Making Passive Income With Rent To Owns

[John Milano]

Ok, buckle up this may be the best rent to own option you will ever hear. However,  I would like feedback. Ever since Dodd/Frank put a cabash on private Lending I have been trying to figure out how to get my 12% returns on real estate transactions.  Let me start with I am a licensed mortgage originator in NYS and have been in the mortgage game for almost 35 years. And most importantly, I play be the rules so I would also like some feedback on the following scenario.

I have two borrowers, mother and daughter who cant qualify for traditional financing just yet. They need guidance which is what I do. They need to buy a home and have one in mind.  To be clear I have done this transaction at least 5 other times with perfection on both sides. I always believe if it's not fair for both parties then it's not a good deal.

So..the house is listed for 325k as an investor I need 20% down which I always show in my accounts. However I also require an 20% down option deposit,  I'm sure you see where I'm going. When i go to the Bank I always use a portfolio loan product, not Fannie or Freddie. Mainly because they only allow 2% seller concessions for the investor. I require all closing costs to be paid by seller, realizing this may raise the purchase price but we are in a very cheap money environment so that doest concern me. I also request that the seller waive their escrow credit. I am 6 for 6 on this type of transaction so far.

So ultimately I buy the property with none of my cash, and i already have a lease/purchase signed with their 20% option deposit in my account. I am writing this because this side business is starting to really get traction with Realtors in my market. Borrowers like it because instead of buying homes in a very limited rent to own scenario they get to buy their choice of any home. Win win, and the Realtor gets a quick sale with me as the buyer. Need i say how much loyalty I get from them when I work my traditional business as a loan officer?

So in this scenario, at 325k sale I finance 260k. At portfolio rate of 5% payment is 1,395. Here is where I can use some advise. Market rent for the house is 3k a month. I usually only want to clear between $500 to 700 a month. They pay taxes and insurance and are responsible for all repairs and maintenance.  After all it's their house.

I enjoy all tax breaks as i am the owner and walk to my mailbox every month to collect 5 checks average $2,800 per month.

And remember earlier when I say they need guidance? Well I'm available to them anytime they want to get a quick update on their mortgage options with the ultimate goal of selling them back the house using their 20% down option money and I will also consider paying the closing costs using the same seller concession scenario.

Lastly, I also get paid originating their new loan.

Can you as a reader let me know if you see any flaws or concerns with this concept?

And by the way, I also release the real estate tax escrow to them.

Cheers