Rent credit ledger cleanup on a lease-option portfolio often pays for itself fast

Take an owner with 11 single family houses, all on rent-to-own with tenant-buyers on terms between 18 and 36 months, credits tracked in a spiral notebook and a spreadsheet that disagreed with each other, a problem that had been put off for years. A workable engagement: a flat fee per file to reconstruct the ledger from bank records and leases, then a modest monthly fee per door 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 schedule an annual sit-down between each tenant-buyer and a loan officer. Roughly $13,200 of setup work and $770 a month recurring on an 11 door portfolio is a reasonable order of magnitude. The existing property manager keeps collecting rent and handling maintenance calls, the ledger work never touches money directly. What that kind of reconstruction typically surfaces: credits double counted in the tenant-buyer's favor across a handful of files, credits that were never counted at all in others, purchase options written as a lease clause instead of a separate agreement in some files, which should go to an attorney rather than be fixed unilaterally, and occasionally a strike price that was retyped differently across signed copies, which needs to be worked out rather than assumed. The scope has to stay narrow. Drafting an offer that includes collecting rent or negotiating extensions can walk straight into needing a property management or brokerage license depending on the state, since licensing triggers differ state to state. Keeping the engagement to bookkeeping and reporting, with an attorney's input on the scope language, is the safer structure, leaving anything touching money or lease terms with the existing manager. The piece worth keeping in any version of this is the monthly statement to the tenant-buyer. Tenant-buyers who have never seen a number for their own credits tend to engage with the loan officer once they finally see one, and that's the outcome the owner actually cares about, since a tenant-buyer who closes is the whole point of the portfolio.

mikeoconnell7 SO3CPRO 12

6 replies

kevin_lombardPassivePRO

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?

kevin_lombardPassivePRO

megan_doyle15PassivePRO

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.

megan_doyle15PassivePRO

marcus_hale41CapitalPRO

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.

marcus_hale41CapitalPRO

stephen_ok9ActivePRO

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?

stephen_ok9ActivePRO

joe_delgado5ActivePRO

$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?

joe_delgado5ActivePRO

mitchell_ray4ServicePRO

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.

mitchell_ray4ServicePRO

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