Financial Education through Real Estate Investing: Creative Financing — Seller Financing through Options (Part 4)

August 30, 2022

The content in this article is likely one of the most popularly used way of a Lease Options deal in North America. I say it’s popular simply because of its street name: Rent to Own. And it’s often used to help people obtain home ownerships when they have been rejected for a mortgage by institutional lenders.

This way of Lease Options is my actual ‘baby strategy’. If you read the previous article, you’d probably already figured that the mechanisms and thought process is relatively similar. Except that, in this case, I am the seller giving my tenant(s) (or tenant-buyer) the options to purchase/renew, etc. at the end of the contract term.

My husband and I chose this as our first focused strategy when we first started for a few simple reasons:

1. Great passive income/cashflow to help us get out of the rat race faster — we needed our time and health back desperately from working demanding corporate jobs (selfish)
2. Little to no tenant and property management once the Lease Options is set up and the tenant-buyers have moved in (selfish)
3. We get to help people achieve their dreams and goals of home ownership (win-win)
4. We get to build a solid team of realtors and mortgage brokers in every market with this strategy (win-win-win)
5. It’s an average of 2–4 years process to see results for both the investors and the tenant buyers. There’s no need to stress over long-term commitments here compared to a traditional buy & hold strategies especially when working with OPM (win-win-win again)
6. This is the ONLY strategy that can feed into all 3 income buckets (GIANT win from an investor’s perspective)

When I labeled certain reasons ‘selfish’, all I’m simply doing is reminding everyone the importance of WHY — (financial) GOAL — SMP again.

We all (at least 100% I’ve come across so far) choose to get financially educated so that we can fast track our desired financial results to help us LIVE A LIFE that we want. Also, to this day, I still strongly believe in the concept that “you can’t pour from an empty cup”. It’s ok to cater to your personal situation and make it better first before you give.

Now that we’ve got those things out of the way, here’s one of the BIGGEST reasons why we stuck it out and did 36 of these deals in the first 25 months of our investing career.

As a Seller

Here’s a little background —

Picture this (yes…I recently started watching the Golden Girls as part of my ‘getting cultured’ journey as an immigrant):

• Edmonton, August 2012 (pretty much exactly 10 years ago this week)
• We’ve acquired a new property for our new tenant-buyers who are a couple in their early 50’s with 4 children
• They are the typical middle class family — hard working parents that only want to provide for their children — and paycheque to paycheque as a result
• Having attempted to get a mortgage to buy their own house many times without success, they were very hesitant about getting into a “Rent to Own Program” (understandably so as there were many people in our home market back then that did not aim to set up their tenant buyers for success — another story altogether later)
• The husband was virtually non-communicative throughout the whole application and house shopping process
• On possession day of the property, we have just finished our walkthrough and now gathered around the kitchen island to finalize some paperwork
• Midway through signing the documents, the husband’s hand started to shake. We are now thinking he’s getting last minute cold feet and might want to back out of the whole arrangement
• We asked him to put the pen down and explain what’s happening…
• To our surprise, real tears started streaming down his cheeks and he’s getting all chocked up wanting to squeeze out words to say how grateful he feels and that he never thought this was possible
• Between the sniffles and his beautiful words (now basically everyone’s crying happy tears), it became clear to us why this is such an amazing strategy and that it became the 2nd of dozens more Rent to Owns so far in our investing career

Rey and I walked away from that meeting feeling immensely empowered and jazzed. Intellectually, we knew why this strategy is great — we get great cashflow from each deal that will allow us to ‘retire’ early and get our time back. But boy…emotionally, we had no idea what was in store for us until that day.

For those of you analyticals, here’s the other side of the deal:

• They did not have enough downpayment saved up as they were paycheque to paycheque for decades
• They did do the ‘typical’ thing and put money away in RRSP (Registered Retirement Savings Plan like the 401K, superannuation, etc.) and TFSA (Tax Free Savings Account) and was able to leverage it to get into and finish the Rent to Own program
• This was a 2-year arrangement and they had 2 adult children living at home willing to pitch in on their monthly rent to own commitment
• As the investors, we were cashflowing $1,700 per month (before JV split)
• There was ZERO issue with them for the entire duration (not all of them are this great to be completely transparent) — the biggest ‘request’ they had was if they could upgrade the flooring and we said yes

Icould never forget the giant smiles on their faces when they took title of the home that they had already lived in for 2 years and treated it as their own.

And that’s just it!

As the investor in this arrangement, we are essentially extending a private mortgage to them while helping them get set up to qualify for a traditional mortgage through an institutional lender.

Most of the tenant-buyers become tenant-buyers because they’re lacking one or all of the necessary criteria demanded by the big banks: income, credit and downpayment. The perfect trifecta needs to be there before anyone can properly qualify for what’s known as the ‘cheapest money’ on mortgage — A lenders.

This is where the knowledge and experience come in: helping your tenant -buyers get to the finish line. We all know life happens and not every tenant-buyer will complete the program. However, when executed properly and with integrity, our own success rate has been over 86% to date.

These 86% include (but not limited to):

• New immigrants who have the savings but no credit or income (yet)
• Self-employed folks who have accountants who do not understand mortgage rules and are advised poorly as a result
• People with bruised history and not knowing how to fix them even though they are making a steady income and have worked hard to save up for their first home

I always advise and encourage EVERYONE to learn more Lease Options even if it’s not their first or chosen strategy simply for the fact that it can make ANYONE a better and more sophisticated investor.

For those of you who are in and close to Toronto, ON — Trust Your Talent is running a 2-day LIVE IN-PERSON Real Estate Investing Bootcamp on September 24 & 25 where you will dig into this particular strategy amongst many others. You can visit the Bootcamp Registration page or talk to a Strategy Coach from Trust Your Talent Academy to learn more.

Tomy dedicated readers, I thank you for your support and feedback. If this is the first time you’re reading one of my publications, I hope you’ve enjoyed it and learned a thing or two.

If you’re wanting to be a part of a community of real estate investors from around the globe, here is the T.A.L.E.N.T.ed Investors Facebook Group. It’s a place where people come together to share experiences, knowledge, successes and challenges, and money making opportunities!

For those of you who prefer watching videos, here is the YouTube channel where some of my work (very raw) has been shared.

Lastly, I just want to say thank you for your continuing support. I aim to be authentic and adding value to your life.

It’s ultimately about LIFE and I appreciate you coming on this journey with me!

(Written at home in Edmonton, AB)