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.

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 Cooperative Lease Option is and when investors should use them.

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

Here’s another negotiation tip from Rent-to-Buy:

Whenever possible, you want to be the one selecting the location for your negotiations. Buying a home is almost always an emotion-based process. Once you find a home you like, you become emotionally attached to it. Emotional attachment can cause you to make unwise decisions when making an offer, handling negotiations, and so forth. Once you’ve fallen in love with a house and visualized it being your home, you’ll start to do WHATEVER it takes to make sure it becomes your home.

For instance, if you are making an offer to the sellers and are staring out the window at that swimming pool you fell in love with, how strong do you think you’ll negotiate? The answer is: not very. You’ll do whatever it takes to get the home because your emotions are controlling your negotiations.

You might be better off meeting with the seller on neutral ground to make your offer. This will help you keep your mind focused on buying the rent-to-own home without being so emotionally attached to it.

If you are working with a real estate agent, you won’t be meeting with the seller in person to make your offer. Your offer will be submitted through the agent. This way you don’t have to worry about the location of negotiation.

November 19-22 I will be holding the “Soft Market Investing” Boot Camp. This is four days of intense Real Estate Investing training during which you’ll learn:

• What strategies work best right now in today’s market
• How to maximize your profit potential when using these investing strategies.
• Strategies you’ll be able to implement the very next day!

The training offered at this event will be, without question, some of the best you have ever been a part of at any real estate event. You’ll walk away with the ideas and concepts that can put tens of thousands of dollars in your pocket! This Boot Camp will also be saturated with strategies and concepts that work in today’s market. As most of you know, I specialize in Lease Options and Subject To’s. Both of these strategies will be covered in detail during the Boot Camp!

And, given the current real estate market’s condition, this couldn’t be a more perfect time to attend the “Soft Market Investing” Boot Camp.

The first Boot Camp was held June 26-29 and was sold out! Hurry up and Register….Seats are filling up fast!!

Click Here to Register

Are you like many others who have no idea what a Rent-to-Own is? My new book Rent to Buy discusses what a Rent-to-Own is and much more. Rent to Buy offers a hands on guide to buying a home on lease option from the home buyer’s perspective as well as the real estate agents who serve them.

Before we can look at why we would want to buy a home and how to buy a home on a “rent-to-own” basis, we first need to understand what renting-to-own is. A rent-to-own can also be referred to as a “Lease with an Option to Buy,” a “Lease Option” or a “Lease to Own.”  In this book we will call it a “Rent-to-Own”, but these words can be used interchangeably for the most part.

In a nutshell, a rent-to-own sale means the seller is allowing you, the future buyer, to live in the home for a while as a renter before you actually purchase the home from them.

In a rent-to-own transaction, before you move into the seller’s home as a renter, you and the seller would agree on the sale price and other terms. You would pay the seller a non-refundable option fee. Both you and the seller would sign some paperwork covering the lease, the purchase and the option (which gives you the right to purchase the home at a later date) and in approximately one to three years, depending on your agreement, you have the option of purchasing the home.

I say you have the option of purchasing the home because it is important to understand that in a rent-to-own transaction you, as the buyer, are not obligated to purchase the home at the end of the rental period. The seller, however, is required to sell it to you should you choose to buy it. That sounds pretty good, doesn’t it? For a more in dept look  at Rent-to-Own’s check out my new book, Rent-to-Buy.

Is this you?

You’ve seen tons of homes for sale on the market.  You know it’s a buyer’s market.  You either owned a home previously or you are a first time buyer.  If you owned a home previously you might have lost it to foreclosure, either due to a job loss, divorce or your mortgage rate adjusting upwards.

Now is the time to buy!  After all, you keep hearing in the news about how BAD things are for sellers, and prices are the lowest they’ve been in years. This is true and it is to your advantage.  For most of us, home ownership is our single, biggest source of wealth.  It not only puts a roof over our heads that we can call our own, but it also builds security for our futures by paying down the mortgage and building up equity. For most people, their home is their single greatest asset.

Probably the first thing you did was to start looking on the Internet or checking the local newspaper for homes for sale.  After that, you called a Realtor® and he told you that he would love to help you, but you needed to get approved for a mortgage first. Ugh…you know you don’t have the best of credit and you are not sure if you should even call a mortgage lender.

You decide to make the call to a mortgage lender.  You know what the outcome will most likely be in advance, because of your financial situation, but you do it anyway. After gathering tons of information from you all the way down to how many times a week you floss, he finally tells you that based on your current credit, income, down payment, inadequate amount of time spent brushing after meals, etc. you aren’t currently qualified to get a mortgage. Well, duh! You could have told him that in the first place.  Do not despair.

Rent to Buy is now available.  Rent to Buy is your hands-on, step by step, 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.  This is the solution you need until you can qualify for a mortgage.  This is the solution home sellers need because they can’t find mortgage qualified buyers.  Rent to Buy is a great option in our current real estate market.  Check it out!

In today’s real estate market mortgage-qualified buyers can be a real challenge to find which makes it difficult for us real estate agents to make a living.  In reality there are lots of would-be buyers out there right now if you are a little more creative.  You see, the real hang up comes with the mortgage-qualified part.  Lots of would-be buyers out there (in fact, I would say the majority) can’t qualify for mortgages right now.

Most real estate agents turn these people away saying, “I’m sorry, I can’t help you.”

But the truth is, if you are a little bit creative, like I teach in my book Rent-to-Buy, you can turn all of those buyers into full commissions by finding them a lease option home.  Not only that but you can collect buyer leads from other agents who turn away those not-mortgage-qualified buyers too!

How do I do that?  I have this letter that I send out to other agents called my garbage or $500 letter.  It goes something like this:

Dear Agent Name,

Have you ever had a potential buyer come into your office and not be qualified to get a mortgage?   Don’t throw away their information.  Refer them to us, and if we end up renting to them, we will send you $500!

So, is it a piece of garbage, or $500?

Please call us at (phone number) to get more information, but don’t throw away your potential buyers that we might be able to work with.  This offer is valid until (date).

Sincerely,

Your name

Very simple and straightforward, but very powerful.  Most real estate agents turn away non-mortgage qualified buyers.  Get them to give them to you instead and they’ll see a payout instead of a lead that is garbage.

The buyers are the gold in today’s real estate market.  If you are creative and help non-mortgage-qualified buyers find lease option homes you can earn a TON of money in commissions right now.  For more on how to do lease options as a real estate agent and how to help buyers find homes check out my new book, Rent-to-Buy.

Let me give you an example situation where you as a real estate investor, or if you are a Realtor, when you can suggest a lease option to the home seller.  As a real estate agent our responsibility to our home seller is to get their home sold, and sometimes conventional methods just don’t work.  That’s when we can offer the home seller the alternative of a lease option as a means to get their home sold.  Remember, any time a seller suggests that they might have to rent their home if they can’t sell it you know they are prime candidates for lease options.

So let’s look at an example situation where a home seller might be a good lease option candidate:

A doctor has built a new home for himself.  His old home is worth $200,000 and he owes $125,000.  He has $75,000 of equity.  He is not behind on payments, and he did not need the $75,000 in cash to build the new home.  His old home is now sitting vacant and it hasn’t sold yet.  He qualified for both house payments at the bank and he can technically afford both, but who wants to make an extra house payment for a home that’s sitting empty?

Although he is motivated to sell because he’s paying out of pocket every month to own a vacant property, this type of seller isn’t going to just walk away from the home.  No way is he going to give up all of his $75,000 in equity and no way are you going to pay that much cash out of pocket.

When you lease option this house, he gets most of his equity back – although it won’t happen until the lease option buyer you find closes on the property.  The deal might work like this: You, as the real estate investor, option the property for $190,000 and make payments to the seller that equal his total mortgage payments with 100% of that amount applying towards option credits (let’s say $1,200 per month).  You then sell the property to a lease option buyer on an 18 month lease option for $200,000 with a monthly rent of $1,350 (which is the going rate in rent for that area).  You, as the investor would make about $34,000 on the deal.

The doctor will get the remainder (less real estate commissions) of his equity back plus he doesn’t have to worry about property management or a home sitting vacant.  Anyone who has had a home sit vacant knows how stressful it can be a what a relief it can be to not have to worry about that.