Where to look to find a rent-to-buy investor?

[hollyrose]

Hello.

Mods if there is a better category for this thread, please move it.

Just wondering if anyone knows where I might look to find someone that would be interested in buying a property and offering it as rent-to-buy?

Below is my idea/offer, and the reasons I think an investor might be interested. I'm just not sure where to find that investor...

Any feedback on where to post an ad and feedback on how to better put together the information below as an investment proposal would be appreciated.



Are you looking for your next investment property?
Wanting greater rental return than 8-10% and none of the headaches associated with unexpected repairs, vacant periods or nightmare tenants?

If this is you, read on.

My partner and I are looking for someone who would be interested in offering us a rent-to-buy property. We have our eyes on a property on the market for $135,000 in Northern NSW. We are at least two years away from getting a bank loan because we are newly self employed so are looking for someone with capital or equity who would like to buy a positively geared investment property in the region and offer it as rent-to-buy.

The way I see it, a potential investor would buy the property. We would rent it at well above market rent. So if the mortgage repayments were around $350 a fortnight, the investor might get a guaranteed $300 per week in rent- That's $175 per week in passive income.

Over two years, that's a 35% return on investment if you put 10% down.
Or 17.5%pa.

Some problems with rental property investments are:
1. Vacant periods
2. Terror tenants
3. and, unexpected repair and maintenance costs.

In a rent to buy agreement, you'd bypass all of those issues as we'd be living in the house long term, investing our own money to improve the property, and covering all of the repair and maintenance costs.

In addition to that, you'd have a guaranteed buyer for the property in two years time, at a guaranteed price.
If the purchase fell through, you'd have pocketed above market rent for two years, and would potentially benefit from significant capital gains from any improvements we made to the property.

 

[hollyrose]

correction

would be $125pw return not $175.

 

[skater]

This is another of those Shark Tank type posts.

OK, I'll bite.

Your location says that you are in Byron Bay. What on earth can you buy in Byron Bay for $135k, and what makes you think this would be a good investment for someone?

 

[Xenia IM]

Clean agency straight out contracts are so much better.

 

[Angel]

Northern NSW can include Bourke, Lightning Ridge and Moree, not just on the coast.

 

[skater]

Northern NSW can include Bourke, Lightning Ridge and Moree, not just on the coast.

I understand that, but the OP said it was for a PPOR,. They are newly self employed and her location is Byron Bay. Unless the Business is an online one, or something else that can be done from a remote location, then my assumption is that they would be looking to purchase near to where they currently reside.

 

[hollyrose]

Yes it is within 40km of Byron. That's not far to travel around here.


What makes it a good investment?
-In terms of house prices its a relatively small investment.
-I'm no property investor, but lets say repayments were $9,100pa, rental income was $15,600pa, that's $6,500pa income.
If you put 10% down the initial investment might be somewhere around $13,500.
At the end of the period you get the $13,500 back, plus $13,000 rent.
Nearly doubled in two years.
Plus we would pay $100pw towards a deposit (returnable if the option to buy is not taken up). I suppose you could invest that however you wanted in the two year period.
- Excellent tenants
- no land lord headaches

The Property.
Its possibly the cheapest slice of land within 40km of Byron Bay - 4.7 acres. It features a self contained cabin with no bathroom, pine tree plantation, river frontage/mooring potential.
Potential to build composting toilet and more living space.
Five minutes to large north coast town.
Ideal for a young, self sufficient, capable couple to improve.
Online inquiries show it was purchased in 2009 for $60,000.

About Us
We have no credit cards or debts. We own two cars. We so far have an $8000 deposit. We are both self employed in the service industry (Home and Garden services). We have impeccable rental references.

We will be paying rent for the next two years - I see that as a fact of life. But we would like to make a start on owning and would prefer to pay above market rent for a property we can add value to, and that will eventually be ours. Ask any of our old landlords- we improve properties - and there is so much more we would do if the property was going to be our own.

I own a cleaning business servicing the Northern Rivers and my partner a gardening business servicing rural properties in the region. We can both easily keep clients on the coast and develop new business where the property is located. Our businesses both have low expense's and good cash flow.

If the worst ever happened and we couldn't work - the payments are low enough that one could manage it on a part time wage.

 

[hollyrose]

Can you elaborate Xenia?

 

[Tonibell]

So with the property you are looking at does it work like this :


1) Purchase the property at best possible price - say $135K.

2) Sign a rental lease for 2 years at $300 per week.

3) Sign a sale contract for end of lease at $135K.

4) Lease allows tenant to make improvements to property.

So return looks like :

Rental income $31,200

Less :
Stamp Duty, legals $ 8,000
Interest @ 5% $13,500
Rates, insurance $ 6,000

Total Costs $27,500

Profit $3,700

Deposit put in at 10% $13,500

Return on Investment 30%

Is that roughly how you get your 35% return ?

It seems like a lot of hassle for a small return - particularly as there is no opportunity for capital growth.

You would only need a 2% p.a. capital growth on another property to make it better return.

 

[pinkboy]

Yes it is within 40km of Byron. That's not far to travel around here.


What makes it a good investment?
-In terms of house prices its a relatively small investment.
-I'm no property investor, but lets say repayments were $9,100pa, rental income was $15,600pa, that's $6,500pa income.
If you put 10% down the initial investment might be somewhere around $13,500.
At the end of the period you get the $13,500 back, plus $13,000 rent. Fair amount of risk for 2yr period with little return dollar wise.
Nearly doubled in two years.
Plus we would pay $100pw towards a deposit (returnable if the option to buy is not taken up). I suppose you could invest that however you wanted in the two year period. Like I said, very risky - what happens if you don't take up the option and the purchaser is stuck with this property?
- Excellent tenants Who says? You?
- no land lord headaches

The Property.
Its possibly the cheapest slice of land within 40km of Byron Bay - 4.7 acres. It features a self contained cabin with no bathroom Red flag., pine tree plantation Red Flag, river frontage/mooring potential.
Potential to build composting toilet and more living space.
Five minutes to large north coast town.
Ideal for a young, self sufficient, capable couple to improve.
Online inquiries show it was purchased in 2009 for $60,000.

Think a lender will even consider a loan on this 'investment'?
Are the dwellings approved?

About Us
We have no credit cards or debts. We own two cars. We so far have an $8000 deposit. We are both self employed in the service industry (Home and Garden services). We have impeccable rental references.

We will be paying rent for the next two years - I see that as a fact of life. But we would like to make a start on owning and would prefer to pay above market rent for a property we can add value to, and that will eventually be ours. Ask any of our old landlords- we improve properties Red flag. - and there is so much more we would do if the property was going to be our own.

I own a cleaning business servicing the Northern Rivers and my partner a gardening business servicing rural properties in the region. We can both easily keep clients on the coast and develop new business where the property is located. Our businesses both have low expense's and good cash flow.

If the worst ever happened and we couldn't work - the payments are low enough that one could manage it on a part time wage.

Are you first home buyers? Good credit history? Have you worked in these industries before prior to self-employment. Have you explored getting finance through a Broker?

Why not wait so you can get a conventional loan?

Personally, way too many red flags for an 'investor' to even consider even contemplating getting themselves involved in this. Far too much downside risk for a measly return.

pinkboy

 

[hollyrose]

I'm looking at it pretty simply.
This may not be how an investor looks at it, but it make sense to me until someone tells me otherwise.

$31,2k Rent - $18,2k repayments = $13k

13k income plus return of initial investment is $26,5k back. That makes 96.3% return..?

See attached image.

I understand this is simplified. There is stamp duty and rates. However I'm assuming the agreed sale price in two years may be higher than the initial purchase price to cover costs mentioned.

Yes lease allows tenant to make improvements to property.
__________

Is there any other way I can start owning sooner!!?

 

[hollyrose]

Fair enough, lots of good points pinkboy. Thanks for the feedback.
I just found some brokers that I might be able to call.

 

[hollyrose]

Are you first home buyers?

Yes. But the First Home Buyers grant in this region is only for new buildings

Good credit history?

My partner doesn't have much of a credit history, good or bad.
I had a credit card with a $6k limit, was great for years, I'd have it around -3k then pay it all off in a month. Around 3 years ago it was up to -6k and I defaulted on payments. It went to collections and I paid the whole lot off in two months. So I'm not sure how long I'm black marked for that...

Have you worked in these industries before prior to self-employment.

Yes, we both for a number of years. Would that make a difference to a bank?

Have you explored getting finance through a Broker?

My understanding is that, broker or bank - virtually all low doc loans for self employed people have a minimum requirement of two years of audited tax returns?

 

[pinkboy]

Yes. But the First Home Buyers grant in this region is only for new buildings

Fair enough.

My partner doesn't have much of a credit history, good or bad.
I had a credit card with a $6k limit, was great for years, I'd have it around -3k then pay it all off in a month. Around 3 years ago it was up to -6k and I defaulted on payments. It went to collections and I paid the whole lot off in two months. So I'm not sure how long I'm black marked for that...

You know you can get your credit history for free right?

Yes, we both for a number of years. Would that make a difference to a bank?

You never know if you dont ask.


My understanding is that, broker or bank - virtually all low doc loans for self employed people have a minimum requirement of two years of audited tax returns?

Confirm or deny the information from a Broker. Otherwise, how will you know?

Would be far less problematic than this 'proposal' above which is borderline absurd.


pinkboy

 

[Angel]

I understand that, but the OP said it was for a PPOR,. They are newly self employed and her location is Byron Bay. Unless the Business is an online one, or something else that can be done from a remote location, then my assumption is that they would be looking to purchase near to where they currently reside.

Yeah, I realised that later.

 

[Xenia IM]

If something goes wrong during the sale of a house - normal contract, you have the back up of legislation and government bodies to turn to. (Assuming you did nothing wrong). Can hold people accountable to go through with what they signed for.

If something goes wrong with R 2 B or any other creative process - the law is grey, no one to support you and it is likely you will be blamed whether you did something wrong or not.

 

[skater]

Originally Posted by hollyrose View Post
Yes it is within 40km of Byron. That's not far to travel around here.


What makes it a good investment?
-In terms of house prices its a relatively small investment.
-I'm no property investor, but lets say repayments were $9,100pa, rental income was $15,600pa, that's $6,500pa income.
If you put 10% down the initial investment might be somewhere around $13,500.

Let's just take a look at this.

$13,500 Initial Deposit
$1,835 LMI (Loan Mortgage Insurance)
$3,535 Stamp Duty
$2,000 Legals (Approx)
$2,000 Additional Legals for specialised Legal work for the Lease Option
$22,870 is the initial investment add to that the land tax for holding for two years @$2160pa
$4,320
$27,190 All up costs to buy, excluding interest.

AND I haven't included rates & insurance.

At the end of the period you get the $13,500 back, plus $13,000 rent. Fair amount of risk for 2yr period with little return dollar wise.Nearly doubled in two years.
Plus we would pay $100pw towards a deposit (returnable if the option to buy is not taken up).

OK, so you can see that your $13500 plus $13000 won't cut it at all here. This is already LESS than the investor has paid to fund you into the place.

This is more likely how it would work if it was a place that someone doing a Lease option was interested:

$5,000 Non refundable deposit paid by you to investor
$2,000 Non refundable Legal Fees paid by you for investor's specialist legal team
Rental amount set by investor of maybe 10% of purchase price plus non refundable option fee, maybe another $200pw paid to the investor. This is the amount to come of the eventual sale price. Sale price set by investor at the beginning of the contract, probably not less than $160k.

Even with this, it is a paltry amount for the sum invested. The investor has to fork out $27,190 at the start, to gain a paltry $25k at the end if the option is taken up. Actually, no, it is less than $25k the investor gets back, because they've had to pay two years of land tax, LMI, Stamp Duty and Legals, amounting to $11,690. So.....at the end of the two year term, if you purchase the property for $160k, the investor has made.....wait for it......$13,310

I've completely disregarded the "rent" part paid by you during your stay, as that is what would be expected for any property that an investor has, so this is of no benefit whatsoever, especially as it is a problematic property in the first place.

I suppose you could invest that however you wanted in the two year period. Like I said, very risky - what happens if you don't take up the option and the purchaser is stuck with this property?
- Excellent tenants Who says? You?
- no land lord headaches

The Property.
Its possibly the cheapest slice of land within 40km of Byron Bay - 4.7 acres. It features a self contained cabin with no bathroom Red flag., pine tree plantation Red Flag, river frontage/mooring potential.
Potential to build composting toilet and more living space.
Five minutes to large north coast town.
Ideal for a young, self sufficient, capable couple to improve.
Online inquiries show it was purchased in 2009 for $60,000.

Think a lender will even consider a loan on this 'investment'?
Are the dwellings approved?

About Us
We have no credit cards or debts. We own two cars. We so far have an $8000 deposit. We are both self employed in the service industry (Home and Garden services). We have impeccable rental references.

We will be paying rent for the next two years - I see that as a fact of life. But we would like to make a start on owning and would prefer to pay above market rent for a property we can add value to, and that will eventually be ours. Ask any of our old landlords- we improve properties Red flag. - and there is so much more we would do if the property was going to be our own.

I own a cleaning business servicing the Northern Rivers and my partner a gardening business servicing rural properties in the region. We can both easily keep clients on the coast and develop new business where the property is located. Our businesses both have low expense's and good cash flow.

If the worst ever happened and we couldn't work - the payments are low enough that one could manage it on a part time wage.

Are you first home buyers? Good credit history? Have you worked in these industries before prior to self-employment. Have you explored getting finance through a Broker?

Why not wait so you can get a conventional loan?

Personally, way too many red flags for an 'investor' to even consider even contemplating getting themselves involved in this. Far too much downside risk for a measly return.

pinkboy

This is an extremely risky endeavour for an investor. In a traditional rent to buy, an investor will select a home, in an area they believe they can resell it for a profit. They don't rely on what one potential purchaser wants, as they look for something that is likely to pose them the least risks.

You are looking at something that would not be easy to onsell, should you default and the investor is left holding the baby. You say you will renovate, but essentially the property does not belong to you, until it is paid for in full, so there is a potential that things may not be done in the manner that the investor would want.

If an investor was to take you up on this, you can bet your bottom dollar they would mark up the buy price as well as charge top rent and an option fee.

So......for those reasons & more, I'm out.

 

[skater]

Would be far less problematic than this 'proposal' above which is borderline absurd.


pinkboy

Only borderline?

Why not wait the two years. Problem solved.

 

[Brian84]

Spoke like a true shark there skater lol.

"For those reasons and more I'm out"

 

[skater]

Spoke like a true shark there skater lol.

"For those reasons and more I'm out"

Hehe, this is the second one that has come here with a 'proposal' for us 'sharks' to pick over.