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.

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

Rapport building is very important and key because you’re asking someone to give you control of their house with little to no money down in both lease options and subject tos. Getting the seller to feel comfortable with you is the most important technique to learn for these techniques.  This is equally true with Realtors.  If the Realtor likes you, they will translate their like and trust of you to the seller for the lease options.

Here’s a tip: When you’re in the seller’s house, tell them what you like about their house, not what you don’t like.  For example, perhaps you’ll see something unusual, like older wood work or a nice fireplace.  Ask the seller about it.  If you see that the seller likes golf, talk golf whether you like golf or not.  Always focus on the positives, the interesting things.  People like to know that you like their house, and that builds immediate rapport.   Sellers will give you a better deal and be more likely to negotiate if they like you.

Check out Chapter 06 of my book Investing in Real Estate with Lease Options and Subject-to Deals: Powerful Strategies for Getting More when You Sell, and Paying Less when You Buy to learn more about negotiating the deal and other steps to buying on Lease Options and Subject Tos.

When you are doing lease option deals you need to find the right type of seller.  A lease option seller needs to be motivated, this is pretty much the case with any type of real estate investing deal.  But you need to find the right type of motivated seller.  After all, you wouldn’t try to do a short sale with a homeowner who is current on their payments.

In lease options we are looking for sellers who have good debt, meaning they aren’t in financial trouble.  These lease option sellers also don’t need the money from the sale right away (even if they want it).

So what types of sellers are these?

Here are some examples:

1. Long-time homeowners.  They usually have low payments and have money saved elsewhere, which enables them to purchase another home without selling the current one.
2. Inherited property owners.  This gives them a second house without any need for it.  Avoid deals with too many heirs, it’s too hard to get them to agree.
3. Built a new home.  A seller who built a new home and is now selling their old home was able to get financing on the new construction without having to sell the old home.  They can afford both payments, but who wants to pay for a home to sit empty very long?
4. Newly married.  More and more single people these days buy their own home.  Then if they get married each spouse has a home.  They can afford both but only need one.
5. Job transfer.  A seller that has been transferred out of the area and has already bought a new home in their new town is a good lease option seller.  They can be especially motivated because no one is able to look after their old home since they’ve moved away.

“I must get my asking price or I’m not selling”

Every lease option investor will hear this objection from a home seller at some point during their lease option investing career.  Probably one of the most common challenges is getting the seller from “La-La Land” to reality!

Sellers usually think rigidly about pricing – they have a specific figure in their head and they don’t want to budge from that.

First you need to verify that their asking price is within true market value, not just for right now, but for where you market is likely to be at the end of the lease option period.  This is particularly true for declining markets.  The best way to do this is do get accurate comparables for the home.

The deal must be a win-win-win for you, the lease option seller and the lease option buyer.  If the seller’s asking price is too far out you’ll need to show them the comparables and try to get them to acknowledge reality.

The most important thing to keep in mind when dealing with a seller who is fixated on price is to remember that you have a lot of other terms you can negotiate to still make the deal work for you.  Just make sure the seller has enough equity for the deal to work.

Give them their price, but make sure the option period is for a long time and get a high dollar amount on your monthly option credits.  If they don’t want such a long lease option term than make sure your monthly payment is low (with full option credits) so that you can generate a high monthly cash flow.

Too many investors turn down a deal flat out if the seller’s price won’t work for them.  Just remember that you have plenty of choices with other terms when putting together a lease option deal.

This is a fairly common concern people have when it comes to lease options.  After all, repair costs can really add up if the home is older and needs maintenance or the option period is for a long time.

The answer to this really depends on what type of real estate market you do your lease option deal in and also it depends entirely on what you put into your contract.

In a seller’s market I usually have the  rent to own buyer be responsible for all repairs.  This is very convenient for a lease option investor.  My lease option contract will say that the lease option buyer is responsible for all maintenance, major and minor.  However, if I end up having to do any repairs, I’m going to add the cost to the purchase price at closing.  Let the rent to own buyer think through their own possibilities first, but if they still don’t know what to do, then send your own maintenance people and recoup the cost at closing.

For example, if the lease option buyer’s heat goes out in the middle of a Michigan winter, it’s crucial to get that fixed, both for the lease option buyer and to protect the lease option seller.  On the other hand, if the air conditioning goes out in the summer, it’s unpleasant but livable.  Do NOT make your lease option buyer unduly fix too much, because if you treat the tenant like an owner then the court may treat you like you provided seller financing instead of  a lease option.  The tenant can claim that they’ve put so many dollars into the property and the court may make you go through a forfeiture or a foreclosure versus an eviction should the rent to own buyer stop paying their rent.  In most states this would be much more expensive and much more difficult.

In a buyer’s market you can put more of the responsibility for maintenance onto the seller.  In a seller’s market, I don’t want my seller to do anything but be free and clear of that issue.  However, I have to preapprove in writing any improvements my lease option buyers do.

Keep a copy of any letter regarding maintenance in the lease option buyer’s record folder.  When a rent to own buyer calls, I record what was said for their records also.  The same goes for maintenance.  I track everything.  If the roof leaks, and someone slips and falls, accurate files will suddenly become very important!

As part of my lease option training I teach my students that when you are negotiating with a seller on a lease option deal you’ll find that all sellers have a sticking point.  Lease option sellers will have something that means more to them than anything else.  Find out what this is so that you can structure a deal that makes them happy while simultaneously meeting your requirements for profitability.

For instance, the price of the home may be more important to some lease option sellers than when they receive it – this can allow you to structure a longer term lease option deal.

Other lease option sellers might want a very specific monthly payment to cover their mortgage nut, but their overall price is negotiable.

Work with each seller to understand what makes them tick, so that you can tailor your lease option offer to suit them best.