Analyzing a note on a rent-to-own

[Kyle Bishop]

To be honest I'm not entirely sure what to call it, but a note seems appropriate.

The note holder has a property set up as a rent-to-own, but the terms require the renter to be responsible for all repairs, taxes, and cap-ex. It's effectively structured like a seller-financed mortgage where the buyer would be evicted in-case of non-payments (instead of foreclosed on). Perhaps this is just a semi-standard rent-to-own agreement, but it's the first time I've come across such a deal. There are various reasons why the renter/buyer agreed to these terms, but suffice to say it's a sound agreement between all parties.

The terms:

• $72k 20 year mortgage @ 6.8%
• Buyer just made payment 44 out of 240 (3 years 8 months into mortgage)
• ~$64,950 remaining principal
• Note-holder would sell to me for $58k
• In the case of an eviction, the house is currently assessed around $140k and I could either sell it for an absurd profit, or just rent it out again (personally I'd hold and do a normal lease).
• The kicker: The buyer would like to increase their principal payments from $550 to $825

Plugging these numbers into here: https://www.bankrate.com/calcu... and doing some slightly fuzzy math:

• ~$9,895.20 per year for 8.3 years before the mortgage is paid off
• Total payments over lifetime of loan: 9895.20 * 8.3 years = $84109.20
• Monthly profit on interest: ($84109.20 - 58000) / (8.3 years * 12) = $262.13 for 8.3 years
• Total Monthly income: $84109.20 / (8.3 * 12) = $844.20 for 8.3 years

So how the heck do I get to COC from here? Am I right to think it would just be $84109 / $58000 / 8.3 years = 17.5%?

I've found calculating COC on notes to be quite challenging because of the amortization schedule... much thanks to anyone who can set me straight!