Rent-to-Own, Your Lifesaver in a Drowning Market

Here are some reasons rent-to-own can be beneficial for you:

• Higher Purchase Price – Rent-to-own sales typically command a price premium over traditional saes.  The buyer is paying extra for the flexibility he recieves by not having to do an outright purchase immediately
• 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.
• 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.  Eitehr way you win.  If you were to just rent the home, then 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.

Rent-to-Own

Excerpt from Rent-To-Sell: Your Hands on Guide to SELL Your Home When Buyers are Scarce.

My Market isn’t drowning—Is this Still Useful for Me?

Scenario 1 – No Equity

If you need to sell your home and you have no equity, how do you do it?  In other words, you owe as much on your home as it is currently worth.  How can you pay the real estate agent a commission and also other closing costs?  Sometimes we don’t always have the option of waiting until we can afford to sell, even in good markets.

You can try the “For Sale by Owner” route, but even in good markets that tends to have only modest success and, let’s face it, is fraught with pitfalls.  Selling on a rent-to-own basis can allow you to get a higher purchase price than a conventional sale.  This can help give you some room to cover the cost of selling.  Plus, having a tenant-buyer in place for a year or two paying your mortgage can help pay down the principal giving you some equtiy as well.

Excerpt from Rent-to-Sell: You Hands-on Guide to SELL Your Home When Buyers are Scarce.

Script for Buyer When Calling a Listing Agent About a New Construction House

Call the contact person from the sign or advertisement and say:

“Hi Sally, my name is ___________ and I was calling about

the home you have listed at __________ (the address).  Is it

still available?”

After they say, “Yes, it is,” I would say:

“Can you tell me more about the home?  How much is it and

how large is it?”

Listen to see if it is something you would be interested in.  If so,

follow up with:

“I wondered if the builder would be open to something creative.”

Leave it at that and say nothing more.  Your goal is for them to launch into a long explanation of what the seller will or will not do.  Other times they’ll say, “Like what?”

“Well, something like a rent-to-own or a lease option.  I am a rent-

to-own buyer looking for a new home in this area.  Would the builder

be open to something like this?”

Like before, you will probably get several possible responses:

1. “Yes, they have mentioned that to me.”  If you get a positive

response, then ask: “Great!  Do you know what kind of terms

they are looking for or are they looking for an offer?”

If they are looking for terms that work for you or they are looking for an offer, make an appointment to see the home if you haven’t aready.  If you are working with a real estate agent, you should tell the salesperson on-site that you have an agent and tell her who it is.  Call your agent to tell him you found something you are interested in.  Even though the sales person on-site can show you the home and amenities, your agent can still help you with the transaction.

If the terms are not within your budget, ask the following:

“Do you hve any other new construction listings where

your builder might have said to you, ‘ Sally, if you don’t

sell that home soon, I might have to rent it,’ Sally, can

you think of any of your listings that might work for me?”

Sally may also respond to the rent-to-own question

like this:

2. “No, they need to sell now and wouldn’t be interested

in that.”

If this is the case, jump right to the question where you ask if she has

any other listings that might work.  You will need to know your price

range and what you can afford; as she will probably ask you about this

(we covered this in Chapter 3).

3. “I’m not sure.  I would have to check with them.”

If this is the response, encourage the agent to talk with her builder and to

call you as soon as she knows.

4. “What are you talking about?”

If she doesn’t know what rent-to-own is, you may have to give her a brief

explanation.

5. “Why do you need a rent-to-own?”

Your best answer is to simply tell her that a mortgage won’t work for you now,

but you do want to get into a home now.  Ask her if this home or another listing

of hers might be a candidate for rent-to-own.  Keep your answer brief and let her

ask you more questions if she has them.

Excerpt taken from Rent-To-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending is Tight, Chapter 5, Pages 76-78.

Script for Calling a Realtor about Rent-to-Own and Lease Options, Part 2

As promised, the remainder of the “Script for Calling a Realtor about Rent-to-Own and Lease Options“.

Use this follow-up sentence on any of the

statements below where it applies.  You always

want to dig to see what else they have that might

work for you.

Sally may also respond to the rent-to-own question like this:

“No, they need to sell now and wouldn’t be interested

in that.”

If this is the case, jump right to the question where you ask if she has any other listings that might work.  You will need to know your price range and what you can afford; as she will probably ask you about this (we covered this in Chapter 3).

“I’m not sure; I would have to check with them.”

If this is the response, encourage the agent to talk with her clients.  Remind her that you are looking for a rent-to-own home in that area and her commission would be paid in full when you buy the home.

“What are you talking about?”

Not every agent knows what rent-to-own is so you need to give them a brief explanation.  Be prepared to tell them something like, “Well I would rent the home and buy it later.” Keep it simple.

“Why do you need a rent-to-own?”

Most likely it’s because you can’t get a mortgage right now or because you don’t want to get a mortgage right now.  You best answer is to simply tell her that a mortgage won’t work for you now, but you do want to get into a home now and ask her if this home or another listing of heres might be a candidate for rent-to-own.  Keep your answer brief, but do be honest.  If you had a bankruptcy or a foreclosure, it will be important that they know that.  Don’t spring that on them later.  If you had perfect credit, you probably wouldn’t need a rent-to-own in the first place.

Excerpt taken from Rent-To-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending is Tight, Chapter 5, Pages 68-71. 

Script for Calling a Realtor

Once you have the agent on the phone, here is what I usually say:

“Hi __________ (the agent’s name), my name is

___________ (your name) and I was calling about

the home you have listed at ___________ (the street address).

Is it still available?”

After they say, “Yes it is,” I would say,

“Can you tell me more about the home?  How much is it

and how large is it?”

Listen to see if it is something you would be interested in.

If so, follow up with:

“I noticed it has been listed for a while”…

(Assuming it has been listed for more than four

months).

Wait and see what they say without saying anything else.  They might say, “Yes…” and I would go on to the next question, or they might start to talk more – which is what I am hoping they will do.  I want them to start to talk and tell me more.  Maybe they will tell me why it has been listed a long time or what the status is.  You would be amazed at what others will tell you when you zip it and listen.  My next question is:

“Well, I wondered if the sellers would be open to something creative.”

Again, I leave it at that and say nothing more.  Sometimes they

will volunteer a long explanation of what the seller will or will

not do or sometimes they say, “Like what?”

“Well, something like a rent-to-own or a lease option.  I am

a rent-to-own buyer looking for a home in this area.  Would

your seller be open to something like that?”

Don’t say anything until they respond. You’ll get one of five responses.

“Yes, they have mentioned that to me.”  If you get a positive

response, the next question to ask is, “Great, do you know

what kind of terms they are looking for or are they looking

for an offer?”

If they are looking for terms that work for you or they are looking for an offer, make an appointment with Sally agent to look at the home.  Note:  Sally will try to become your Realtor.  This might not be bad if Sally is creative and willing to read this book along with you, but otherwise don’t sign anything to commit you to Sally except for this home.  If Sally is really good, you might want her to be your agent.  If the terms are not within your scope, then ask the following:

“Do you have any other listings where  your

seller might have said to you, ‘Sally (remember

to use their real name J), if you don’t sell my

home soon I might have to rent it?’  Sally, can

you think of any of your listings like this that

might work for me?”

To be continued until tomorrow!  Join me tomorrow as I go over possible Realtor answers.

Excerpt taken from Rent-To-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending is Tight, Chapter 5, Pages 68-71.

As they say in real estate, the three most important things to consider when buying a home is location, location, location. Once you have established what you need and want in a home, you need to decide where to look for a home.

1. School District: There are some important components to location when making this decision. If you have children, one of the big ones is the school district. If your children are already in school, you need to decide if you want to stay in the same school district so they don’t have to change. If they aren’t yet in school, you want to consider what school district you prefer, and specifically what schools in the district you want them to attend. Historically, homes in good school districts appreciate better and hold their value better than equivalent homes with poorer quality schools. This makes school selection not just an important investment in your children, but also an important investment in your home.
2. Work: Another important location factor to consider is proximity to work. Given the uncertainty of the cost of gasoline, commuting costs are definitely worth factoring in. It’s also important to factor in the amount of time your commute takes. If you live an hour away from where you work, not only are the gas costs going to be enormous, but that means two hours per day of driving, which is a lot of extra time away from home.
3. Lifestyle: Amenities are also important when deciding on location. How close do you want to be to the grocery store, your favorite restaurants and your favorite entertainment locations? Long travel times to get to these locations is not just inconvenient, but adds to gas costs too. In some cases, if you are trying to cut down on dining out to save money, you might want to move just a bit farther away from your favorite restaurants so you are less likely to frequent them.
4. Safety: The last location factor to take into account is crime. For the sake of the safety of you and your family, the lower the crime rates, the better. It will also affect the long-term value of your home. If you live in a high crime area, appreciation rates will be slower and in a down market, your home will decline in value faster. Larger cities tend to have higher crime rates than small towns, so you can’t compare the crime rate in San Francisco, California to Cheboygan, Michigan. However, many cities have good and bad neighborhoods. As a general rule, the better the neighborhood, the better off you are.

In summary, you want a house that is in the best school district, a five minute or less commute to work, close to all of the best amenities and in a zero crime neighborhood. If you find one, let me know because I’m not sure they really exist. Obviously, when you add all of these factors together, selecting the location for your home is a series of compromises. You want good schools, but you don’t want that to put you an hour away from work. You want to be close to amenities that are important to you, but not too close if it means you have to settle for a high crime neighborhood, and so on.

Share this blog with others if you DIGG it.

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.

If you are like many others who have come to my site to learn how to make more money by investing with little or no money down in lease options, I have an exciting opportunity for you. I am now offering a FREE online DVD to help you Learn How to put $5,000- $10,000 into your  pocket within 29 days using lease options .  I am sure you may have concerns and may be wondering if it is even possible in today’s Real Estate market when you do not have:

• Enough credit to purchase a property with a mortgage
• If you do not have enough cash to buy or put down
• You do not want to get stuck with a property you can not

Take a few moments from what you are currently doing and watch.

Here is what you will learn:

• Why Real Estate?
• What a Lease Option is.
• Why you need a Lease Options.
• 6 keys to success.

Check out the Box located on the right side of this blog and get it now!!

1. Price

Typically buyers won’t try to negotiate price.  They often accept your asking price (which includes a rent-to-own premium) because of the flexibility they receive by doing rent-to-own.  However, should a buyer try to negotiate on price (and they will if they read my book, Rent-to-Buy) there are a couple of ways to counter them.

1.         You want to emphasize the flexibility they are receiving by being able to rent the home before they buy it.  This type of flexibility justifiably commands a greater price than a comparable home being sold conventionally.

2.         You want to emphasize the rarity of what you are offering.  Simply put, a buyer who is buying a rent-to-own home has very few choices in homes.  There aren’t that many out there.  This rarity also makes the home more valuable.

2.         Option Fee

More than any other term buyers will likely try to negotiate a smaller option fee.  In some cases they’ll do this because they don’t have enough money saved, in other cases they’ll do it simply because they don’t want to part with the money.

Obviously the more option fee you receive the better because it means the buyer is less likely to walk away from their money.  When a tenant-buyer tries to negotiate a lower option fee you can counter it by:

1.         Pointing out that the option fee counts as a down payment when they are trying to qualify for a mortgage and the larger the option fee the better it will look to the lender.

2.         (If the tenant-buyer has poor credit) Explain that you are taking a risk by letting someone who can’t currently qualify for a mortgage move into your home and that the option fee is your security against that risk.  Tell them that the option fee conveys their seriousness about the home.

3.         Closing cost contributions

Typically at the beginning of the option period tenant-buyers won’t ask for or won’t know they need to ask for help with closing costs.  This usually comes up at the point when they are applying for a mortgage and discover that they need to pay them.

This is when either their real estate agent or their mortgage broker will tell them that they can ask the seller (you) to help pay closing costs.  The way this is usually handled is that the purchase price is increased to offset all of or part of the closing costs.  Assuming that the home will appraise for enough to cover this.

You may have done this when you bought the home yourself, it’s a very common practice.  By increasing the purchase price to cover closing costs, it’s mostly a wash for you as the seller.  It does end up costing you a little bit with increased taxes, commissions, title fees and so forth based on the slightly higher selling price (maybe a couple hundred dollars depending on the cost of your home).

I recommend granting this concession if you can because it gets your buyers to buy your home.  The cost to you is pretty small so it’s worth it to get your home sold.  If you suspect that your home won’t appraise for enough to cover the closing costs because property values are going down in your market, you may want to encourage the tenant-buyer early during the rental period to start saving some money to cover their closing costs when they get a mortgage, this way you are less likely to have to add them into the purchase price.

I’ve talked a fair amount about why you NEED to offer your home on a rent-to-own basis to get it sold in this market. But I haven’t talked at all about the benefits to you in doing so. After all, most of us hate doing things just because we HAVE to, we would much rather do things we WANT to do.

Here are some of the reasons rent-to-own can be beneficial for you:

1. 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.

1. 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.

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

1. 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.
2. 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.

As you can see, selling your home as a rent-to-own offers a lot of benefits to you: Higher purchase price, cash flow, higher rent, option fee, selling faster and more! To learn more ways a rent-to-own can be beneficial for you check out my book Rent-to-Sell.