I did a post yesterday on lease options and finding the seller’s sticking point.  In response to that post I received a comment from a real estate agent who said that their sticking point was how do they get paid in a lease option sale.  This is a very legitmate concern for real estate agents, after all everyone wants to get paid for their work.

The unfortunate reality is that conventional sales are difficult right now.  It isn’t enough to just get listings and put them on the market, because most of them aren’t selling.  This means that it’s a lot harder to earn commissions than it was during the boom years.  If you want to keep succeeding in this business you MUST ADAPT.

Let’s look at one of your listings that has been sitting on the market for a while.  Odds are the seller is starting to get frustrated with the lack of results.  At this point, if you only stick to conventional sales, one of three things will happen:

• 1. You get the seller to agree to a price reduction
• 2. The seller switches agents
• 3. The seller decides to rent their home

This means you have a 1 in 3 chance of getting paid your full commission.  I’m not too wild about those numbers.

With a rent to own, you still get your full commission (and maybe more) plus the seller gets a better price for their home instead of having to do a price drop.  This means more for your seller and more for you.

There is a string attached, which is that you’ll only get part of your commission up front (paid out of the option fee) and the remainder when the tenant-buyer closes on the home.  This partial up front commission is going to be more than you would make if the seller just rents the home.  And certainly more than if you lose the listing.

Is this ideal?  Of course not.  Obviously we don’t want this, we’d much rather just have a conventional sale.  But that isn’t always working right now.  This gives you and your sellers an alternative.  We all know this isn’t our first choice, but it is a good option for homes that aren’t selling conventionally.

If you want to learn more about how to earn your whole commission doing a lease option (and maybe even more than the full commission) see my book, Rent to Sell.  It’s a hands on guide for home sellers and real estate agents on selling with rent to own.  There is an entire section dedicated to real estate agents (including a whole chapter on how to get paid).

Rent to Sell

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“

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

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

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 have been trying to sell your home recently you already know that it is no easy task these days.  Where are the buyers?  They are out there they just can’t get mortgages right now.  So how do you sell your home if buyers can’t get mortgages?

I’m going to introduce you to something called rent to own.  Rent to own is a way for home sellers to sell their home to a buyer who can’t currently qualify for a mortgage.  You are renting your home to the buyer for a period while they work to qualify for a mortgage and then they can buy it.  How does rent to own work?  You and the buyer agree to an option – this gives the buyer the right to purchase your home during a set period of time.  While this option is valid the buyer rents the home from you.  By the end of the option the buyer must either purchase the home or you get to keep their option fee.  While this option is valid you cannot sell your home to anyone else.

Why would you do a rent to own?

There are a number of advantages to you.

• First, it gives you the ability to sell your home when you might not otherwise find a buyer.  If you’ve been thinking about just renting your home to cover the mortgage payment, rent to own is a better choice for you.
• Second, when there are a lot of other homes on the market that you are competing against, this gives you the ability to offer something they don’t.  You need an edge against your competition and rent to own can do it.
• Third, you can sell your home a whole lot faster.  Instead of having your home just sit on the market you’ll attract a lot more buyers with this creative choice.  Plus once you find a buyer you can get them into the home much faster (typically in a week or so) versus the 45 days or more it takes for a conventional buyer to close.
• Fourth, you might be able to get a higher purchase price.  Let’s face it, regular buyers are negotiating hard these days.  They know what the market is like and they are beating up home sellers on the price.  Rent to own buyers are different.  They know they can’t get a mortgage right now so they negotiate a whole lot less.  Many times they don’t negotiate on price at all!  How nice would it be to get your full asking price in this real estate market?

Intrigued yet?  I hope so, rent to own can be a great option for you.  If you want to learn more take a look at my book, Rent to Sell.  It is a step by step guide for home sellers to give you rent to own training.  It will tell you how to market your home as a rent to own, how to find and screen buyers, how to handle the paperwork and so on – from start to finish.

Real estate markets across the country are suffering right now. Sellers can’t sell their homes and buyers can’t get mortgages. Real estate agents are having a harder time earning a living. Gone are the days of putting a home up for sale and expecting it to sell with minimal effort. It’s time to get creative by selling on a lease option!

What is a lease option?
Lease options are a way to buy and sell homes without an immediate conventional mortgage. It gives your buyers who can’t qualify for a mortgage right now the opportunity to get into a home right away while they improve their credit and build up a down payment while living in the home. It gives the seller the ability to beat their competition, which there is a whole lot of these days. Sellers can reach a far greater pool of potential buyers. They will likely be able to sell their home quicker and for a better price. For some sellers it may be the ONLY way they can sell their home in this real estate market.

How does selling on a lease option work?
A lease option works like this: The buyer and seller agree to an option which gives the buyer the right to purchase the home during a set period of time. During this option period the buyer leases the home from the seller. By the end of the option the buyer must either purchase the home or forfeit their option fee. While the option is valid the seller may not sell their home to anyone else.

Advantages for the Seller
Here are some of the advantages to home sellers when selling on a lease option:
1. Allows them to beat their competition.
2. The seller can collect rent on their home while it would otherwise site vacant
3. The can often receive a higher purchase price
4. The can sell their home in a down market when they otherwise might not have been able to sell at all
5. Allows the seller to actually sell their home instead of just renting it.

Advatanges for the real estate agent
While selling on a lease option isn’t as ideal as a conventional sale where you get your entire commission up front it is a whole lot better than:
1. Turning away a potential buyer who can’t currently qualify for a mortgage
2. Having your seller just rent their home because it won’t sell and you only get a tiny rental commission
3. Losing a listing because the seller blames you for their home not selling.

When selling on a lease option you still get your full commission – part of it upfront out of the tenant-buyer’s option fee and the remainder when they purchase the home.

Obviously selling on a lease option is not the first choice for home sellers and real estate agents. Whenever possible we want to sell to conventional buyers. But when that isn’t working this is a great alternative.  To learn more about selling on a lease option check out my book, Rent-to-Sell, a step by step hands-on guide to selling your home as a rent to own.

Rent-to-Sell