#5 Close out old accounts

In some cases if you have TOO MUCH available credit on your credit report it can hurt your score and reduce the amount lenders are willing to loan you.  This can happen to people who have long credit histories.  Old, unused accounts are never closed but they do count as available credit nonetheless.

If your credit score is suffering from too much available credit it may be to your advantage to close out a few of those old accounts.  However, if you do this you need to close these accounts early, well before you apply for a mortgage.  Closing them too close to the time when you apply for a mortgage won’t help your credit score at all.

# 4 Don’t take on new debt

Boy, I can’t emphasize this one enough.  When you move into a new house how tempting is it to go out and buy new furniture or new appliances?  It’s a new house right?  You want new things to go into it.

This is like suicide for rent-to-owns.  You are supposed to be improving your credit and not taking on new debts is critical!  Not only that, but the payments on those new debts will also reduce the amount of mortgage you can qualify for.  Even a monthly payment as little as $25 can reduce the amount of a mortgage you can qualify for by $4,000.  Is that new couch really worth it if you can’t buy the house at the end of the option period?

That being said there is one case in which taking on new debt can help you – if you don’t have enough established credit to qualify for a mortgage.  This only applies to people who are very new to building their credit.  It is not intended for people who are trying to RE-BUILD their credit.  Additionally the only way it helps is if that debt is PAID OFF at least 3 months before you apply for a mortgage.  If it isn’t paid off long enough before you apply for a mortgage it won’t register on your credit report as paid off yet.  These things can be slow to update so you need to give yourself plenty of time.

# 3 Stop using your credit cards

Even if you weren’t trying to improve your credit I would suggest this one.  Credit cards are just sickeningly easy to get in trouble with.  I don’t know many people that have credit cards that haven’t gotten into trouble using them at some point in their life.  Just keep this in mind – the more credit card debt you have the lower your credit score.

Just stop using the darned things.  Not only do they lower your credit score when you have higher debt, but remember that when the monthly payment on your credit cards goes up the amount of mortgage you can qualify for goes down – by thousands of dollars!

# 2 Pay everything on time

This is the second-most important thing you can do when it comes to improving your credit score.  If you want to qualify for a mortgage you absolutely MUST make all of your monthly payments on time!  NO late payments.  NO bounced checks.  NO excuses!

Consistent, on time payments will really help your credit score.  Not only that, but if you make even one late payment during your rental period you may not be able to qualify for a mortgage at the end.  Lenders HATE to see late payments on your credit, so once you start an option period make sure that you make those payments on time.  Remember if you can’t qualify for a mortgage your option fee is non-refundable.  You don’t want to lose that money or the house.

# 1 Sign up for a credit repair service

When our credit reports have damaging items on them, sometimes the only way to get your credit score high enough to qualify for a mortgage is to get those damaging items off.  This is where credit repair comes in.  A REPUTABLE credit repair company can help you repair your credit and help you remove damaging items from your credit report.  In fact, in cases where a buyer cannot qualify for a mortgage and wants to do rent-to-own, I almost always recommend they sign up with a credit repair company.

If you are serious about doing rent-to-own, working with a credit repair company is a must.  I recommend www.renttoowncreditrepair.com.  They are a reputable company that can often achieve impressive results at rebuilding your credit.

Credit Repair for Yourself

Previously, I spoke about a few tips from my book Rent-to-Buy that will help you once you have been approved by the seller.  I want to take it a step further and talk about the most important step you should take.  If your credit needs improvement before you can qualify for a mortgage, you absolutely want to jump right on this. You should sign up for this as soon as you are approved by the seller and have scheduled your move in date. Credit repair is absolutely critical. Unless you already have excellent credit, this is something you definitely need to focus on. You won’t be able to get a mortgage if you don’t improve your credit. If you are working with a seller who has read my book ‘Rent-to-Sell’, they will almost certainly require you to take this step.

Without this, you may not be able to qualify for a mortgage when it comes time to buy. A credit repair company will help you get your credit in shape so that you can qualify for a mortgage. If you are looking for a quality credit repair company, go to: http://www.wendypatton.com/credit-repair. Don’t put your option fee at risk and don’t waste all of those months of rental payments with nothing to show for it. Chapter 17 of my Rent-to-Buy book goes into details about credit repair.

Also, join me on Thursday, March 11, 2010at 8 PM EST so that I can introduce you to my credit repair specialist.  His ability to repair credit issues and get my Lease Option buyers to the closing table is incredible.

CLICK HERE to reserve your spot.

In addition to helping your tenant buyers, you may also want to consider credit repair for yourself.

Even if you currently have good credit, I will show you an example where an increase of just 22 points (from 679 to 701) saved an investor over $100,000 in interest on just one investment property.

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.

I have had the same UPS driver come to my office for the last six years! His name is Darwin, but for about the last six months I have not seen Darwin. I thought he may have hurt his back or had been assigned to a new route, in any case I have missed seeing his smiling face each day around 4:00 P.M..
Last week, Darwin walked into my office and asked to see me. I was delighted to see him again. He began to inform me of how after 25 years of service with UPS he had been laid off!
His SECURITY was GONE!
How disheartening, but yet so typical of Corporate America and of the effects of our beat-down economy. Darwin asked if he could use me as a reference. This told me that Darwin did not have a Plan B in place in case something like this ever happened. You are probably saying to yourself; “Why would he after 25 years of service? Who would have thought he even needed one?”
In a perfect world I would wholeheartedly agree, unfortunately we do not live in such a place or time.
Personally I believe we always need to expect the best but plan for the unexpected.
If you want to make sure that something like what happened to Darwin does not happen to you and your family, get started on your Plan B right now.
Join me on February 11, 2010 at 8:00 PM – EST7:00 PM – CST6:00 PM – MST5:00 PM – PST to check out a multiple stream of income (Plan B) that has worked out very well for me and my family over the last 7 years. This opportunity has provided for us when our other income sources had dried up.
Register today at https://www2.gotomeeting.com/register/553774042
See you on the webinar

Wendy

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.