IPR AGREEMENT FAQ – 9 OF THE MOST COMMON INVESTOR QUESTIONS REGARDING IPR AGREEMENTS
- What is the contract interest rate?
- How is the Projected Yield Calculated?
- What is the Loan-to-Value (LTV) that you can finance against my property?
- What are the pre-payment penalties?
- What happens at the end of the term and the tenant cannot get non-private financing?
- What documentation will I need to provide?
- How is Amansad Financial Services compensated?
- What is the most efficient way to close a file?
- As an investor, Can I use an IPR on to payout an existing poor performing private mortgage?
- Are there other companies offering this type of investment to investors?
FAQ 1. What is the contract interest rate? Answer: Interest rates do not apply. Payment is based on a lease factor of the Investor Purchase Price. For example, a purchase price of $300,000 with a lease factor of 0.0075 = $2250/month. ($300,000 x .0075 = 2250)
FAQ 2. How is the Projected Yield Calculated? Answer: The Projected Yield has a front end and back end calculation.
Front End Calculation: = Cash Flow per Year / Months / Net Funds (Example: $12,000 / 12 months / $100,000 = 10%) Back End Calculation: = [Total Realized Cash Flow + Buyback Sale Profit] / Total Lease Term / Net Funds (Example: [$60,000 + $100,000] / 60 months / $100,000 = 26.67%)
FAQ 3. What are the pre-payment penalties? Answer: Pre-payment penalties do not apply to these type agreements, however if a Tenant wants to re- purchase prior to the end of the term, the investor must agree. In addition, the pre-payment applied against an investor’s mortgage needs to be adjusted and added to the buy-back price.
FAQ 4. What happens at the end of the term and If the tenant cannot get financing? Answer: It is the tenant’s responsibility to save their down payment & improve their situation to buyback the home.
- Amend the closing date on the purchase contract.
- The tenant can assign the contract to another party that can purchase it for them.
- Obtain a private mortgage to 80% of the property value, and confirm if the investor partner will agree to a vendor take back mortgage for the shortfall. At least 10% down payment is required at that time, plus applicable fees.
If the above options are not exercised by the tenant, as the owner of the property, you can evict.
FAQ 5. What documentation will the tenant need to provide? Answer: Pretty much the same documentation that is required on a typical mortgage file:
- Two Pieces of Valid ID
- Satisfactory Income Verification (Ex. Job Letter, Recent Paystubs, etc.)
- Mortgage Statement & Property Tax Balance Statement
FAQ 6. How is Amansad Financial Services compensated? Answer: On each deal that is presented, Amansad Financial will have an accepted offer to purchase already in place with a deposit. The buyer will be listed as ‘Amansad Financial Services and/or assignee(s)”. Once an investor has confirmed they would like to proceed with a file, Amansad will order a residential home inspection, and send an invoice for the assignment fee. Once the assignment fee is received, the file will be instructed to the law firm to complete the investor transaction, & prepare the lease agreement & future-buyback agreement.
FAQ 7. What is the most efficient way to close a file? Answer: Cash Purchase & Refinance after closing. All transactions are based on an investor securing a mortgage to 75% of the purchase price to minimize net cash output per deal. If able a cash purchase followed by a refinance after closing is the most efficient way to close this type of deal.
FAQ 8. As an investor, Can I use an IPR on to payout an existing poor performing private mortgage? Answer: Yes. If you have a private mortgage that is causing grief and will not be renewed and are even considering foreclosure action; an IPR is a great alternative investor cost effective solution when refinancing isn’t an option for the borrowers. Because a majority of private mortgage lenders/investor only lend up to 75% – 80% of the property value, an IPR is a great solution to allow a homeowner to hit the reset button, while staying in their home. It creates a winning outcome for all parties.
FAQ 9. Are there other companies offering this type of investment to investors? Answer: Yes & No. Some companies offer a similar service and it is referred to as a Rent-to-Own Refinance; however there are some key differences:
- With other companies the purchase price for the investor is at market value, and the equity is used as a future down payment to buyback that is held in trust. The problem with this approach is that the funds held in trust can be challenged. To avoid this, an IPR purchase is at a below market value, and puts the onus on the homeowner turned tenant to get the affairs in order before the e nd of the term. By purchasing below market value, it creates an instant return on your money.
- With other companies, a portion of the rent is credited as an ‘option credit’. With IPR the rent is 100% profit. This also makes it very easy for your accountant when reporting income.
- With other companies, if the Rent-to-Own contract is poorly written, it may not be accepted by the financial institution at the time of buyback. Also, many financial institutions do not accept Rent-to-Own, partially due to the stigma. IPRs are technically not Rent-to-Owns because there is no option down payment to purchase, and there is no ‘option rent credits’. It is simply a long term lease, a standard purchase contract with an extended closing date where a tenant needs to get their affairs in order to buy.
If you have any further questions, please do not hesitate to ask.