Rent to Equity Share Idea

[Daniel Hankins]

I am always thinking of ways I can run my rental business that is unique and deeply impactful for my tenants. I have a handful of ideas that I am interested in researching, but right now I am focused on creating a system that will help make my tenants feel more invested in the property and give them some of the benefits of home ownership. I think we are approaching a time where there is a shift in attitude about purchasing a home vs renting. Some of this is caused by student debt and other financial strains, and some is caused by a lack of faith or knowledge in the home buying/ owning system. I am especially concerned with the financial intelligence of my generation and future generations. That being said, here is what I have so far:

Basics

-Instead of a deposit, applicant will pay for a professional inspection (will be a great tool to snapshot property condition, and is a normal process when buying a house)

-I should fix anything that FHA loan would require, or rental code

-Because there is no deposit, customer doesn’t start accumulating equity for 1 yr (undecided)

-Monthly payments go towards purchase price of the property (Amortized over 30?)

-Payments will be at market rent values

-Payments need to cover: my mortgage, taxes, insurance, 10% management fee, my minimum desired profit ($200)

-As long as tenant is living there, it is treated like a rent to own

-They will be responsible for all utilities.

-They will be responsible for completion of the “Yearly Maintenance Checklist”.

-They will be responsible for half the cost of upgrades and repairs to the house.

-They will be 100% responsible for own fault damages.

-Once the tenant has decided to move on, convert the percentage of purchase price paid off, into a percent share in the profit from the investment property(not to exceed 50% ownership).

-Might also offer some sort of equity back option if they pay for refinance etc.

-Might allow ownership to exceed 50% if they are still living in the property.

-Once they no longer live there, they will be responsible for repair costs equal to their percent ownership.

Questions to research

-Can I help establish/ effect tenants credit score?

-What is the best tax set up for everyone?

-What legal protections do I need in place?

-Should I pay profits monthly, quarterly, or yearly?

-What is the best way to amortize their equity accrual like a 30 year loan?

-Should I let them make extra payments directly to principal?

Typically my houses are completely rehabbed before being rented out.