Yesterday I rolled things back to the very beginning and explained what lease options are and what they are comprised of.  If you aren’t that knowledgeable about lease options that post is a good place to start.  I also promised that I would talk about why a home seller would consider lease options and what the benefits to the seller are.

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. I will be going into how to price your house as a rent-to-own in more detail later.

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.

Cash Flow - If your monthly payments are less than the monthly rent, the difference goes into your pocket.

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.

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.

Getting Your Home Sold Faster - In slow selling markets, offering your home as a rent-to-own can help you get a buyer into the house much faster. This option will open up your pool of buyers significantly.

Getting Your Home Sold at All – If your home is just flat out not selling for whatever reason, offering it as a rent-to-own may be the only way to get it sold.

Those are some of the key benefits to home sellers for selling their home on a lease option.  Look, I’m not saying that lease options are the perfect situation for every transaction and every home seller.  But the reality is that some home sellers NEED lease options to get their homes sold.  And there are some great benefits for them in doing so.  As a lease option investor or as the seller’s real estate agent we can do them a great service by offering them this option.  If you want to learn more about lease options and get training in doing lease options, either as a real estate investor or as a real estate agent take a look at my website for lease option training.

Real estate agents know of a dirty 4 letter word in real estate.  They cringe whenever they hear it because it means all of their hard word, all of their advertising, all of their time will have been for nothing.  They hear this horrid 4 letter word when a seller has a home that’s been sitting on the market too long.

The seller grows impatient.  They want their home sold and they are running out of time.  That’s when they call their listing agent up and say “Realtor, if you don’t sell my home soon I’m going to have to RENT it!”

Rent is that dirty 4 letter word.

If you are a real estate agent you need to learn not to fear this.  You can still get your full commission from this seller because now they are a prime candidate for a lease option sale.  One of the biggest hurdles sellers often have to overcome with considering a lease option is the idea of having tenants in their home.  But they’ve just told you that they are now considering just that.

Selling on a lease option is obviously not the first choice, but it sure beats losing the listing or just renting the home and not getting paid squat!

Real estate investors who are trying to find real estate agents to work with need to keep in mind that real estate’s dirty 4 letter word is your key to networking with agents.  Most agents don’t know what to do when they hear the word “rent.”  You can show them how you can help both the home seller and the agent.  Plus if you let the agent double dip when you find the tenant-buyer the agent is really going to appreciate you.  You did all of the work finding the buyer, they come out looking like a hero, and everyone gets what they want.

If you are a real estate agent do you have any listings that aren’t selling?  Has the seller blamed you for it?  Don’t you hate wasting all that time and money trying to sell listings that you can’t find buyers for?

Some of those sellers would make great rent to own sellers and that way you’ll still get your full commission instead of losing the listing or just finding a renter.

So what makes a good rent to own seller?

1. When their home has been on the market for 90 days or longer – slow selling homes can be good candidates for rent to own because sellers become more open-minded to other ideas as they see their home languishing on the market.

2. Seller has already moved into their new home – whether the seller bought or built a new home and the old one hasn’t sold yet, they have two homes and two house payments.  No seller wants to pay for a home to sit empty for very long

3. Relocated to a new area – if a seller has relocated and their old home hasn’t sold yet

4. New marriage – if the newlyweds were both homeowners and they move into one house and are selling the other

5. Owe as much on their home as it’s worth – this lack of equity makes it difficult for a seller to sell their home outright because they’ll have to bring money to closing.  However, a rent to own home may bring a price premium that can cover some or all of this difference.  Plus, the additional time of the rental period may allow the seller to pay down more principal on their mortgage

6. Landlord selling a rental property – landlords can make great rent to own sellers since they are already used to the idea of having tenants.  Also, because the home isn’t their primary residence, they aren’t likely to need the money from the sale right away

7. Inherited the property – recently inherited property is usually sitting empty and the owners may not need the money right away.  This works well with one or two heirs, but when you have many it tends to get more difficult to get them all to agree to anything

8. Vacation home or 2nd home – because this isn’t the seller’s principal residence, the home may be sitting empty.  Getting rent to own buyers will give the seller some cash each month that they don’t have now.

Remember, rent to owns or lease options are a great option for sellers who have trouble selling their home conventionally.

Market rent is what it is and you can’t change that as a home seller, lease option investor or real estate agent.  You have a small amount of wiggle room but if you are asking too much in rent on your rent to own home it won’t rent.  I can’t tell you how many real estate agents I talk to about doing a rent to own just assume the mortgage payment of the seller should be the asking price for rent.

Unfortunately in some markets the market rent just won’t be enough to cover a high mortgage payment.  The seller has to understand that if their entire payment is more than the rent they will have to cover the difference.

So what can you do if the seller can’t afford to cover that difference each month?  Are your rent to own sellers out of luck?  Not necessarily.  Here’s an idea to get buyers to pay more in monthly rent, which will work if your seller has equity in their home.  When you are advertising the home, advertise for market rent.  Once you find a buyer that wants the home ask them, “Would you like to earn 50% on your money?”

They’ll probably say, “Yes!” or “What do you mean?”

I would respond by saying, “If you pay $200 more in rent each month, meaning $1,400 instead of $1,200, the sellers will give you that $200 each month as an option credit on this home, plus an additional $100 option credit.  This would give you a 50% return on your money and help you buy this home much more quickly by building up option credits.  Would this work for you?”

This gives your seller an extra $200 per month to cover the mortgage payment, but they will credit it back to the rent to own buyer at closing.  If the buyer doesn’t purchase the home, the seller keeps the extra money.

Whether your are a lease option investor, a real estate agent or a home seller or home buyer, anyone involved in a rent to own transaction has the same points to look out for in negotiation.  I’m not going to cover all of the negotiation points here but I’ll focus on a few of them.

1. Monthly option credit – This wold be a portion (or all) of the monthly rent which is credit towards the purchase price ONLY if the tenant-buyer exercises the option to purchase.  This credit is in no way mandatory, but can be very helpful to the buyer when it comes time to purchase.  If a seller is granting option credits they need to have enough equity in the home to cover them

2. Monthly rent amount – Typically rents are priced at market rent or a little bit more on a rent to own transaction.  However, this amount can always be negotiated to make it better for you.

3. End purchase price – the amount the buyer will actually pay for the home once they exercise the right to purchase.  This final amount will determine the buyer’s new mortgage payments.  It will also reflect the net proceeds for the seller.  Most rent to own sales command a slightly higher purchase price, possibly as much as 5% to 10% more depending on the strength of the real estate market in your area.

Want to know more about key points to negotiate in rent to owns?

If you are a lease option investor you’ll want to read “Investing in Real Estate with Lease Options and Subject To Deals”

If you are a home seller or real estate agent you’ll want to read “Rent-to-Sell”

If you are a home buyer or real estate agent you’ll want to read “Rent-to-Buy” (coming soon)

All of these books are available on Wendy Patton’s website

I became a licensed agent in 1986. Why?  I had started to invest in real estate and realized that I had to rely on a Realtor to get me in to see some of the properties I was interested in purchasing, and then I had to wait for them for the comparables.  Comparables (aka Comps) can best be found on the MLS (Multiple Listing Service). Only Realtors have access to the MLS in most parts of the country.  There are other websites and systems that have comparables in some parts of the country, but nothing is like the MLS.  That is where the true sales information lies.  After I purchased my first several homes, I decided that I did not want to wait for or rely on a Realtor to buy and sell my own properties.

Becoming a Realtor, as a real estate investor, will give you many advantages. There are no disadvantages that I know of.  Investors tend to be adamant one way or the other about being a licensed Realtor.   I am definitely on the side of becoming licensed.  Being licensed has been one of the best tools that I have as an investor.  Being licensed allows access to your database of ‘comps’ or comparables.   This is the data you need to buy and sell real estate – with good information.  If you have a great Realtor, or you can get access to the MLS (Multiple Listing Service) without being licensed, great, but I still think it is better to be licensed than not.  I personally like to do my own comparables. (maybe that is the controlling part of me J ).

Some investors say it gives them more liability to be licensed.  I have two answers to that:

1. What are they doing to create liability?
2. Don’t they think a judge is going to consider them as an ‘expert’ when they find that you buy and sell real estate for investment purposes?

Some investors say that sellers won’t sell to you if you are licensed. I find the opposite is true. Most sellers are happy that I am licensed and “know what I am doing”.  If you are licensed you will also get commission on each deal you buy or sell (if it is listed on the MLS). Every office is different on how they split the commissions received by the office.

My recommendation is to GET LICENSED!!!

When becoming a real estate agent you must work directly under a licensed broker. To become a broker, each state has their own requirements.  I have been a broker since 1997.  When you are a broker you can have other Realtors work underneath you, but becoming a broker should not be the “be all end all”, unless you really choose to own a real estate company.  There are many expenses when you own your own office.

As I travel all over the country, I am asked frequently how to locate a good broker.  This is always an important part of working as a licensed Realtor. You will want to work in an office environment that encourages creativity, investing and entrepreneurship. You will also want an office that provides exceptional real estate training.  The company that I have found to be the best overall, in all states, is Keller Williams.  I personally owned 4 real estate offices prior to joining Keller Williams.  I am now an associate broker in a Keller Williams (Keller Williams) office, as well.  Why?  For the above reasons.  Keller Williams has a fantastic training program along with several other key ingredients.  Keller Williams is open and focused on real estate investing and entrepreneurship.  The founder of Keller Williams, Gary Keller, along with Jay Papasan and Dave Jenks, co-authored several books on real estate investing.  I was featured in their book, “Millionaire Real Estate Investor”.  Gary Keller also endorsed my book “Investing in Real Estate with Lease Options and Subject Tos”.  Much of my investing strategies and techniques have personally been focused around working with Realtors. Being part of an office will give you access to listings and relationships with other Realtors.

Keller Williams hosts a radio show on Mondays called “Millionaire Mondays”.  I have been on that show many times now.  Keller Williams is the fastest growing real estate company in the U.S. and they are currently the 4th largest, with over 600 offices.  Gary Keller invented a system that no one else has been able to reproduce.  There are many companies that have tried.  It is essentially a multi-level marketing company. Each person you recruit becomes part of your “downline” and you start to receive a small part of the commissions they earn as well as the ones you earn. It does not matter what office (market center in Keller Williams) they are a part of, you will be rewarded on who they bring in and how much they buy or sell.  It is a fantastic approach to becoming a Realtor which gives incentives for Realtors to recruit other Realtors.

Some of the best advantages to becoming licensed are:

1. The training that comes with becoming a Realtor – especially in Keller Williams
2. Access to the MLS – to get comps
3. Part of the commission on each purchase or sale you make
4. A network of Realtors (many opportunities might come to you before anyone else even knows about them)

I recommend you become licensed and consider Keller Williams as an office for you.  I will gladly sponsor you and also assist you in working as a Realtor.  I can help you get started in the right direction. I have been licensed over 20 years.  Let them know I am your sponsor and we can work together to help you as an investor and also to assist you to recruit other investors (Realtors) in your team.  Please email me to find the closest Keller Williams office to you.  Wendy@WendyPatton.com or call me at 248-394-0767 and I will assist you in making a great choice for your future.

When doing lease option investing it’s important to find the right real estate agents to work with to get your lease option deals.

Realtors have a relationship with their seller that is very unique. Sellers tell their Realtors almost everything about their personal lives.  Realtors therefore know who is motivated and why. They know who is getting divorced, if they are in trouble financially, if their builder is almost done with their new home, if they have custody issues, if they are getting worried about double house payments, and on and on. A lot of real estate agents probably want to say, “Too much information!” but they don’t.  They stay as interested as possible in order to build rapport.

Because the Realtor is providing a very necessary service to the homeowner in helping them sell their house, and because the homeowner so freely tells the agent everything, the homeowner is not shy about calling the Realtor and saying the four-letter word after the home has been sitting on the market awhile: “Realtor, if you don’t sell my home soon, I am going to have to rent it!” This word makes a Realtor cringe. If the home doesn’t sell soon, the Realtor won’t get any commission.

As a lease option investor these are the types of agents you are looking for.  The ones who have heard real estate’s dirty four letter word – rent.  Network with real estate agents to find if they have any sellers who have talked about having to rent their home.  These are the kinds of sellers that make good lease option candidates.

Wouldn’t it be worth its weight in gold to know when it’s safe to buy again?

Most people say that the key to successful real estate investing is location, location, location. But the truth is location doesn’t matter nearly as much as timing, timing, timing. If you buy at the right time and sell at the right time you are going to make a whole lot more money than if you just buy based on location. 

Knowing the proper timing, however, isn’t so easy. The mass media doesn’t know. If you look at the headlines in the past they preach to buy when a real estate market is going crazy – usually just before it’s about to go down and long after all of the gains have been made. Then after it crashes they say you should have sold 12 months ago.

The average real estate agent doesn’t know. They tell you to focus on location, location, location and that there isn’t anything you can do about timing.

So how can you properly time your real estate investing? With Market Indicators.

By properly analyzing the right indicators and looking at a Market’s Momentum you can buy when a real estate market is down and sell when it’s high. That’s how you make money in real estate.

Join me on Wednesday, June 17 from 8:00pm – 9:00pm EST for this one of a kind webinar event where we are going to look at how to time real estate purchases and sales to make a whole lot more money on each deal you do.

Simply register by clicking the link below. Space is limited for this special event so register early:

https://www2.gotomeeting.com/register/862814675

The internet is one of our biggest resources. I have more than doubled traffic to my Wendy Patton website recently and am now on the front page of Google for 7 different searches! I am truly amazed at the results I’ve been getting.  Search Engine Optimization – or SEO – is a must know if you have a website or want to use a website to build up your business.  It can be one of the best ways to draw in clients there is. And the best part is you don’t have to pay for the advertising! If you are a real estate investor or a real estate agent this is must know information for building your business.

I can’t take credit for it though. I’ve gotten help. I’ve been working with an SEO expert.

This stuff is so powerful I wanted to share it. I am doing a webinar with this SEO expert Tuesday night, April 21st at 8 PM EST. You don’t want to miss it. He’ll be sharing how to get on the front page of Google and STAY there.  He’ll show you how to beat your competition and get your website optimized.  I love this stuff. It is very cool. We’ll look at things like using YouTube and Facebook to build up your website. The best part is you don’t have to be a techie to do this stuff!

You can register for this webinar on my Wendy Patton website or you can go here to register directly. There is no cost to sign up for this webinar, but space is limited so sign up soon.

My new book Rent-to-Sell is being released March 10th! If you are having trouble selling your home you should consider rent-to-own, also known as lease options.  They are a creative solution for selling your home in a down market. Rent-to-own, or lease options, are growing in popularity as buyers are finding it harder and harder to obtain mortgages.

There is also a special section for real estate agents to learn how to help your sellers and increase your commissions in your real estate market. Are you sick of putting listings on the market only to have them not sell? Rent-to-own, or lease options are a great way for you to provide solutions to sellers that your competition can’t. They’ll help you increase your commissions and your sellers get their home sold!

If you are a home seller or a real estate agent trying to sell your home or listing in the current real estate market, Rent-to-Sell is for you. It will teach you step by step instructions for how to sell your home as a rent-to-own or lease option.  You can also read excerpts of Rent-to-Sell as well.

Wendy
www.WendyPatton.com

Rent-to-Sell cover picture