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.

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.

Here is a tip on negotiating from my book Rent to Buy, which will be released on November 10th.  Rent to Buy is a hands on guide to buying a home on lease option from the home buyer’s perspective as well as the real estate agents who serve them.

One of the great things about buying a home as a rent to own is that you have a broad range of terms to negotiate when putting together the deal on your rent to own home.  This means that you can get creative and put together a deal that is good for you as the home buyer, or the real estate agent who is assisting their buyer, as well as still be good for the seller too.  If it’s a win-win situation you’ll have a much better chance of getting the home.

So here is one of the negotiating tips I talk about in Chapter 12 of Rent to Buy:

Don’t Give Away Anything without Asking for Something in Return

This tit-for-tat technique helps ensure that even if you are giving your sellers a key aspect that they want; you are getting something in return.  A good way to handle this is with a question, “If I agree to your asking price, how much per month in option credits do you think is a fair exchange?”

Or, you can ask for exactly what you want, “If I agree to your asking price, would you agree to give me $1,000 per month in option credits?”

By asking a question, you give the seller a chance to voice what they think is a fair exchange for what they are asking for.  It may turn out to be MORE than what you would have asked for.  If it isn’t enough, you can always negotiate up from their proposal.

By stating what you want, you are more limited.  The seller may even try to negotiate you down from this position.  However, if there are a few key things that you really want out of the negotiation, this is a good time to go after them.

When it comes time to place a rent to own buyer in a home, sometimes the home owner or the lease option investor feel pressured to get someone in as quickly as possible.  This usually happens because the mortgage payment for your home has become a financial burden.

Even if that is the case, you still need to make sure that when you screen your rent to own buyer that they meet the criteria on your qualifications list (by the way, you should always have your qualifications list in writing).  Failing to make sure that rent to own buyer meets these qualifications can cause you problems for two reasons:

1. It could be a violation of Fair Housing Law – trust me, you don’t want to go there.

2. You could end up placing a bad lease option tenant and have to evict them later.  Don’t go by gut feel.  Approve a person because they meet the criteria on your qualifications list.

Want to learn more about rent to own buyer selection?

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

If you are a real estate agent or home seller read, “Rent to Sell“

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.

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

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.

2. 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.

3. Cash Flow – If your monthly payments are less than the monthly rent, the difference goes in your pocket.

4. 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.

5. 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. I feel your pain.  Ouch! Placing a rent to own buyer that pays that extra mortgage can take away your pain.

6. 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.

7. 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.

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.

Pre-Paid Legal Services is one of the most overlooked, yet beneficial tools when selling on a rent to own. You will want to consult an experienced real estate attorney if there are any legal questions connected to the sale of your property that you are unclear about. For example, what are you required to disclose about the property under your state’s laws? What should you do if there are problems with illegal construction, permit and zoning issues, or with the deed? Consulting with a knowledgeable real estate lawyer before problems arise can save you a lot of money and trouble in the long run.

As a rent to own home seller Pre-Paid Legal Services is not only an outstanding tool, but also a necessity. If you have never needed legal representation for your personal matters or business, believe me it is just a matter of time.

The word “Attorney” puts a certain feeling of uncertainty and fear into our very being. Not many of us like to call an attorney for advice or help of any sort, because we surely know, the charges we incur can be astronomical. This puts many of us in a quandary as to whether we should spend the money for attorney fees or take the risk of not having council, by doing without the cost or expense and unfortunately without the professional assistance that we might need or require. But, like not protecting yourself and your family, house or car with insurance, the risk can prove to be disastrous.

Many of you have heard of Pre-Paid Legal Services but really know very little about how it can help you. Pre-Paid Legal offers a plan that is called the “Expanded Family Plan” which, among other things offers the benefits that I have listed below:

1. Unlimited questions answered for business or personal matters.

2. Unlimited calls or letters made for you and your family.  (One per subject matter.)

3. You can have an unlimited number of contracts or documents reviewed by your provider law firm.

4. Included in your coverage with the “Expanded Family Plan” is pre-paid trial protection that is included as part of your membership. This benefit grows each year you stay a member with Pre-Paid Legal totaling up to 335 hours by your fifth year.

5. Automobile representation for you and your family no matter where you had the accident or the ticket occurred.

6. Once you have bought your new property, you will want to have your Last Will and Testament and your Living Will created as part of your Family Plan benefits. If you already have these important documents in place they can be updated free of charge with your membership.

Whether you are buying or selling real estate, there are always reasons to have the benefits of a team of experienced attorneys on your side, and ready to represent you.

I have no doubt that you have heard of horror stories from friends, family and co-workers about lawsuits for slips on sidewalks, worker injuries or other disputes. These can become nightmares that drain your energy and your wallet.

There are many more benefits for members of Pre-Paid Legal Services. What I have listed above encompasses some of the more significant benefits for the real estate buyer.

For only $25.00 per month is there any question anyone would not want or need this type of coverage and representation?

When you are selling on a rent to own, I strongly recommend making use of Pre-Paid Legal.  If you are interested in hearing more about how Pre-Paid Legal can save you and your family money and grief, feel free to call Michael Gott at 248-227-3943. If you like what you hear and are interested in signing up now, visit www.prepaidlegal.com/hub/wendypatton

Any real estate investor, home owner or home buyer that does a rent to own deal needs to understand the process involving the appraisal of a lease option home when it comes time for the end buyer to purchase. The purchase price is agreed upon at the onset of the rent to own.  Because the sale of a rent to own home takes place over time the home may go up or down in value by the time the end buyer is ready to purchase their lease option home.   When it comes time to buy the rent to own home the buyer’s lender orders an appraisal.  Three things can happen with that appraisal.

1. The lease option property appraises for the amount of the agreed upon purchase price.  If this is the case everything can proceed forward without problem for the real estate investor, the home seller and the home buyer.
2. The rent to own home appraises for MORE than the amount of the agreed upon purchase price.  In this case as long as the buyer has lived up to all of their obligations in the option contract, the home seller or the real estate investor MUST sell for the agreed upon purchase price.  The buyer benefits from the extra equity.
3. The lease option home appraises for LESS than the amount of the agreed upon sales price.  Of course we hate to see this happen, but sometimes if real estate markets are in decline it can.  If this is the case, the home owner and the real estate investor are only obligated to sell for the original sales price.  The buyer wouldn’t be able to qualify for a mortgage at that price so the deal would fall apart.  While the home owner or the real estate investor are not required to sell the rent to own home for a lower price they may choose to.  Let’s face it, the home has gone down in value, so they won’t be able to sell it to anyone else for more.  The may want to drop the price to the appraised value so the buyer can complete the sale.

These terms are part of the lease option contracts that are so important when doing a rent to own sale.  I explain them in great detail in my books, Rent to Buy, and Rent to Sell.

Also, take a look at this video where I talk about the appraisal versus sale price.

When buying lease option or a rent to own home, either as real estate investing or for your own home there are several steps you need to take during the process.
I’m going to look at 2 of them here.
The first step I want to focus on when buying rent to own homes is verifying the rental rates. As a rent to own home buyer you want to make sure the rental rates are both realistic for the area you are looking in and affordable to you personally. As a lease option real estate investor you need to know the rental rates for when you are finding tenant-buyers for the home.
One of the best ways to find out market rental rates for your rent to own home home is by looking at the local newspaper as well as the rentals online in sites like Craigslist. See what other properties in the area are renting for. Of course you need to make sure they are reasonably comparable to the lease option home you are interested in.

Another important step in the rent to own process is checking the title work. You want to make sure that whoever is on title is actually the one selling the home! This seems pretty obvious, but it sure can lead to big problems if you don’t make that verification. This means that everyone who is on title is selling the rent to own home. If a husband and wife are both on title they BOTH need to sign everything. You also need to make sure that the title is clear and can be sold, which we’ll talk about another time.

Take a look at this video where I talk about both of these steps to buying lease options.  Here is a lease option article too, if you want more information.

Now is one of the best times I have ever seen for buying and selling homes as lease options or rent to owns.  Real estate market conditions are practically ideal for this type of real estate investing.  There is a glut of homes on the market forcing sellers to consider alternatives to selling their homes.  Many sellers think their only choice is to rent their home if they can’t find a buyer.

Since their minds have already gotten past the hurdle of having renters in their home they are the perfect candidate for selling on a lease option or rent to own.  They may not know about selling their home as a rent to own, but they need it.  This is the time when lease option investors should be going out and putting together lots of deals.  This is the time when real estate agents should be learning how to put together rent to own home sales to help their buyers and sellers.

Financing is harder to get now than it has been in quite some time.  This means that many would be buyers are getting left out because they can’t qualify for a mortgage right now.  There are lots of potential buyers out there like this right now.  Every time I post rent to own ads on Craigslist I get tons of responses.  It’s so funny when I hear people say there are no buyers right now.  What they mean is there aren’t many conventional buyers.  Lease option buyers are everywhere right now.   This is also the time when rent to own investors should be making use of free marketing to attract buyers.  Real estate agents should be doing the same thing.  In this kind of market if you have the buyers you are golden, even if they are lease option buyers.

As I said now is the time for rent to own or lease options.  This is one of the greatest times there has been for lease option investors to be putting together deals.  This is also a great time for real estate agents to learn how to do rent to own sales and really boost their business.