How to find Motivated Sellers for Lease Options

What Makes a Motivated Seller

There are, of course, different circumstances and situations in the lives of people that motivate them to need to sell their home.  This can include a job transfer, bankruptcy, foreclosure, divorce or upgrading to a bigger home -- any number of reasons.  However, the circumstances of the sellers may also be affected by the state of the two vying economic real estate markets – buyers and sellers – which also affect seller’s motivations.  For real estate investors it is crucial to buy homes from truly motivated sellers -- sellers who have an extra urgency, usually financial, however, not always.  You can’t get a good deal from a seller that is not motivated, because, they will have no reason to negotiate any part of a transaction.

There are different degrees of motivated sellers and different reasons sellers need to sell their homes, but overall there are two basic categories of motivated sellers:

1.         Desperate and distressed (bad debt) – someone in trouble financially, behind on payments, going in a bad direction, lost their job, divorced, foreclosure, etc or

2.         Not desperate or distressed (good debt) – someone not in trouble financially, not behind on payments, but motivated for other reasons: possibility have two house payments, inherited a home, burned out landlords, job transfers, etc.

Most real estate investors only go after #1 above, but there is also huge profit potential with sellers that fall in #2.  All of the lease option sellers should fall into number 2, because these sellers are safer for a lease option buyer.

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.