The Top 3 ways to Determine a Homes Value

In most states there are values determined by the tax assessor’s office. It might be called your tax value, assessed value or something similar. That number might not be 100% of the property value. Usually there is some type of formula that each city or state uses.

Unfortunately using the taxable basis fails to take into account a number of things, like:

1. What are homes actually selling for in your neighborhood?
2. What is the condition of your home?
3. What upgrades have been made to your home?

As you might be able to guess, all of these factors can have a huge impact on the value of your home and would be in no way reflected on the taxable basis. The result, your home will either be over- or under-priced.

Here are the top 3 ways to determine a value of a home:

1. Appraisal

An appraisal is probably the most accurate way of determining a home’s value. While it seems to be the most costly in the short term, what it can save you in the long run by having your home accurately priced offsets the upfront cost. If you are going to sell your home on a “For Sale by Owner” basis, I cannot encourage you enough to have an appraisal done. When you order the appraisal, make sure you ask for a market value. This will give you the closest possible pricing guide for your home.

1.     Real Estate Agents

Making use of a real estate agent can be an excellent way to determine the value of your home. Real estate agents, like appraisers, actually look at recent sold comparables and look at your home to determine how its condition affects its value, and then suggest a price before listing your home. Unlike appraisers, they also take into consideration the current competition. They will perform an analysis of value, for no charge in most cases.

When you meet with an agent, ask to see “comparables”. They should show you recent sales comparables as well as what is currently on the market. Ask the agent WHY they are suggesting a particular price. Also ask them what you should expect to receive for a sales price on your home. A good real estate agent should easily be able to justify the asking price with accurate comparables and condition analysis of your home.

2.     Your Neighbors

Another method I have seen employed quite often is to price a home’s value based on what your nearby neighbors are trying to sell their homes for, and then almost always adding some. Why would you add some? Of course, your home is better, right? It might be or it might not be. But most sellers think their home is nicer or more updated than their neighbors. Be careful with this, as it can be a dangerous way to price your home.

This method makes several assumptions that will likely lead to pricing trouble:

1. You are assuming that your neighbors’ homes are priced accurately.
2. You are assuming that your home is genuinely comparable to your neighbors.

Even if you happen to live in a neighborhood of identically sized ranch houses with identical lots, there can still be pricing differences based on the condition and improvements in the home. If you have a finished basement or a newly remodeled kitchen, you need to be able to accurately set a value for those improvements.

Want to learn more about selling your home as a rent to own?  See Wendy Patton’s book, Rent to Sell, Your Hands on Guide to Sell Your Home When Buyers Are Scarce.

If you have any questions or comments please feel free to leave them in the comment section!

How to Get Sellers to Call You and Offer you Their Home for a Rent-to-Own

Now that we’ve discussed ways to find rent-to-own homes, what would you say to having rent-to-own sellers call you and offer you their home? That’s right. You can just sit by the phone and wait for sellers to call you and tell you about their rent-to-own home.

Many of these sellers will not have their homes listed with a real estate agent, so if you are working with an agent, this may not be for you.

The advantage of having the seller call you is that you already know he is willing to consider rent-to-own. You just need to figure out if his home and terms will work for you.

“Alright Wendy! So how do I do this?”

Posting ads is a way to get sellers to come to you.

Posting Ads

The first way is by posting ads about yourself and rent-to-own. Here is one example:

This is a sample ad of what you would put in the newspaper where space is an issue – the more space you use the more it costs you. These ads though are just enough to get the attention of a home seller who has started to think about what choices he must make if he doesn’t sell soon.

You can also post an ad on FREE sites like Craigslist, Yahoo! groups and Google groups. I also recommend posting some flyers on community bulletin boards as well as posting flyers using these FREE Internet sites. These methods are much cheaper than the newspaper classified ads and may be all you need.

The whole purpose of these ads is to filter out the home sellers who don’t want tenants and to get the ones that would consider tenants to call you.

Here are some questions you can ask sellers once they call you:

• Where is your home located?
• Can you tell me what price you are looking to get for your home?
• How many bedrooms and baths does it have?
• Do you know what the rental rates are in your area? About how much were you thinking for monthly rent?

Not only will these questions help you gain more information about the sellers, it will also help you build rapport with the seller as well.  Check out my book Rent-to-Buy to learn more about other ways to get sellers to call you.

Rent to Buy is your hands-on guide to buying your next home as a rent to own.  You can get your next home NOW without having to qualify for a mortgage until later.  To Learn more about Option Agreements purchase your copy of Rent-to-Buy today.

Feel free to comment and let me know of other ways you  have sellers calling you!

The Top 3 Ways to find Lease Option Tenants and Buyers in Soft Markets

As you know, I’ve been doing Lease Options for many years now. I’ve seen down markets, up markets and everything in between. Having survived all kinds of markets I can tell you I LOVE doing Lease Options in down markets.  Why is that?  Because there are SO MANY deals just waiting for me. In a down market the motivated sellers are plentiful.  The common misconception when the media is screaming about how bad the market is, is that there are no buyers out there. That is true. There are fewer buyers in a soft market. Does that mean it’s impossible to find them? Not at all.

Let’s take a look at some ways to find Lease Option tenants and buyers in soft markets:

1)         First, is the asking price.  If your asking price, either the sale asking price or monthly rent asking price, is too high for your Lease Option, you’ll scare away most buyers.  Yes, it’s common that on a Lease Option the rent and purchase price are marked up due to the flexibility you are offering the buyer.  However, if the market is soft you’ll find these marked up margins shrink.  This especially applies to the monthly rent.  If you are asking too much for rent you will have a VERY hard time finding tenants.  If you want to place a quality tenant quickly make sure the rent is competitive, maybe even slightly less than the competition

2)         Second, think long term.  If you have structured a longer term Lease Option deal with the seller, like 3 to 5 years, consider just renting the house initially.  Rent the house out for the first couple of years before you try to place a Lease Option buyer.  This will give you time to weather the soft market and start moving towards rebound.  If you get stuck with the mindset of only looking for Lease Option buyers you’ll be following the herd, trying to sell in a down market.  Just rent the house in the down market and try to sell it when the market picks back up.

3)         Third, cover your cash flow.  If you put together a great Lease Option deal and have it start right away, who covers the monthly rent until you find a tenant?  News flash:

You Do!

What just happened?  You became a motivated seller!  You are much more likely to make a bad decision in Lease Optioning that house than if you didn’t have to pay the monthly payment.  You are also reducing your profit margin for every month the house sits vacant.  Instead, structure the deal to give yourself some time (a few months at least) to find the buyer or tenant.  You could even have the Lease Option begin only once you have found a tenant.  Be fair to the owner and let them continue to try to sell their home on their own during this time.

Taking all of this into account I think you’ll see why I LOVE to find Lease Options tenants and buyers in soft markets. If you put together the Lease Option deals when the market is soft you’ll find it easy to get the kinds of deals you really want.  Then if you structure the deal with strong terms and use the selling techniques I talk about, you’ll be selling when the market has improved and find it a whole lot easier to move your properties and make handsome profits.

If you have any questions or comments please feel free to leave them in the comment section.  I would love to hear your thoughts in the comments.  Also, Share this with others by clicking the retweet button above. Thanks!

If you are in the difficult situation of falling behind on your mortgage payments and trying to sell your home, offering it on a rent-to-own basis may help you stay out of foreclosure. I wish I could say for certain, because I hate to see people lose their homes to the bank, but obviously it’s no guarantee. The last thing lenders want right now is to foreclose on your home. They have gotten pretty flexible in working with homeowners to find solutions. Be sure to include them in the process when trying to find a resolution. As you read on you can evaluate whether you think selling your home as a rent-to-own will help you. Critical factors to consider are:

• Monthly Payment Adjusting Up? If your monthly payment has adjusted upwards, will you be able to rent your home to a tenant-buyer for enough to cover the new payment? If not, you will have to cover the difference yourself or get the lender to agree to a reduced payment. There are lenders that will work with you on your interest rate. This is called a loan modification. They usually won’t change your balance but they might change the interest rate and length of loan. Talk to your lender to discuss your options.

• Home Prices Dropping? Do you live in one of the areas where home prices have dropped dramatically? If so, is your home worth much less than your current loan amount? If this is the case you won’t be able to sell it to a tenant-buyer for enough to pay off your mortgage. Do you have the extra money to pay off the difference? Do you need to consider foreclosure? Maybe a short sale is your solution versus a rent-to-own. A short sale is when you get your mortgage company to accept a lesser amount on the payoff of your mortgage than you owe, when you sell your home. This is called “shorting” the mortgage. Many people and lenders have had to consider this alternative with the housing market decline.

• Behind on Your Payments? How much are you currently behind in payments? You will need to bring them current one way or another to stop the foreclosure. The option fee from your tenant-buyer may be enough to cover this. If it isn’t, you might be able to use the option fee to cover part of it and then establish a catch-up plan with your lender.

Yes, you do have choices other than the traditional way of selling your home! Obviously this is the part where I sing the praises of rent-to-own.

Want to learn more about selling your home as a rent to own?  See Wendy Patton’s book, Rent to Sell, Your Hands on Guide to Sell Your Home When Buyers Are Scarce.

If you are like many others who have come to my site to learn how to make more money by investing with little or no money down in lease options, I have an exciting opportunity for you. I am now offering a FREE online DVD to help you Learn How to put $5,000- $10,000 into your  pocket within 29 days using lease options .  I am sure you may have concerns and may be wondering if it is even possible in today’s Real Estate market when you do not have:

• Enough credit to purchase a property with a mortgage
• If you do not have enough cash to buy or put down
• You do not want to get stuck with a property you can not

Take a few moments from what you are currently doing and watch.

Here is what you will learn:

• Why Real Estate?
• What a Lease Option is.
• Why you need a Lease Options.
• 6 keys to success.

Check out the Box located on the right side of this blog and get it now!!

1. Price

Typically buyers won’t try to negotiate price.  They often accept your asking price (which includes a rent-to-own premium) because of the flexibility they receive by doing rent-to-own.  However, should a buyer try to negotiate on price (and they will if they read my book, Rent-to-Buy) there are a couple of ways to counter them.

1.         You want to emphasize the flexibility they are receiving by being able to rent the home before they buy it.  This type of flexibility justifiably commands a greater price than a comparable home being sold conventionally.

2.         You want to emphasize the rarity of what you are offering.  Simply put, a buyer who is buying a rent-to-own home has very few choices in homes.  There aren’t that many out there.  This rarity also makes the home more valuable.

2.         Option Fee

More than any other term buyers will likely try to negotiate a smaller option fee.  In some cases they’ll do this because they don’t have enough money saved, in other cases they’ll do it simply because they don’t want to part with the money.

Obviously the more option fee you receive the better because it means the buyer is less likely to walk away from their money.  When a tenant-buyer tries to negotiate a lower option fee you can counter it by:

1.         Pointing out that the option fee counts as a down payment when they are trying to qualify for a mortgage and the larger the option fee the better it will look to the lender.

2.         (If the tenant-buyer has poor credit) Explain that you are taking a risk by letting someone who can’t currently qualify for a mortgage move into your home and that the option fee is your security against that risk.  Tell them that the option fee conveys their seriousness about the home.

3.         Closing cost contributions

Typically at the beginning of the option period tenant-buyers won’t ask for or won’t know they need to ask for help with closing costs.  This usually comes up at the point when they are applying for a mortgage and discover that they need to pay them.

This is when either their real estate agent or their mortgage broker will tell them that they can ask the seller (you) to help pay closing costs.  The way this is usually handled is that the purchase price is increased to offset all of or part of the closing costs.  Assuming that the home will appraise for enough to cover this.

You may have done this when you bought the home yourself, it’s a very common practice.  By increasing the purchase price to cover closing costs, it’s mostly a wash for you as the seller.  It does end up costing you a little bit with increased taxes, commissions, title fees and so forth based on the slightly higher selling price (maybe a couple hundred dollars depending on the cost of your home).

I recommend granting this concession if you can because it gets your buyers to buy your home.  The cost to you is pretty small so it’s worth it to get your home sold.  If you suspect that your home won’t appraise for enough to cover the closing costs because property values are going down in your market, you may want to encourage the tenant-buyer early during the rental period to start saving some money to cover their closing costs when they get a mortgage, this way you are less likely to have to add them into the purchase price.

I’ve talked a fair amount about why you NEED to offer your home on a rent-to-own basis to get it sold in this market. But I haven’t talked at all about the benefits to you in doing so. After all, most of us hate doing things just because we HAVE to, we would much rather do things we WANT to do.

Here are some of the reasons rent-to-own can be beneficial for you:

1. Higher Purchase Price - Rent-to-own sales typically command a price premium over traditional sales. The buyer is paying extra for the flexibility he receives by not having to do an outright purchase immediately.

1. Higher Rent - You may be able to charge more for monthly rent in a rent-to-own than you would for just a straight rental. I will cover this in more detail later.

1. Cash Flow - If your monthly payments are less than the monthly rent, the difference goes into your pocket.

1. Option Fee - This upfront fee paid to you by your buyer is what secures the purchase price down the road. If the buyer closes on the home, it would be applied towards the purchase price. If the buyer elects to not purchase the home, the option fee is forfeited and still remains yours. Either way you win. If you were to just rent the home, the tenant would put down a security deposit. The option fee is different than a security deposit. A security deposit is owned by the tenant and can’t be used by the owner, except for repairing damages, unpaid rent and other provisions as mandated under state laws.
2. Eliminates the Burden of the Mortgage Payment – If you have already moved on to your next home and your old house is sitting empty while you try to sell it, then you are saddled with TWO mortgage payments. Hopefully you aren’t in this position, but if you are I feel your pain. Ouch! If the house has been taking a while to sell, you know how fast the money coming out of your pocket adds up. It gobbles up any equity you have at a frightening rate. Placing a rent-to-own buyer that pays that extra mortgage can take away your pain.

As you can see, selling your home as a rent-to-own offers a lot of benefits to you: Higher purchase price, cash flow, higher rent, option fee, selling faster and more! To learn more ways a rent-to-own can be beneficial for you check out my book Rent-to-Sell.

When I first started doing lease options it was about two years before I realized that I needed to work with Realtors because of their control over the sellers. Realtors pre-screen everything for you and in general their sellers aren’t in financial trouble. The Realtors control the relationship with the sellers and the sellers tell the Realtors everything, including personal information. That’s one of the key reasons I like to work with Realtors – they control the knowledge base about the seller.
I look for Realtors who can understand lease options and can help their sellers also understand the benefits of lease option, but this understanding can take time. My job is to assist them and help them understand when to call me. Here is how I generate leads for lease options through realtors.
1. Making cold calls to generate leads
If you look in any real estate section of any newspaper, you can find the top listing agents you need regarding potential properties. Many times the agent is unavailable, but that’s not a problem. Just leave a descriptive message about the property that interests you and let the agent know how to contact you. You might want to make yourself a short script with the highlights of the things you need to discuss so that you don’t fumble for words when on the phone. Also don’t be afraid to ask for information from the assistants. They often know as much or more about the status of the home and the seller.

2. Structuring the Deals through Realtors
Tell the agent how you found out about them – butters them up a bit – and let them know that you are willing to give a presentation. Suggest that the Realtor fax you a potential listing. If you have already developed a relationship with the Realtor, you can always “dig” a little during the phone conversation to see if they have a property that is a good candidate for a lease option that they might have overlooked.
A. Proposal – used to put together a mock-up offer to a Realtor that they can then present to the home owner or seller. It will put down the overall terms in writing without the specifics. This saves a lot of paperwork because you only fill out the other paperwork when you have an agreement on the proposal.
B. Letter to get into the brokerage office – I tell the broker what I do and don’t be anxious on the proposals – make it low pressure. When you’re first starting out, you‘ll want more deals to go through because there’s a great excitement in the newness of the game. Don’t get too wrapped up in a deal happening, because a lot of them don’t happen. I probably get about 40% of the proposals I put out- which means that 60% come up empty.

3. Unwanted Buyers
A Realtor will get a pre-approval letter from a mortgage company before they show a home to a prospective buyer. Otherwise they’d be wasting valuable time and energy with a lot of people who are looky-loos and not serious buyers. The Realtors don’t want to waste their time with those buyers, but those are the buyers I want and I need the names from the Realtors. So I send the Realtors a “Garbage letter” which basically says, “Don’t throw those names and numbers in the garbage! I can help the buyers get into a home with lease options. I offer a $1000 finders fee for every name that ends up in a deal.” This is another incentive to Realtors to work with me. I’m not out to steal their business – I’m here to help them and to offer a unique service to buyers with financial history difficulties. I want to help them move their inventory, so I am interested in the buyers they can’t help in traditional methods.

Working with Realtors is key in any lease option deal.  For more information about Generating Leads through Realtors check out my book Investing in Real Estate with Lease Options and Subject-to Deals.

Learn what a Sandwich Lease Option is and how to make a profit from the deal.

Screening a buyer for a lease option is extremely important and yet some of us investors still go by instinct or illegal decisions.   There are two areas to discuss on screening;

1)       Detailed Screening

2)       Fair Housing.

‘We liked them’, some investors will say to me.  There are too many really good liars in the world and those of you that feel you can ‘read’ people and relying on that are in for a rude awakening.  Many of my worst situations came from my own ignorance of believing in people.   We should all screen people as if we were blind and deaf.   We would then screen them strictly on the facts and not our opinions or prejudices.

Screen a tenant by reviewing the application in my course.  Have them fill it out.  Check it for accuracy.  Make sure they did not lie to you.   If someone lies to me, they are denied the occupancy.   Check their name – get a copy of their driver’s license.    Check their employment – I confirm the pay amount, hours they work and time on the job.   Check their banking information, you might need it later.  Also check their landlord history , the current land lord may want to get rid of them, but the previous has nothing to hide.  Call them both!   Confirm it is the real landlord by one of two ways; check it on county records, or call person and say a different amount of rent than on the application.

Fair Housing:

Fair Housing is an entire seminar in itself.  Realtors around the country have half to full day training sessions on this topic alone.   Fair housing rights when violated can cost owners hundreds of thousands of dollars.  This is not an area where you want to mess up.  The bottom line is this: select a tenant on their application alone and nothing else. There are federally protected areas and there may be some state protected categories also.  Each state has their own protected areas, so check your state for the details.  The way to be really safe is don’t judge anyone by the way they look or talk. This is why I say that we should be blind and deaf to select a tenant.  If we would just evaluate on the application process alone, then we would stay out of trouble.  Then the selection would be based truly on the facts not our gut feel or our instincts.  Besides, many times we think our ‘intuition’ is that someone is ‘good’ and they later are not so ‘good’.   Stick with the law and you will be safe.

As you can see screening a buyer for a lease option is highly important. For more information on How to Screen a Buyer and putting your standards in writing you can check out my book Investing in Real Estate with Lease Options and Subject-to Deals. Stay tuned for the next topic How to Qualify a Good Buyer.

Share with me some of your tips on How to Screen a Good Buyer in the comment section!