Forums / Property Investing / Creative Investing / I want to buy property to do "rent to own" where do i start??

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  • Profile photo of AndoAndo
    Participant
    @ando77
    Join Date: 2015
    Post Count: 9

    Hi guys,have had a look around and cant seem to find info on what i need to do to get this up and going? I would like to purchase a property and rent it out as “rent to own”. Do i need to have any type of license etc? can i do the property management myself (rent collection, inspections etc) and are there special contract pro-formas/terms my solicitor will need to draw the agreement – hoping to have everything organised before seeing him so it saves me money!
    Has anyone experienced good growth/return with these? my husband and i have been throwing the idea around of starting with a set price and increasing it by 5% each year so that the occupier has the option to purchase at anytime, but most of the tenants we will be aiming for will need to clear their credit history so it will be at the 3 or 5 year mark.
    I would appreciate all and any help and directions to resources – the most i find when i “google” is SCAM or others offering property for sale via rent to buy.
    thanks in advance
    have an awesome day!

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Hi Ando

    There are a number of ways you can on-sell the property offering some form of Vendor Finance arrangement whether it be Rent to Buy, Sale by Installment Contract etc. In all cases your Solicitor will need to draw up a specific contract as it may need to be NCCP compliant.

    Whether you are required to hold a Australian Credit License will depend on a number of factors and your Solicitor is best placed to answer this.

    If a License is required then it is unlikely you will qualify as ASIC has really tightened up its criteria in this respect.

    My Company First Home Owner Group Pty Ltd has successful been offering VF arrangements for over 15 years and especially in a flat market it is an excellent strategy. We however do hold an ACL.

    Cheers

    Yours in Finance
    0-40 Properties in a decade. Ask me how.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of EthanEthan
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    @ethan2015
    Join Date: 2015
    Post Count: 7

    Hi guys,have had a look around and cant seem to find info on what i need to do to get this up and going? I would like to purchase a property and rent it out as “rent to own”.

    Happy to help! :-)

    Do i need to have any type of license etc?

    I’m no lawyer but my understanding is that the answer depends on how many of those you intend to make? If it’s just 1-2 p/a, don’t think you should have an issue, but best consult with a lawyer, yeah

    can i do the property management myself (rent collection, inspections etc)

    Sure, why not?

    and are there special contract pro-formas/terms my solicitor will need to draw the agreement – hoping to have everything organised before seeing him so it saves me money!

    Yes, on top of the standard rent agreement and sales agreement, you will need to have an option (rent to buy) agreement. We got ours from a template online (paid under $100 for it I believe?)

    Has anyone experienced good growth/return with these?

    Yes, we did! :-)

    my husband and i have been throwing the idea around of starting with a set price and increasing it by 5% each year so that the occupier has the option to purchase at anytime, but most of the tenants we will be aiming for will need to clear their credit history so it will be at the 3 or 5 year mark.

    5% p/a is a nice appreciation and you do have a nice idea. We did ours around that price but they have to exercise it within 3 years. If they do it sooner, it’s the same price so our profits are locked-in. Do you have potential buyers already?

    I would appreciate all and any help and directions to resources – the most i find when i “google” is SCAM or others offering property for sale via rent to buy. thanks in advance have an awesome day!

    Happy to answer your queries. The more I answer, the more I learn (because someone, somewhere, somehow always corrects at least part of my answers ;-)

    Hope this helps?

    Cheers,
    Ethan

    Ethan | Terrapodean - Make Home Happen
    http://www.terrapodean.com.au
    Email Me

    Special offer for Forum members: use Coupon 'propertyinvesting.com' for an 18% discount!

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    You not only need an option agreement but a contract of sale. The terms of the eventual sale need to be determined up front. You will also need a lease. If you are trying to get your tenants to pay rates and other expenses you need to be careful because under the residential tenancies act, in some states, these costs may not be passed on to a tenant by a landlord.

    I wouldn’t be using an online template for an option agreement. I am a lawyer but still wouldn’t prepare my own option agreement because it is not my area and I know it is very complex – for example your tenant may need to pay stamp duty in certain states and that could kill the deal.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of AndoAndo
    Participant
    @ando77
    Join Date: 2015
    Post Count: 9

    Thanks everyone for your input, it’s very much appreciated and has helped a lot.
    We are in NSW and are planning to start with one and then go from there and only planning on doing it within the state. I will have a chat with our solicitor, thanks very much for the advice.

    Do you have potential buyers already?

    Yes, we do Ethan and a property ready to exchange very soon, so i really need to get my butt into gear!

    Happy to answer your queries. The more I answer, the more I learn (because someone, somewhere, somehow always corrects at least part of my answers ;-)
    Hope this helps?
    Cheers,Ethan
    [/quote]

    I will no doubt be in contact Ethan thanks for offering your help! And thanks also to Richard & Terry!

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Hi Ando

    Just on the License front it is very unlikely you would be approved by ASIC for an ACL in the current regime.

    We obtained a Corporate License for our new No Deposit Housing Company and with 28 years in the industry i was put thru the ringer.

    Cheers

    Yours in Finance
    0-40 Properties in a decade. Ask me how.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of David SiacciDavid Siacci
    Participant
    @david-siacci
    Join Date: 2014
    Post Count: 14

    Hello Ando

    As you are looking at doing rent to own/lease options there is no licensing requirement for you to sell your own property in this fashion.
    Licensing is only required if you look at using credit contracts and getting that licence is virtually impossible, or if you are looking at selling properties you do not own without having a sufficient financial interest.One is called an Australian Credit Licence and the other that you may need is a Real Estate Agent Licence.

    As you will be doing lease options, as mentioned above, you will need paperwork that is made up of a standard residential lease and an option to purchase for your client. I would not use any kind of pro forma paperwork for this purpose and would use a solicitor knows what they are doing (has done many lease options before). There are certain types requirements that you need to meet with the paperwork to keep you “out of hot water”.

    Also, as mentioned, a contract of sale needs to be attached to your lease option. But if you use the right solicitor you don’t need to concern yourself with those types of issues as they will put together paperwork in the correct fashion to suit each individual transaction as you do them. We have done a great deal of vendor finance transactions in the form of lease options, instalment contracts, joint ventures, deposit finance etc and we see the legal paperwork as a quasi-insurance policy and pay for a new one each property/each client. Properly formatted and correctly worded paperwork will save your ass many times over.

    You can manage it yourself as it is your property. There are a number of ways to collect your funds from the client, the best way by far is the use a business like Integra Pay/Links Pay to direct debit the funds from the client bank account on a weekly basis. We have found that if you leave making the payment up to the client, quite often you will not receive it and it causes more headaches and is worth. If you want to get it managed there are a couple of companies that specialise in managing lease option and instalment contract properties. You can contact one of these companies by email at [email protected]. They manage a couple of hundred vendor finance contracts across the country.

    When you are setting up your lease option you need to set your price upfront. Setting moving goalposts will cause a great deal of headaches for your client and if they choose to go for legal advice on the contract as a disgruntled person you will find yourself neck deep in “you know what” as the laws surrounding these transactions are vague but are very consumer driven.

    Considerations around how you set up your underlying loan (fixed or non-fixed and for a period of time) and also the term of the lease option itself for your client a very important and need to take into account things such as their viability to achieve getting a bank loan within the option period.What payment are you going to charge and how do you structure that payment regime so that is both their for your client and profitable for yourself. Have you deal with interest rate rise/drop and also ongoing cost such as rates and insurance.
    It is easy to say I just want to do lease options or instalment contracts but there is a lot more to it than people think and if you mess it up and are a little bit unlucky with the client you choose then you will have a very negative experience and it doesn’t need to be like that.

    If you set up your lease option is correctly (or as good as can be done) the returns a very good. It is way better than renting a property and is definitely far more profitable than just selling a property through an agent.
    It is very important that you get it right as the legal climate (being very consumer orientated) will not work in your favour. There is a great deal of information on my blog at http://www.siaccisystem.com.au.

    This is getting a bit long so I had better stop now. I really do like creative vendor terms sales so I can ramble on the rages about them.

    David siacci

    • This reply was modified 3 years, 5 months ago by Profile photo of David Siacci David Siacci.
    Profile photo of AndoAndo
    Participant
    @ando77
    Join Date: 2015
    Post Count: 9

    Wow!! thanks David!
    i will definately be checking out your blog! We have a great solicitor involved so the contract/lease is almost ready to go & we are working with a local lender and the real estate manager to do all the necessary checks on potential tenants to make sure they will be suitable to purchase in 3-5 years. We see it as an opportunity not only for us, but also for those that really want to own their own homes & just need a hand up in doing so ( hence the introduction to the lending manager who can devise a plan for future finance etc & this also re-assures us re credit risks & if there are any defaults a workable plan can be made via the lender & this also gives us our timeframe)
    thanks so much for your informative reply. I will let you know how our first goes (we are currently renovating under early occupancy & settlement occurs today!) so I am super excited about it all. Your response has given me extra to consider as far as the management side, I guess its that thing of they have access to TICA (?) checks etc and have the power to remove etc should the tenants turn feral all of a sudden – we are hoping not, its a great family home so were aiming for a working family wanting a go.

    Lisa
    ps – im a rambler and love my words so we are going to get on really well David!

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Lisa how are you getting around the ACL requirements ?

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of AndoAndo
    Participant
    @ando77
    Join Date: 2015
    Post Count: 9

    Hi Richard
    we are not providing finance, just an option to buy added to the lease; so we dont need an ACL (as advised by our solicitor) the tenants pay rent with an inclusion in that amount that accrues toward their deposit.
    Hope that makes sense!

    : )

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Hi Ando

    Are ok no you don’t need an ACL for a simple Lease option.

    Must admit most buyers we put into homes want a fully blown instalment contract hence we utilise our licence.

    Find it gives them a lot more flexibility.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of AndoAndo
    Participant
    @ando77
    Join Date: 2015
    Post Count: 9

    No worries at all Richard.

    Can i ask you something? When you first started did you ever have a time where it got so tough you wanted to give up? Reason being, we have put our all into this to start it off and we made a great profit (equity wise), we were sweating on refinancing to pay some off our ppor, use some to go again with another flip & the rest as cashflow for renos and to keep living – and our bank who we lent through, has now said NO!!

    I know there are other lenders, but these guys put us through the gauntlet – we started in Nov & everything didn’t settle until end of Jan! We were assured that because we had paid so much in LMI & jumped through so many hoops that our next lending/refinancing experience would be 1) smoother & 2) much quicker. Well they got that part right – nothing quicker than a NO! the only reason they could give is that they wanted to see 12m of history (i have banked with these guys since i was about 3) – This was meant to be our way of making a living, our source of income and now it has been shattered!! We said we would have a fair crack at it, and we new it would be hard, the first one at least, but this has left us heart broken and wondering where to next?! Any words of encouragement or ideas moving forward? Are there lenders out there who will be easier to deal with who dont charge the eart, or should we search for an investing partner to help us get on our feet & started? Times like these i wish i had a fairy godmother or a trusting financial benefactor who says “here we go, that will get you started, pay me back when you make your first million”
    i have to stop typing now because i cant see for tears!!!

    Profile photo of huilohuilo
    Participant
    @huilo
    Join Date: 2015
    Post Count: 21

    with an instalment contract because its a credit contract does that mean the vendor financier can write on the tenant – buyers credit report etc “missed payments” / defaults? or is that only aloud for mainstream banks?

    Cheers, Huilo

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 11,992

    Yes hullo if you subscribe too Veda.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of huilohuilo
    Participant
    @huilo
    Join Date: 2015
    Post Count: 21

    interesting, how much does it cost to subscribe to veda?

    cheers,

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,325

    Hi Huilo,

    how much does it cost to subscribe to veda?

    Did you find out? If not, try here:-
    https://www.veda.com.au/contact-us

    Benny

    Profile photo of AlfaAlfa
    Participant
    @souqalbadu
    Join Date: 2016
    Post Count: 2

    1. be patient to wait, Lets the Information come to You, never look for property for sell

    2. House for sale and repair it than sell again is nice to have a profit

    3. for overseas investment, never buy property because of the seller came from same country

    hope that can help

    Alfa | Souqalbadu.Com
    http://www.souqalbadu.com
    Email Me | Phone Me

    Middle man and representative local property owner, I buy for someone and Sell again for them

    Profile photo of brecciasoundingbrecciasounding
    Participant
    @brecciasounding
    Join Date: 2016
    Post Count: 18

    Thanks for this forum. I think my question in mind was answered as well. :)

    Profile photo of Robert KingRobert King
    Participant
    @robertking
    Join Date: 2016
    Post Count: 13

    Hi Ando,

    I would like to ask what happened?
    I am looking at providing lease option/vendor finance to help other get in the market, and make a profit for myself.

    I have to admit I am confused by your posts as it seems;
    *You were buying a house to then lease option to someone else
    *It settled Feb 2nd
    *Feb 25th you were trying to get equity out of the house in which you just settled?
    (personally I think this is to soon as there has been no/little growth since purchase price)

    Maybe I have missed something or maybe a fellow reader has followed this story better.
    As I am considering this kind of creative option, I would assume that once I have a tenant to lease option, I could not/should not be accessing equity during the option term?
    Or did you not have a tenant to lease option the property to?

    Keen to hear the story and why it went so wrong for you in Feb and hearing the outcome today in Nov.

    Regards,

    Profile photo of Paul DobsonPaul Dobson
    Participant
    @pauldobson
    Join Date: 2003
    Post Count: 1,196

    Hi Robert

    A couple of links that will help to get you going with Vendor Financing are:
    http://www.vendorfinancelawyer.com.au/ and
    https://vendorfinanceinstitute.com.au/category/blog/

    It’s worth noting that a number of consumer groups and other “powers that be” are pushing to get Rent To Buys (Lease/Options) banned in the consumer/residential real estate marketplace at the moment. In my opinion, if they don’t manage to get them banned, they are likely to be successful in forcing them to be “regulated” under the National Credit Code (NCC).

    The other popular method of vendor financing in the residential marketplace, the Instalment (Terms) Contract, is already regulated by the NCC.

    Cheers, Paul

    Paul Dobson | Vendor Finance Institute
    http://www.vendorfinanceinstitute.com.au
    Email Me | Phone Me

    An alternative way to finance your home.

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