Family seeking Rent to Buy investor for home in Perth

Hi all,

New to this fourm so not sure if I am posting this in the right place. We are a family in Perth looking for a property investor who could structure a rent to buy deal for a property in Perth. We have considerable income (business and unrelated PAYG) but do not want to take money out of the business while it is funding further grow, hence why looking for potential rent to buy type transaction. Flexible on terms, but looking for a win/win outcome.

Please message me if this is of interest.

Thanks

 

Where are you looking to buy/live?

 

Looking from Sorrento down to Trigg and out to South Duncraig/Carine so good investments. We have a few options.

 

I assume the way this works is you pay significantly higher than market rate in return? What have you got in mind, 20%? 50%? Over...5-10 years?

 

With home loan being so cheap - why bother renting to buy?
Unless you are already super tight with money to begin with.

 

Having researched this there are several ways to do this. One way this can work is as follows:

1) Investor buys property

2) We sign a lease with investor for 3 years at a rate significantly higher than market with a commitment to buy the property at a specified price in 3 years.

3) This would be documented by a property laywer who specialises in such transactions to provide protections and assurances for both parties.

Benefits to Investor

1) The perfect tenant with a vested interest in maintaining the property with no property management or maintenance costs etc. to the investor.

2) Significant rental premium that would provide a return well above the mortgage costs providing net income every month.

3) Guaranteed exit strategy at a fixed price in 3 years so the investor knows exactly how much they will be making on the deal (income and capital gain). The ratio of capital gain vs income could be structured according to the objectives of the investor (i.e. tax planning etc.).

Benefits to Us

1) We have the income to very comfortably sustain a mortgage, how we do not want to pull money out of our business at this time for a deposit due to:

a) The opportunity cost of these funds as our business is growing fast and pulling the cash out for a deposit now will slow down our growth which over three years would be a significant amount of lost revenue (much more than the rental premium).

b) The tax implications of pulling funds out all at once rather than over a 3 year period.

2) We get to move into what will essentially become our own house in 3 years time now rather than having to rent somebody elses house where we cant start making a home.

3) Over the 3 year period we have made more money in our business due to the increased capital we left in the business by not taking it out 3 years earlier for a deposit.

As I am sure you can see above, this would be a win/win scenario and I believe a very compelling proposition for an investor with better returns and lower risk that a typical transaction where an investor could buy a property then over 3 years:

a) Have problems with a tenant and lose rental income.

b) Deal with property management costs, maintenance, repairs, damage etc.

c) Exposure to potential falling market prices (rental and valuation)

There are several permutations around how this could work that could be legally underwritten as this model seems to becoming a little more popular for a lot of the reasons outlined above.

I understand this might not be for every investor but we will be the ideal proposition for the right type of investor.

 

As per previous post, it is not about income, it is about opportunity cost of capital. In our circumstances we make more with our capital where it is than the premium we would pay over 3 years.

 

This sounds like “option to buy”, instead with an “obligation to buy”.

Very important question here. With your proposed arrangement what if the market goes down over the next three years?
You will be obligated to buy something at a much higher price than market value as well as paying “rent” well above market value over three years. Now that is an opportunity cost if I ever seen one.

 

If the market goes down then this would be no different than if I had purchased the house myself now. I would still have a property worth less. The key difference is though that I would not have the additonal income generated from my business that I would have if I deferred the purchased. I am fully prepared for any market changes as this would be our family home for the long term.

 

This setup would be waaaayyyy to illiquid for me. Anything goes wrong over the three years and you are cactus (health, business, house price, physical damage problem etc). Now if you a had a buy ‘option’ not an ‘obligation’ that would be a different story.

 

I'll be honest here, if this were me, I'd want a serious premium for this sort of deal. I'm talking about WAY above market, since I'd have no confidence you wouldn't just walk away. I'm not sure you want to hear it, but that's where my head would be. I'd be looking at figures at 2x value of property.

 

But again I would be in the same situation if I bough the property now. Thats no the investors problem, thats mine

 

I am not following you. If you are prepared to buy an traditonal investment property and put a tenant in it with no vested interest, suffer vacancies, earn a lower return, be responsible for maintenance and property management etc., how is what I am proposing 'riskier' that it warrants a 2x return? You say I could just 'walk away', I would have much more reason not to than a random tenant that has no commitment to the property.

 

You're asking me for a rational response. Instead, I'm giving you my honest response. Take it or leave it. I'm telling you what people are going to think about this unconventional proposal. I 100% agree what you say makes sense. But not everyone is going to sit there weighing up the pros and cons rationally like you or I would.

You also have to consider that no serious investor would ever consider litigation to be a viable option. If you walked away, sure technically I could bring you to court but at what cost? Stuff that, I'd rather assume I have zero recourse and price the premium accoridngly.

 

How much rent % (above market) and premium on the purchase price are you thinking about offering?

the problem is that you are tying up the owner’s borrowing capacity, capping their upside but giving no guarantees about buying at the end of the contract.

funny how buy to own is usually abusive to the party renting.

 

Agree you are perfectly entitled to your opinion, however I disagree that a professional investor doesnt weigh up the pro's and con's of an investment proposition 'rationally'. I believe I have offered a good proposition for a serious investor (especially compared to standard property investment with all the additional costs, risks and uncertainties) who understands wealth creation is all about getting the best return on capital deployed whilst also reducing risk and increasing certainty. No investment is ever going to be 100% rock solid, especially not for a high return, however I understood this forum to be about 'Innovative Property Investment Techniques'?

 

Yeah but you're assuming the property you're targeting is owned by a serious investor?

 

As mentioned in my initial post, I am flexible to work out attractive terms but my view is that we would start with the end game in mind and work backwards to shape the deal to deliver the agreed target end game. E.g. if the target was a 50% total return on capital deployed over three years then the rent, buyout etc. would be structured accordingly. My intention would be to have a legal commitment to buy in 3 years as I want this locked up to protect my investment premium over the three years too. This way unless you can achieve higher han a 50% return on capital elswhere it is not capping your return and there 'is' a guarantee to buy at the end for the agreed price to ensure the investor gets the agreed return.

 

why not just rent??

 

I think you have misundersood. The property doesnt need to be 'owned' by the investor, the investor will buy the property specifcially for this deal for the purpose of fixed high return.