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.
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.
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.
I hope everyone had a good Memorial Day weekend. I spent mine in Houston, Texas getting training for SEO.
I’ve been getting emails from some of my lease option real estate investing students lately about numbers on their deals and some of you are willing to pay too much right now for your rent to own deals. Many areas of the country are down real estate markets and if you pay too much you are going to find yourself upside down when the time comes for your tenant-buyer to purchase your lease option deal.
It’s very important to stick to your guns about buying right in these kinds of real estate markets with your rent to own homes. Use the profit calculator I have in my lease option investing course so you can make sure your numbers work. Remember, you don’t get paid until you sell and if you are upside down you aren’t going to be able to sell your lease option investment.
When Wendy Patton first got started with real estate investing she thought no money down meant using credit cards to make the down payment. Take a look at this video to see just how many real estate investing deals she did with credit cards early on.
It took a few years but Wendy Patton learned better. No money down real estate investing is much better done with lease option or rent to own deals. Now Wendy Patton is one of the nations leading authors and trainers in no money down and low money down real estate investing with lease options or rent to own. In fact she has a lease option training bootcamp coming up in June that will cover in depth training in lease options and other soft market real estate investing techniques.
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.
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.
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.
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.
When we are putting together rent to own deals sometimes our tenant-buyers don’t have that much cash available for an option fee. Many tenant-buyers live check to check which doesn’t leave a lot of room for saving up. Or they haven’t yet had time to save up an option fee as they were trying to deal with other bills, or just recently started working again. Whatever the reason, just because they don’t have a lot of cash doesn’t mean you can’t still work something out.
If a rent to own tenant-buyer is qualified for a lease option property in every other way but just doesn’t have enough money for the option fee – DON”T KILL THE DEAL! Work something out. Get creative in helping them find ways to come up with more cash for the lease option fee.
What are some ways?
Borrow money from relatives or friends. They could either borrow all of the money from one person or they could borrow smaller amounts from several. If they could borrown just $500 from 4 relatives that isn’t all that much for each relative but added together it’s $2,000. That can go a long way towards a rent to own option fee.
Sell stuff on Craigslist or Ebay. If they have some things they don’t use very much anymore have them sell it off. Most of us just accumulate stuff instead of selling it so it would be a good time for them to clean out the closets and so forth and find some sellables.
Have a garage sale. Some things are not worth enough individually to be worth selling on the internet but they could have a local sale to sell those things and help come up with some money.
Cash in on some jewelry. Gold is at a high price right now and if they have some things they don’t want anymore it would be a good time to cash in on the high price of gold.
These are just a few ideas for lease option tenant-buyers to come up with an option fee. If a tenant-buyer is reluctant to put in the effort to raise money for their rent to own option fee they need to ask themselves how serious are they about wanting the house?
Take a look at this video clip where Justin Ryan talks about helping rent to own buyers come up with an option fee.
