I'm constantly on the lookout for houses to invest in to turn into option homes where I carry the contract for a few years until the buyers can obtain financing and cash me out with a balloon payment. Recently, the REO market (real estate owned by banks) hasn't had many of the types of properties that make good option homes.

So, I went looking at short sales. Homes that the owner is underwater with the mortgage and is asking the bank to take less than what is owed as full repayment of the mortgage.

Reasons Short Sales Have Potential as Option Homes

Short sales often cost banks less than foreclosures. Clearly, the less you can buy houses for the more you can earn converting them into option homes. It took banks some time to realize it's beneficial for them to allow short sales more often than foreclosing on the properties. One reason you can acquire short sales to convert to option homes is that the bank never takes possession of a short sale. They don't have to pay property taxes or maintain it. Now couple that with the fact that the seller won't receive a penny from the sale and you have a formula to buy short sales at a very low cost to turn into
option homes.

Some short sale negotiators I know tell me that recently they've had 80% to 90% of their short sale offers accepted. All of this should be telling you that it's time to look at short sales as a source for option homes investing.

Tips for Converting Short Sales Into Option Homes

First of all, don't get bogged down doing the short sale negotiation. You're in the option homes business not the short sale business. Every new short sale requires that the sellers be educated in the process and requirements. Then the seller has to be handheld to collect the needed documentation. And then multiple negotiations happen with the bank. You need to stick with the option homes side of the business and let someone else deal with the short sale.

Not all short sale offers will be accepted, so you want to structure your purchase offers in a way that maximizes the profit and cash flow for your option homes. One way you do this is by requiring the inspection be performed only after the bank accepts your offer. No point in sinking money into the option homes deal until you know your offer will be accepted.

Same thing with any earnest money deposit you make. To maximize the cash available for other option homes deals, you want to put in the minimum cash you can at the front end of a short sale. Even with minimum in, it's reasonable to require that the check not be deposited until the bank accepts the short sale offer.

Now it's time for you to take action by making a few short sale offers to grow your option homes business. But first, you will want to take advantage of these other free resources.

See my article and quick video on Getting Your Real Estate License for Real Estate Investing. Also, take advantage of my Free Book Offer and Video Training for finding motivated sellers to make the most of your option homes investing. There is valuable content in all of these resources I'm providing to you free. By taking advantage of them, your options homes business will prosper.

I hope you enjoy reading my blogs about option homes as much as I enjoy bring information about options homes to you. Please visit often and leave comments below.

Rent to own homes or lease options are beautiful tools with which to buy and sell properties. While there are too many variations to rent to own homes to discuss in detail, we will cover the key areas available for negotiation. When structuring your rent to own homes contract with the seller, it's important to understand which of these criteria is most important for them:

• Price
• Length of Contract
• Monthly Payments
• Option Credits
• Mortgage Buy Down – The principal adjustment
• Automatic Renewal Periods

By knowing which criteria the buyers of rent to own homes are most concerned with, you can create a win-win scenario by giving them what they want and getting what you want.

 

Rent to Own Homes - Contract Terms

As an investor, it's important that you have certain clauses in your rent to own homes contracts.

Typically, investors engage an option lease contract with the seller and then find a willing buyer for rent to own homes they don't yet own. As an investor, you don't want to be locked into leasing the home until you have an end buyer willing to sign a lease option contract.

In addition to the seller criteria discussed above, I usually include terms that limit my risk. One is a clause allowing me to terminate the lease option within 60 days with written notice to the owner. This is an escape clause for rent to own homes contracts in the event the owner is difficult to deal with or other problems pop up.

Another clause I use even more frequently is to make my obligation begin only after I have found a tenant willing to sign a contract for rent to own homes. This significantly reduces my risk because I won't be paying rent and looking for a tenant at the same time.

Here is another important clause to have in the contract. You want your lease option period to be slightly longer than your tenant's option period. You need to still be in control of the property when their contract expires.

One last clause to have included in rent to own homes contracts is a strong maintenance and repairs clause. The end buyer wants to be a homeowner and being a homeowner means maintaining the property. The end buyer should be responsible for all except the most expensive repairs.

Rent to Own Homes - Let the Cash Flow

Once you have both lease option contracts in place, you'll have a nice passive income stream for the length of the end buyer's rent to own homes contract. Obviously, you want to be paying less to the seller than the buyer is paying to you. You collect the difference each month while minimizing your risks.

By finding the tenant before you have to start paying rent, you can also collect the option contract payment from the end buyer. Use a portion of this to pay your option to the seller and you're in the deal for no money and actually walk away with some cash.

If you're paying $750 to the owner for rent to own homes and the buyer is paying you $1,000, you'll profit $250 each month. Even if $150 of the buyer's rent is credited towards a down payment, you don't need to be concerned because it should be nonrefundable if they don't exercise the purchase option.

Learn more about wholesale lease options and how to structure rent to own homes contracts by viewing my past webinar.