The toughest decline I ever had to make
September 2, 2010
A few weeks ago I touched on some of the improvements we’ve made to our tenant selection criteria. We’ve developed a credit matrix that allows us to assess the risk profile of each tenant application that crosses our desks. I would say that on average, roughly 95% of the applications that come to us get turned away. The true number is probably higher as we have many filters in place that many of the applications don’t even make it to our desks.
I got a call this week from an old classmate of mine from business school. Brian and I don’t see each other as much as we used to, but we do keep in touch and try to see each other whenever we can. He called me looking for more information on Rent to Owns. I quickly went over the pros and cons of investing in real estate and Rent to Owns specifically. He interrupted me mid-sentence and wanted to find out about the program… as a renter. My heart sank. I asked him what was wrong and why we he want to know about the Rent to Own program? He owns a beautiful 2500 square foot home in a suburb just east of Toronto. Brian nervously started to tell me that him and his wife had fallen behind on their mortgage payments and were about to lose their home. I was in shock that Brian got into this predicament and this really hit close to home (even though I see this kind of thing every day). I told him to come in to our office as soon as possible and we would go over their entire financial situation.
After spending several hours with them and looking at everything, needless to say, they were in a very bad financial situation. They basically got in over their heads and couldn’t afford the lifestyle they were living. Brian was desperate… he wanted to save his home… at any cost. I looked at their file from a few different angles and no matter how I looked at it, the numbers just didn’t work. As much as I wanted to help my friend, the reality is, they couldn’t afford to keep their home. Rent to Own or otherwise. He asked me to give them special exception and approve their application. As hard as that was to do, I told him he was living beyond his means and the Rent to Own would only be a temporary band-aid. Three months from now he would struggle to make the monthly payments on the Rent to Own and be in a far worse financial situation (and not to mention our investor would be in trouble). I told him he needed to downsize, create a budget and live within his means. It wasn’t easy for me to say, but I honestly believed this was the best solution for him long term.
I know some of you may think that I should have done more to help Brian. From an emotional point of view, it was tough to see my friend in this type of situation. From a pragmatic perspective, the Rent to Own just wasn’t going to help anybody in the long run. It definitely was the toughest decline I ever had to make. And I guess as much as we want to help and make a difference, the Rent to Own isn’t a solution for everyone. As a matter of fact, it is a solution for the select few. We’ve learned that over the past 4+ years that we need to work with the right tenant for this to truly be a win-win-win scenario for everybody involved.
Comments
-
Philippe Sprauer