (about the investment)– Down payment, interest rate, amortization years
• Input (about the tenant)– Monthly payment target, initial deposit availability
Feasibility Analysis SpreadsheetLease Option Feasibility Analysis:
Dash Board
Result Matrix DCRInvestor Profit
Tenant % Down
Tenant MonthlyPayment
Current Value 1.17 65% 10% 2,025$ Target 1.10 60% 10% 2,000$
Description of the property: 13 Ecclestone DriveType of Property: Free Hold
Current Purchase Price: $281,000
Monthly Market Rent: $1,500
Land transfer taxOther Ont. City $2,690
Rehab cost/setup cost: $2,000
Closing legal fee $2,500
Avg. Annual Appreciation 5.0%
Assignment fee $5,000
Adjusted Cost base: $293,190
Annual property tax: $3,200
After Repair Market Value: $296,000
Annual Insurance: $600
Selling commission: 4.50% $13,320
Financing:
1st MortgageInitial Cash Investment $54,390
1st Mortgage Amount 80% $224,800 DCR(Free Hold) 1.17Interest rate 4.00%
# of Amortization Years 35
2nd Mortgage RRSP 2nd Mortgage Amount $14,000
2nd Mortgage Interest rate 14%
Total Mortgage $238,800
Lease Option Arrangement: Note: Input field are highlighted in
Initial Down Payment $8,000 yellow
Monthly Rent (% of avg. rent) 99% $1,485
Monthly Option Premium (% of avg. rent) 36% $540
Monthly Condo Fee $270
Tenant Total Monthly payment $2,025
Monthly Option Bonus $200 (extra money to credit to Leasee's downpayment)
Tenant's Preferred Length of Lease (# of Year) 3
Lease Term: 3-Year
What can help to increase profit (ROI)
• Lower purchase price
• Higher after repair value
• Higher rental portion of monthly payment
• Higher appreciation rate
• Lower tax and insurance cost
• Add a RRSP 2nd mortgage – 14% (reduce cash investment from cash investors v.s. 20%ROI)
Crazy Thomas’ Way to Structure the Joint Venture
35%35%> 50% ROI/YR> 50% ROI/YR
65%65%= 20% ROI/YR= 20% ROI/YR
Partner # 1: (5% of $$)Partner # 1: (5% of $$)
Thomas (Project Manager)Thomas (Project Manager)
Bob (Mortgage partner)Bob (Mortgage partner)
Partner # 2: (95% of $$)Partner # 2: (95% of $$)
Cash Investors Cash Investors
80% Mortgage80% Mortgage
20% 20%
Down Payment Down Payment ($$)($$)
The “Bag of Tricks” of Crazy Thomas
• We still have many more tools in our “Bag of Tricks” like how to firm up the deal and run the project to ensure that we are making money at the end.
• We will cover them in the videos that you will receive next time.
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