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.

Let’s face it, as a rent to own investor having a good credit repair company on your team is a must.  The vast majority of tenant-buyers NEED to improve their credit before they can qualify for a mortgage.  Especially in today’s mortgage climate.

Another important reality is that we as a rent to own investor cannot leave credit repair up to the rent to own buyer.  If you simply tell them to improve their credit so they can buy at the end of the option period what do you think will happen?  Nothing.  They’ll never get around to it.  Mostly, despite their good intentions, it will be because they don’t know what to do.

With as many years as I’ve been doing lease option or rent to own investing deals I still don’t know everything there is to know about credit repair.  I hosted a webinar recently with a credit repair specialist and I learned a lot!  One of the reasons I don’t know everything is because credit repair changes.  Instead of trying to have to constantly stay on top of all the changes and then coach my rent to own buyers through every step I find it to me much easier, much less time consuming to simply require them to enroll in a credit repair program at the onset of the option period.  If it becomes a requirement you are going to have a much higher success rate.  And they’ll thank you for it!  Rent to own buyers will be grateful because you helped them get through the steps they needed to homeownership.

If you want to learn more about credit repair, watch the webinar I was talking about.  Also if you are looking for a reputable, quality credit repair company (because, trust me, not all of them are) – I recommend www.renttoowncreditrepair.com

When you are doing lease to own investing or rent to own investing a critical step when you find a deal is to do your due diligence.  That means you, as the investor, need to do some checking on the home seller to make sure there aren’t going to be problems.  What are some of the due diligence steps I take, or train my lease option students to take?

1. Order Pretitle Work – you need to look at the seller’s title to see if there are any clouds or other things that would prevent the seller from selling to you

2. Check IRS/State Tax liens – usually these will show up on the pretitle work.  But the home can’t be sold without paying off these liens

3. Check if the Mortgage is up to date – get a signed bank authorization from the seller to allow you to verify that their mortgage is current. It’s also a good idea to verify the amount of the mortgage payment, because if the payment is higher than your agreed upon rent the seller will have to cover the difference.

4. Check if the property taxes are paid – The seller won’t be able to sell the home without satisfying these debts too so you need to make sure they are being properly taken care of.

Not only is it a good idea to verify these things before you sign the deal, but it’s not a bad idea to check up on some of them during the deal as well.  You want to make sure that the seller is going to be able to sell you their home when it comes time.  When you are doing lease option investing, or rent to own investing due diligence is a step you don’t want to ignore.  For more on due diligence see my book, Investing in Real Estate with Lease Options and Subject to Deals.

When it comes to rent to own investing – when you are buying on a lease option – I tell my students to follow three basic steps in writing a proposal or offer to the seller:

1. Keep it simple

2. Do your homework

3. Determine your offer

Keep it simple – Sometimes we get too formal.  We want to make sure we have the proper letterhead and business cards and look official up front. We feel this gives us the legitimacy a seller expects.  However, counterintuitively, there are times when too much polish may in fact be detrimental to us because the seller finds it impersonal.  Save the formal documents for after the deal is negotiated, when it needs to be drawn up in detail.  That’s how you keep it simple in rent to own investing.

Do your homework – you can’t put together a proposal without first doing some research when buying on a lease option. You can’t base your offer purely on what you think the home is worth; you must incorporate the comparables as well.  Comparables are key in rent to own investing, if you don’t get the price right you won’t be able to complete the sale on the back end and get paid.

Determine your offer – When buying on a lease option I usually include terms that will limit my risk.  One approach is to include a clause that says my lease option can be terminated within 60 days with written notice to the owner.  This provides an agreeable exit to problematic transactions.  Another method that I use even more frequently is to make the start of the lease option contract subject to finding a tenant-buyer.  This significantly reduces your overall risk and avoids having to begin funding monthly payments before you have your own funding source in place.

Remember rent to own investing doesn’t have to be that complicated – keep it simple, do your homework and make your offer.

If you’ve been trying to sell a home in a down real estate market you are probably having a hard time finding buyers and are looking for some options.  You might be thinking about rent to own.  But you might also be wondering what do I get out of selling on a lease option?

Here are some benefits to rent to own versus just renting out your home or waiting forever for a conventional buyer:

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.  Plus, let’s face it conventional buyers know what the market is like and they are beating up sellers over the price. When you are selling on a lease option you’ll find that most rent to own buyers accept your asking price without question.

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.  That’s a whole lot better than paying a mortgage, utilities and maintenance costs for your home to sit empty while you wait for a conventional buyer to come along.

4. Option Fee – This upfront fee paid to you by your rent to own buyers 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 demages, unpaid rent and other provisions as mandated under state laws.  The option fee is owned by you and it’s yours to keep – big difference.

Whether you are a home seller or an investor doing rent to own investing you’ll find that selling on a lease option has definite advantages for you.

If you were trying to sell your house, either conventionally or as a lease option, who would you give a better price to? The buyer who came in saying, “I don’t like your carpet color. Are you going to replace it? The walls won’t match my furniture. This kitchen is just not my style?” or the buyer who said, “I like the layout. I see there’s a ding in the wall. You don’t mind if I fix that, do you? I just want to make this my home. I love it.”

You would choose the second person, of course, because they are reasonable and are trying to work with you.  You would instinctively want to work with them.

In lease options, rent to owns, and even subject to investing building rapport with the seller is key to making a deal. If the seller doesn’t like you, the deal will probably never happen. Therefore, if meeting people and being reasonably conversational and interested in the seller’s home isn’t your strength, take someone with you who is warm and friendly and can bridge that gap for you. The reason this is so important is because, for either a lease option or subject to investments you are asking someone to give you control of their house with little or no money down.  They must feel comfortable with you.

The high rate of foreclosures and the tightening of mortgage lending has brought rental markets back on strong.  This means that lease option and rent to own investors are having a field day right now.  It’s a one-two punch combination where many good people are losing their homes and then they can’t qualify for mortgages right away.  Plus many other would be buyers also can’t qualify.

This makes them perfect candidates for lease options.  they can get into a home they want without it just being a rental and then buy once their credit is in shape.

Take a look at this article on rental markets coming back.

If you’ve heard me speak before you have probably heard of my lease option investing student, Mack Payne.  I use one of his rent to own deals as an example when I talk about numbers.

In this clip Mack talks about how he has benefited from my lease options course.  He talks about little or no money down investing, creating a win-win-win situation for the buyer, the seller and the investor (and the real estate agent too!)  In fact Mack will be closing on one of his lease option deals very soon, to the tune of a $20,000 plus payday!  Not only that but it was a zero down investing deal on his part.  That’s right, no money down.

In this video clip Wendy Patton shows you things to look for when considering purchasing a house as a real estate investment. She inspects each home herself when deciding to make an offer to purchase it as a lease option or some other type of little or no money down investing. If her offer is accepted she will also have a professional inspection done. This allows her to get an accurate idea of costs.

When doing lease option investing it’s important to calculate your numbers as the beginning, this includes any repairs the property might need.

I, Wendy Patton, have had a website for some time now.  But it was really just this year that I started learning about SEO – Search Engine Optimization.  Most real estate investors don’t realize the importance of SEO for their website, but it is key for gathering your leads.  When you are doing lease option investing or rent to own investing, or really any other type of real estate investing you want your site to be on the front page of Google for your area so that when those potential leads do a search on the internet they find you.

Real estate agents need this too.  When home buyers and home sellers go online and do a search for there area, you want your name to be the one that comes up on the front page of Google.  This is a great way to capture leads.

The great thing about SEO for real estate investing or real estate agents is that it is really extremely powerful free marketing.  You can do it yourself and really reap the rewards with all of your extra leads.  I’m certainly no expert in SEO, but I’ve really come to realize the importance of it for my rent to own business.  I strongly recommend you take the time to do some SEO for your website.

Here is a short little clip I did while at a SEO training event I just went to.