Rent credit ledgers for 11 houses pay me better than the management does

An owner in my area has 11 single family houses, all on rent-to-own with tenant-buyers, terms between 18 and 36 months. His credits were tracked in a spiral notebook and a spreadsheet that disagreed with the notebook. He knew it was a problem and had been putting it off for two years.

What I sold him: $1,200 per file to reconstruct the ledger from bank records and leases, then $70 per door per month to maintain it, issue a monthly statement to each tenant-buyer showing option fee, credits to date, credits remaining, months left on the option, and to schedule an annual sit-down between each tenant-buyer and a loan officer. $13,200 of setup, $770 a month recurring. His property manager still collects the rent and handles the maintenance calls. I don't touch money.

What the reconstruction found: $9,400 of credits across four files that had been counted in the tenant-buyer's favor twice, and $2,100 in one file that had never been counted at all. Two of the eleven had the purchase option written as a section inside the lease rather than as a separate agreement, which I flagged to him and sent to his attorney rather than touching myself. One had a strike price that had been retyped as $214,000 in one copy and $241,000 in another, with both copies signed. That one is still being worked out and I'm glad it's not my problem to solve.

What nearly broke it: my own scope. The first draft of what I offered had me collecting rent and negotiating extensions, and once I read my state's statute on property management and brokerage activity I realized I was walking into needing a license. Licensing triggers differ state to state, so I paid an attorney for two hours to help me write the scope narrowly around bookkeeping and reporting, and let the existing manager keep everything that touches money or terms.

What I'd keep: the monthly statement to the tenant-buyer. Eight of the eleven had never seen a number for their own credits, and three of them called the loan officer within a month of getting the first statement. The owner cares about that more than he cares about my reconciliation, because a tenant-buyer who closes is the whole point of his portfolio.

6 replies

2kevin_lombardPG1BPRO5

Two signed copies with different strike prices is going to live in my head for a while. How does that even get resolved, does someone just have to sue?

1megan_doyle15 Get yours

So the owner had 11 houses sold-ish and didn't know what any of the buyers had built up? That seems impossible. I've never run across a job like this before, and honestly none of it makes sense to me yet.

1marcus_hale41CG4A

The $9,400 double count is the number I'd lead with if I were selling this to the next owner. That's an eight month payback on the whole $13,200 setup, before you argue about anything soft. I'd want to know whether he'd already told those four tenant-buyers a credit balance, though, because taking $9,400 back off people who have seen a number is a very different conversation from correcting a private spreadsheet.

1stephen_ok9CO2CPRO6

Sitting on the capital side and trying to work out where to put money, this is the first post that made lease options look diligenceable at scale. If I were considering a passive position in someone's rent-to-own portfolio, the ledger you just described is the document I'd ask for first, and the fact that it usually doesn't exist tells me most of what I'd need to know. Did you build it in something ordinary or did you buy software?

0joe_delgado5AP4CPRO6

$70 a door for bookkeeping is cheap for him and thin for you. Eleven doors is $770 a month for what, a day of work? Two days? The setup fee is where your money is and setup fees don't repeat. What's the plan when he's clean and you're just maintaining, do you go find owner number two or do you raise him?

2mitchell_ray4 Get yoursPRO6

Coming from the trades I'd have assumed the money in these portfolios was in the turns. What you found says the money is in the paperwork nobody kept. Makes me wonder how many owners with five or six of these have the same hole and don't know the size of it.