Rent to Own Calculator needs you to plug in a few input parameters in the tan boxes and we will calculate the additional $ you will receive when you sell my home as a Rent to Own instead of selling with a real estate broker or as a For Sale By Owner.
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Calculates the Net Proceeds for 3 different Real Estate Transactions
Enter values in the shaded inputs Use monthly mortgage statement for reference
T/B=Tenant/Buyer DP=Down Payment Help text is under the ? bubbles
Asking Price of the Property: This is the price you are asking for your house. It may be the price fthat was previously listed by your Broker in the MLS
Lease TERM number of months: This is the number of months that you are leasing your property for. We use 36 months as the default, but you can enter something different. Just know that if you use a short time frame like 12 months, then its likely that your T/B will not actually close the sale and buy your home.
Enter Down Payment for Rent-to-Own (default 3%): This is the amount of the Option Fee or Down Payment that you require the T/B to give you at the start of the Rent-To-Own BEFORE they move into the house. We use a default of 3% of the Asking Price. If you don't like this number, then enter another number here. This is a NON-refundable fee that you charge for giving them the right (the Option) to buy your house. When you do this, you are not able to sell it to anyone else during the Term of the Lease Option, and the T/B is able to live in your house because of your Lease contract with them.
Market rent per month: This is your estimate of what you think your property should rent for in your local rental market. You can find comparable rentals to your property on Craigslist, Zillow, or rentometer.com, or a real estate broker can get them for you from your local MLS.
Enter percentage for monthly rental credit - can leave as zero (0): You don't have to offer any rent credit, it can be Zero (0). This is the percentage of the monthly rent that you are offering the T/B be applied towards the purchase price. If your house is hard to sell, then offering 25%, 50% or even 100% rental credit is a way to attract T/B's to move quickly. No cash changes hands, you won't owe them this credit if they don't close and buy your house.
Enter rent credit per month - not required can be zero: This is a calculated field, market rent times the rent credit percentage, or if you want a fixed amount of rent credit like $100 enter it in this box instead of having it calculated.
Enter your current Mortgage Balance(s) (Principal Owed): This is the sum of the current outstanding principal balance(s) on your mortgage(s). Get these amounts from your last mortgage statement(s). If you have more than 1 mortgage then add the balance from each individual one together and enter the Total here
Amount of mortgage Arrears: If your mortgages are current, this will be zero, otherwise enter the approximate amounts you are behind. This is the sum of the amounts you are behind on each of your mortgages.
Annual Property Taxes: Enter the amount of your annual property tax bill
Annual Property Insurance: Enter the amount of your annual property insurance bill, either homeowners insurance, or fire insurance
Enter your monthly mortgage payment or the sum of monthly payments if you have more than 1 mortgage: Enter the sum of your normal monthly mortgage payments for all mortgages if you have more than one. Please indicate in the YES/NO selection boxes if monthly taxes & insurance are included in this amount. May be referred to as PITI (Principal, Interest, Taxes and Insurance)
Cost of monthly utilities (water, electric, and furnace fuel): Enter the amount of your monthly utility bills for water, electric and other furnace fuel such as gas or oil. These are required to be on and active even if your house is vacant
HOA Dues monthly: Enter the monthly amount of any Homeowners Association (HOA) dues that you are required to pay
Calculated Monthly Mortgage Payment (PITI): This is a calculated field. If you entered YES to both questions about escrowed Taxes and Insurance, then this field is identical to the Monthly Payment amount you entered in Line 7. If you selected NO to either field, the annual Tax or Insurance amount is divided by 12 and added to the Monthly payment amount in Line 7.
Monthly Taxes: Calculated field, Annual property taxes / 12
Monthly Insurance: Calculated field, Annual property insurance / 12
Monthly rent to own Cashflow: Monthly Cashflow = Market Rent per month minus Monthly Mortgage payment PITI minus monthly HOA dues. (Line 4 - Line 17 - Line 16)
Additional Income Received with the Rent to Own Program versus a Traditional sale through a Real Estate Broker: This is the difference between the Seller's Net for Rent to Own less the Traditional Net plus the sum of the Monthly Cash Flows for a Rent2Own over the term of the option period. (1 months cash flow times the number of months in the Lease term)
Cash received now from Down Payment: This is the amount of the Down Payment you receive before the Tenant Buyer moves in. It is non-refundable and you get to keep this amount even if the T/B never buys your house. (Amt in Ln 3)
Additional proceeds received at closing at end of lease term over Traditional transaction: This is the difference between the Seller's Net for Rent To Own less the Traditional Net (Page 2 Line 13 Col 3 - Page 2 Line 13 Col 1)
Sum of Monthly Cash Flows over the lease term: This field is the Monthly Cashflow (Ln20) times the number of months in the Lease Term (Ln4)
TOTAL additional income using Rent to Own (Sum of Lines 21-23): This is the sum of lines 21 through 23
This refers to a Traditional Real Estate sale where you list your house with a Real Estate Broker, they advertise it on the MLS, and find a Buyer that pays you all cash, or the Buyer borrows the money from a bank or mortgage company to pay you all cash. A Traditional sale can take a long time to close due to your Buyer's mortgage approval process and underwriting time.
This is a For Sale By Owner transaction where as the Seller you market the property yourself without using a Real Estate Broker and thus avoid paying a real estate broker's commission. On a FSBO, you still have all of the same Costs of Sale as with a Broker, you just don't have their commission to pay.
This is a Rent to Own, Lease/Option, or Lease/Purchase transaction, they are generally synonymous. You are letting a Tenant/Buyer rent your house and occupy it and also entering into an Option Contract with them where they pay you a NON-Refundable Option fee to be able to buy your house during a certain length of time (the Term) at an agreed upon Sales Price. The Option fee (Down Payment) can run anywhere from 2% to 20%, the default minimum we use in this model is 3%. You can change Down Payment amount in Line 3 if you'd like an amount different than the default of 3%
Calculated Result Fields
Built into code, not changeable
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Asking Price (Price advertised to a buyer): This percentage is the default amount that the Rent2Own Asking price can be raised because an actual closing will be in the future. Not used for Traditional or FSBO columns
Mortgage(s) Balance - includes Arrearages: This is the sum of your mortgage balances plus any arrears amounts. If you have more than 1 mortgage, then you should add the balances of each individual mortgage together and enter them in line 12 above.
Seller's Rent Credit (First 12 months only): This is either a percentage of the monthly rent or the flat rate entered times 12. Rent Credits can be for the first 12 months or longer. For this model we've chosen only the first 12 months. Rent credits are given as an additional incentive to a Tenant/Buyer to move in quickly.
Buyer's Discount (Ask - Offer): In a Traditional or FSBO transaction in today's market which favors Buyers, they almost always offer something less than your Asking Price. Your Asking Price may be $100,000, but the Buyer offers you $90,000 as their starting offer, and then you negotiate and Buyer and Seller agree on a sales price of $96,000 contingent upon a property Inspection. This difference between Original Asking price and Sales Price is called the Buyer's Discount. As a historical average its usually a 3% differential, but will vary across different local markets. Enter what you think that discount percentage is here and it will change the Sales Price in the model. NOTE that there is no Buyer's Discount figured into Rent to Own. This is because you are providing something valuable to the Buyer, namely the existing financing on the property. You don't need to offer a Buyer's Discount, negotiation over the Sales Price almost never happens in a Rent to Own. The property just has to appraise for the agreed upon Sales Price when it closes at the end of the Lease Term if your T/B will be using bank financing.
Actual Sales Price (Agreed to Price between Buyer and Seller):
Expenses (Costs of Sale):
Seller Paid Closing Costs for Buyer (3% - 6%): These are closing costs that your Buyer will incur that they ask you to pay such as Mortgage fees, Points, or other costs associated with their acquiring bank financing to buy your house. Through negotiation you can choose not to pay them, but when you do, you reduce the chances that your house will be sold. NOTE: In the case of Rent to Own, the financing you are providing to the T/B while they are renting your house is their incentive to buy the house, so this never comes up as a point of negotiation, because their getting a mortgage comes at the end of the process, and they have already been living in the house and have paid their non-refundable option fee.
Requested/Required Repairs from a Property Inspection (2%): These are fixes and repairs that are needed to your property that are discovered during a home inspection prior to the closing. Most Purchase and Sale Agreements are contingent upon an Inspection, and the Buyer is able to walk away without a financial penalty if they don't agree to the Inspection results. Buyers generally ask you to make needed repairs, or reduce the agreed upon Sales Price by some amount to compensate for the needed repairs. Doing these repairs or reducing the Sales Price is negotiable and you don't have to agree to that, but again, if you choose not to make or pay for the repairs the T/B asks for, you reduce the chance that your house will be sold. NOTE, in the case of a Rent to Own, this is zero, because the T/B is buying the house AS-IS. They don't ask for an Inspection before moving in, and your Option agreement is for an AS-IS sale.
Broker's Commission (3% - 6%): This is the commission charged by your Real Estate Broker for listing and selling your house. It may be split and shared with other brokers. Change this percentage to match what you anticipate your Broker's commission fee will be. Only applies to Traditional, not FSBO and not Rent to Own.
Carrying Costs Numbr Months (default 6 mo, 2 mo for RTO): In today's market, we are finding Sellers take a lot longer to sell their property than in past markets. It is not unusual for a house to sit unsold for 12 months with no offers. We use 6 months as the default time to sell for Traditional and FSBO transactions, and 2 months for a Rent2Own. This is the cost that the Seller incurs while waiting for the house to sell. Mortgage payment and Utility Bills are the Holding Costs. For Rent to Own, there are no delays waiting for mortgage approval or underwriting, if you approve the T/B, they are ready to move in. You can change the number of months of Holding Costs by plugging in a different number here. This is a number of months.
Rent to Own Down Payment (or Option Fee) (DP): Down Payment is the Option Fee that the Investor will collect from the Tenant/Buyer. The Seller agrees that this is the compensation for an Investor to put the Rent2Own deal together . The Seller agrees to apply the Down Payment against the purchase price, but it goes to the Investor rather than to the Seller.
Down Payment Paid Out to Investor:
RTO Down Payment credited back to the T/B at closing: This is the amount of the Down Payment that you will credit against the agreed upon Sales Price. Only applies to Rent to Own.
Total Costs of Sale: In the case of Traditional and FSBO transactions, its the Costs that are subtracted from the Buyer's Offer Price: Closing costs, Repair Costs, Realtor Commission, Carrying Costs For Rent to Own, there are none of those costs that reduce the Buyer's Offer Price. The only costs that reduce that are the amount of the Down Payment or Option Fee, and the amount of any Rent Credits from Year 1 of the Option period.
Seller's Gross (Sales Price - Costs of Sale): (Ln 5 Sales Price- Ln 11 Costs of Sale)
Seller's Net (Gross - Mortgage Balance): (Ln 12 Seller's Gross - Ln 2 Mortgage(s) Balance)
Total Monthly Cashflows over the Lease Term: Monthly Cashflow = the difference between Market Rent per month and the Monthly Mortgage payment PITI plus monthly HOA dues. This field is the Total of the monthly cashflow times the number of months in the Lease Term.