12 – When You Should and Shouldn’t Consider Rent-to-Own Investing

Episode Summary

In this episode, Quentin talks with a member, who is thinking about getting into rentals. We explore what his long-term goals are, and what might be the best strategy to start with.

The member shares that he has been involved in private mortgage investing, as a source of passive income. Now, he and his wife are interested in changing careers by leaving the corporate world and starting their own business in real estate investing. They are also working on their first rent-to-own deal. Currently, they are in the process of getting pre-approved with a mortgage broker. Quentin comments that the strategy that they’re using is great for cash flow, but he likes rent-to-own as an exit strategy, and not a long term option, adding “what I found was that every time that I bought properties, like the value of the property was always much higher than when I was selling it to the tenant buyer on and I had a locked in purchase price.”

He adds that while this strategy is going to produce a higher cash flow, the member has to understand the tax consequences of what he is doing as well. He says “if your goal is to leave the corporate world, you’re going to need to generate cash flow. So rent-to-owns are good for cash flow generation, [but] you would need to focus on getting multiple” Quentin adds that he also needs to add other properties in there, such as long-term rentals. Talking about the effectiveness of the BRRR method, Quentin says that it really supercharges the value of the property, and then you can refinance that out in 18 months to 24 months. He adds that when it comes to the BRRR strategy, the key is always purchasing a property where you can add value. It does require some expertise and work. So, you need to build a team of people around you to help like a good realtor, mortgage broker, and contractor on your team.

As for the areas, Quentin suggests looking in places like Bowmanville, Peterborough, or even Kingston, where the numbers still work, and they make more sense for the strategy. He adds that the member would have to find something that that needs a lot of work. Furthermore, he says that the member needs to maximize the amount of funds that he is able to access, and pull that together. He further adds “once you start the process and you get a couple properties under your belt, then you can actually talk to other people about what you’re doing, and perhaps they can invest with you together and do, like a project together.”

On the subject of going with the inexpensive lending option, Quentin adds that it’s not about price, it’s about access to credit, and dollar bills and credit are the same thing in the current economy. If you have credit, you have dollar bills. He suggests not focusing on how much it costs, fees, and all of that and create relationships with the other banks to check if he can open some lines of credit with them, just so that he could have access to it, and have more flexibility. Quentin recommends attending the Q&A sessions, as well as going through the Property Management, Joint Venture Partners, and Finding Off Market Properties courses. In conclusion, he says “Use that Action Taker Program, look at the takeout, The Planning Guide, look at the weekly plan, and just put one thing for finding properties. One thing for funding properties, one thing for financing properties in the Planning Guide, and one thing a week.”

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