HOS Financial actively markets for Real Estate rent to own (RTO) opportunities.
With each Opportunity, we perform an in-depth qualification underwriting process on our prospective tenants. Once we have received a signed agreement with the tenant (future buyer) we then market the opportunity to our base of real estate investors.
“A successful project is the result of a corporate strategy based on strong process controls, unparalleled underwriting guidelines and credit management featuring debt remedy which helps to minimize tenant default rates.”
1. A thorough evaluation of the tenants financial position;
2. Executable strategies to improve the tenants ability to qualify for an exit mortgage at the end of a 3 to 5 year term.
But how does the Investor make money with Rent to Own?
– Monthly Cash flow
– Mortgage Principal pay down
Here's how it works. Let's say you find an investment opportunity that interests you. As the investor, you purchase the property at fair market value and are required to provide all the funds to close the deal. This would include a 20% down payment if you are leveraging and all legal closing costs.
After the deal has closed, you will receive the tenant’s initial security deposit or which you will be required to pay HOS Financial a Tenant Locator Fee. This net amount lowers the overall investment establishing your net investment value.
Think of the security deposit as the equivalent to first and last month's rent in a typical buy and hold rental scenario; however where a typical buy and hold provides the investor with first and last months’ rent, the HOS program provides security deposits that range between “3% and 20% of the value of the property.”
Each month as the investor, you cash the monthly rent cheques and of course pay the necessary carrying costs of the property.
In addition to the rent payment, you also receive a second cheque each month from the option credit portion. The base Rent Plus Option Credit Payment creates a higher than average positive monthly cashflow.
You may be thinking, “don’t I have to give the deposit back?”
Well technically yes, but everything is handled through the buy back transaction, so in essence, it does not actually come out of your pocket. It is merely an adjustment as stated in the Future Purchase and Sale agreement.
So, the occupant, who is paying the rent, is covering the cost of the mortgage and therefore all money paid against the principal is YOUR revenue.
This is a PSA signed by both the investor and the occupant providing them an opportunity to purchase the home in the future at a pre-defined value.
Everyone knows that appreciation rates are a guessing game but history proves that we see increases between 2 and 30% annually. HOS has a predefine appreciate rate that ranges between 2 and 4% based on the condition and the location of the property.
Some investors might think they should get more, but our objective isn’t just to get rich, we also take a moral, ethical and socially conscience approach to helping families achieve their dream of home ownership.
If we simply hike the appreciation rate up, two things could happen.
First of all, we risk over pricing the property, thereby over estimating Investor profits.
Second, doing so would probably mean that the family would not qualify for a mortgage at time of buy back as the Future Purchase price would be more than the property value.
The last little piece of the Investor Revenue puzzle is a small administration fee included in the contract that the occupant pays the investor in order to exercise the option to buy. This is normally equal to the monthly payment paid during the Lease Term.
There we have it. We’ve briefly talked about cash flow, the pay down on the mortgage principal, appreciation and administration.
The difference between Return on Investment (ROI) and Cash on Cash (COC). When we advertise ROI, it is the average ROI per annum. 30% ROI does not mean if you had a $10,000 investment that you would have $3,000 in profit in your pocket at the end of the first year.
It means your total profit on the project would be $9,000 on a 3 year project. Total ROI is 90% divided by 3 years. COC is the actual ROI you receive as a result of positive cashflow. The COC % number is typically lower, for example 20%.
This means that on a $10,000 investment you will have $2,000 in profit in your pocket at the end of the first year. When the occupant exercises the option agreement, this is when you will recognize the differential. So you can pretty much count on a return on your investment being more like 20% the 1st yr, 20% the 2nd yr, 20% the 3rd year with a 30% at the transfer of sale.
HOS Financial has structured this program to find a balance between affordability for the family and impressive returns for the investor. We like to say that our many years of success has finally provided the market with a Real Estate Investment solution that is Safe, Secure and Simple. Don’t wait. Opportunity is knocking. The only question is whether or not you answer the door.
Feel free to reach out to us for a no-obligation risk assessment. Real estate investing isn’t right for everyone. It has to make sense for you short and long term. We can help you collect the facts and make an informed decision.