Since we have started converting and acquiring additional properties using the Rent To Own strategy and sharing/teaching our ideas with other investors, we get asked this question all the time.... 'why don't you buy cheaper homes and rent out the upstairs and downstairs?'
Yes, that is another way of investing. Neither style is wrong, we have tried them both. We just like to share with you what has worked for us successfully and has had the least amount of headaches. The first step is to ask yourself a few important questions then decide.
What type of tenants are you trying to attract into your home? Depending on the type of home you choose, this could attract different types of families. In your mind you may think a detached 1200 sq. ft. home may be more desirable than a town home that is 1700 sq ft. But the reality is people prefer space. Purchasing a smaller home may attract families with no more than 3 people only, vs. a larger property that can attract all types of family dynamics.
What type of area do I want to buy in and how important is location? Many investors want the lowest price they can find for their investment property. Purchasing a home in a less desirable part of the city will attract a less desirable type of tenant. If you find a beautiful home- in a beautiful neighbourhood- you will find tenants that are more stable and are more likely to purchase the home at the end of the term.
What's the turnover rate for your strategy? High turnover in your tenancy is usually a good indicator of unstable renters. This could vary from low income/no income to those individuals personal situations. Rent to Own looks at income and job stability. You are not trying to attract students, tenants on unemployment or on government assistance.
Is there an incentive for them to appreciate and care for the home? If you choose location over purchase price, this automatically gives you leverage to increase the monthly price of the rent- over market value. For example, if market rent (in the area) is $1400, our tenants will expect and to pay $1500-$1600- because of the location.
Are they stable in their lives and jobs? For the most part yes- many of our tenants make over 6 figures- but only claim a quarter- if they can prove they earn the amount necessary to afford the rent- they can have the option to become RTO tenants. They understand they have 3 years to claim more income, so they can take ownership at the end of the term.
Other things to keep in mind when you are purchasing an investment property:
Curb appeal: What feeling will your prospective tenant/buyer have when they see the home from the street? Will they feel proud when their friends and family come over? Remember this, ugly homes repel good tenants.
Condition: How old is the home and have the major wallet breakers been upgraded? We prefer newer homes and we want to make sure the furnace, roof and windows are all in good condition. Guess what... so do your tenants moving in. Trust me, it's less work and maintenance.
A good neighborhood: The ideal tenant will want to live in a home in a nice area. If they feel they are in a neighbourhood where they feel safe and their kids can play, you'll attract the right tenants to your home.
At the end of the day, either investment strategy will work, it just depends on how much work you want to do and how many cash producing properties you want to own with the least amount of phone calls?
About the Author:
Gary Hibbert is a Canadian Real Estate investor. He uses a very smart and proven Rent to Own technique that provides a win win scenario for both the investor and the tenant. His technique of buying beautiful homes in beautiful neighbourhoods has proven to be a great concept and strategy he share with others investors. Visit Gary and his team at http://shcinvestor.ca