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.

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.

In a recent post I discussed why Soft markets are GOOD rental markets to invest in. Now is the best time to buy Real Estate.
Here are the 3 best ways to Buy Real Estate in a Down Market:
#1 Lease Options
Lease options are Great for down markets. The opportunities are plentiful because there are lots of sellers out there having trouble selling their homes. This means they are looking for alternatives, and what you can offer them with a lease option is a whole lot better than just renting out their home or having to do a massive price cut.
The other great thing about lease options in down markets is that you have extremely low risk. No matter what happens in the market you’ll come out okay, because you aren’t obligated to buy. But even if the market were to go down more you can always try to renegotiate with the seller and get a better deal so you can still close. To learn more about lease option investing visit my website at http://www.wendypatton.com

#2 Wholesaling A.K.A Cooperative Lease Options
Cooperative Lease Options is a safe form of investing in down real estate markets, provided you have end buyers lined up before you close. There will be plenty of opportunities for wholesale deals, but the challenge may lie in finding your buyers.
If you are doing Cooperative Lease Options it’s a good idea to have a strong buyer list lined up. You don’t want to close on the property without an end buyer because you are in a down market. If the market continued going down you would be stuck holding the property as the value declined.
What I really like about wholesaling is that you can keep your risk level low by not having to own the property. You just flip it to your end buyer. Minimizing risk in down markets is very important. To Learn More about Cooperative Lease Options Click Here.

#3 Cash Flow Rentals
Some down markets are positively flush with great cash flow opportunities. Down markets mean that the renter pool has grown as well. If you make sure the numbers work and that the rental market is strong you can do very well with cash flowing rental properties. Passive income every month is a great way to build your wealth.
While there is some risk associated with a rental property in a down market, because you do actually own the property you can easily mitigate that risk by making sure the numbers work before you buy. If a property cash flows you can hold it forever without having to worry about what the market does. To learn about some great cash flow opportunities, the same area that I’m buying in right now, Click Here

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.

Motivated sellers are out there in every city, every town, and every state.  Finding them isn’t as difficult as it might seem – if you know which techniques work for attracting the attention of a seller who wants to work with you on a lease option or subject to.

There are different circumstances and situations in the lives of people that motivate them to need to sell their home.  These reasons can include a job transfer, bankruptcy, foreclosure, divorce or upgrading to a bigger home.  The final factor likely to affect sellers’ level of motivation is the state of the real estate economy itself. You have to know what’s happening in the real estate market in your area or in the area where you are interested in finding your investments, and the best place to begin is at the official website for the National Association of Realtors.

The kind of motivation you are looking for is not someone just wanting to sell their house but someone who either is motivated to get rid of their good debt or their bad debt. Here are 3 out of 16 techniques listed in my book Investing in Real Estate with Lease Options and Subject-to Deals that have worked for my students and me over the years:

1. Tear-off flyers in local drug stores, convenience stores, party stores – wherever you can get them posted.   These tear off flyers can say the same things as the signs and ads.  The tear off parts should have your phone number, website if you have one, and a short statement – We Buy Houses.
2. Out of state owners – There are services in many cities that allow you to find all out of state owners, or owners where tax bills are sent to addresses not at the property (non-owner occupied).    Out of state owners are far away from their property and many times want to get rid of the far away headache and move on with their life.  Also, they may not really know what the current market is anymore and many may not even care.  They may simply want to get rid of that unwanted home in a far away place.
3. Real estate investor clubs always have other investors with homes that they haven’t sold or want to sell.   Network and let others know what you do.  I have bought several very good deals from other investors, either because they had their hands full at the time with their own deals, or they were out of their area.  Some investors only wholesale their properties.   Wholesalers buy low and then resale low.  You should be a member of a local real estate investor club and be regularly attending meetings.  It is one of the best places to network.   Check out  The National REIA website for a group of local real estate groups in your area.

You can learn all 16 techniques to finding motivated sellers in my book Investing in Real Estate with Lease Options and Subject-to-Deals.

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

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.

I’ve trained real estate agents across the country in lease options, teaching them how to help their clients.  But I still run into agents who don’t want to do them.  That’s okay, but sometimes agents just need to learn a little more about lease options to open their minds.

Lease options can be great both for home buyers and home sellers.  They aren’t the perfect solution for every situation, but there are many cases, especially in our current real estate market where an agent could significantly increase their commissions by putting together lease option transactions and help their clients.  Let me give you some example situations where a lease option could be good for a Realtor and increase their commissions:

• Have you ever had a potential buyer come to you who has not tried to qualify for a mortgage yet so you refer them to a mortgage broker and then never hear back from them?  Let’s face it, a lot of would-be buyers out there can’t qualify for mortgages right now, but they still want to buy a home.  These are perfect lease option buyers.  Just because they can’t qualify right now doesn’t mean they won’t be able to qualify later.  Why not tap into this pool of buyers and get paid instead of turning them away and watching another commission check walk out the door.  And it’s only going to get worse.  The new rules for credit scoring are being implemented that is making it harder for some people to qualify right now.  Plus the credit card industry is tightening things up.  I know of one buyer who could have qualified for a mortgage two months ago that can’t now because the credit card companies have changed so much.  He had one account closed on him and two others where they reduced his available credit to just above his current balance.  That had enough impact on his credit score that he could no longer qualify for a mortgage.  And he never even so much as had a late payment with any of those credit cards!  So instead of having to be stuck renting, this would make a great lease option buyer.
• What about the sell side?  Do you have any listings where your client has told you that if they can’t get their home sold soon they are going to have to rent it?  This makes for a perfect lease option seller.  You already know that they are considering renting their home plus you know that they really want to get their home sold.  How much of a commission do you make if all you do is find a renter for someone?  Squat!  With lease options you can still get your full commission!

This is just 2 examples of why Realtors should consider lease options and two ways that any agent can increase their commissions right now.  If you want to learn more about lease options take a look at my books Rent to Sell and Rent to Buy.  They are a great resource for any real estate agent.