One of the things people always say is "What if the tenant doesn't buy it?".

Now, what are the reasons NOT to choose a RTO strategy?

The opportunity to make single family homes cash flow makes this strategy very appealing but it is not for everyone. There are some reasons that a rent to own strategy might not work for you and your goals. Here's some reasons why:

  1 - Smaller population of Tenant-Buyers than regular renters so it may be more challenging to place good, quality TB's than in a regular rental unit

  2 - It doesn't make much financial sense to pay a property manager to over see a rent to own property given the limited amount of work involved. However, that choice means that it will involved more of YOUR time

  3 - If your target market area is in high demand from competitive owner-occupied buyers, you may have more trouble buying good, high quality properties (because there is so much competition)

  4 - You have to remember that someone that makes a good renter is not necessarily the same person you're looking for as a tenant buyer. Your market includes people with bad credit. It also includes people that have gone through some financial challenges because of divorce, job loss or just bad money management. These are people you might not rent to under normal circumstances but you will be considering them as a tenant buyer. Your main concern here is their ability to make the monthly payments. You aren't as worried about their credit. You want someone that is going to be likely to take good care of the property and can potentially buy it in a few years. You aren't looking for the perfect candidate that could buy it right now!

  5 - If the TB exercises their option to purchase at the pre-set price and property values have skyrocketed since you agreed on that pre-set price, you won't obtain that large appreciation

  6 - It's still a rental property and somewhat illiquid (compared to stocks, bonds, and other investments).

The Rent To Own strategy is just another tool for your tool belt. It's not for everyone, but it does make it possible to generate strong cash flow from properties that would otherwise never stand a chance of covering their costs and putting money in your pocket each month.
 
And the good news is that Rent to Own is really not that different than a standard buy and hold deal.

The tools required to find, buy, place, and manage a rent to own property are similar to a standard Buy and Hold (and so you can apply the principals from one technique to the other quite easily), but this strategy can also give you that "feel good" emotion that comes with helping a prospective homeowner get into the market (and you can profit from that too!).

And of course, if at any time, you need support and additional resources to be successful as a real estate investor we invite you to join our 12 Months to $1 Million Membership program! Order our free CD on the #1 Secret to Buying $1 Million in Real Estate in just 12 Months and you'll get 60 days free!

Published on October 16, 2009

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