Please excuse this huge post… I didn’t know where to stop…
That’s such a great question…! I think that’s the question that scares off a lot of wanna-be ‘investors’.
There’s one answer: Sift out sellers who want to check your credit and/or want cash.
If you can’t sift for this niche, then you’ll have to offer either, 1) Credibility, 2) Cash, or 3) Both. Offering 1) doesn’t mean pulling our credit.
In other words,
- Demonstrate reliability (in lieu of a credit/background check)
- Give the seller money…
- Find end/users with cash/credit/reliability
The most common reason to use lease/options in the first place is that they are geared to help buyers with credit issues; whether it’s not having a down payment, or time is needed to improve/repair their credit to qualify for permanent financing. There are other reasons to do lease/options, but I’m assuming it’s not to lock in a price, or take advantage of appreciation. Of course it could represent living in a nice neighborhood, establishing roots, all while looking for permanent financing.
Of course some sellers offer lease options because they can’t get their price; need a mortgage payment covered with a higher-than-rent lease/option payment; or simply need a quick solution to their own credit situation.
Meantime, if a seller still wants our credit report, we say, “Next!” There is a ‘fix’ for this problem, which I’ll get to in a second… Meantime…it’s not smart to do a lease/option on its face if the option expires before our credit situation is solved… Just saying.
There is another alternative, which you alluded to, and that is 'assigning contracts." Frankly, we could focus only on those until we solve whatever credit issue we have. There’s more than one way to skin a cat here.
Notwithstanding, the ‘fix’ we recommend is assembling a credential book, regardless of which option we exercise. This book simply presents us in the “most positive light” and can elegantly, if not effectively, create, build, and maintain trust in the seller/Optionor about us.
Moreover a credential book simply shows the seller what responsible and reliable buyers we are. It contains testimonials from those we’ve helped and includes reference letters from those who we do business with (title, escrow, property management companies, etc.).
Also it will have all the contracts needed to close; business cards; calculator; pen; Sharpie; notepad; and carbon paper. Most professional negotiators/sales representatives (which is your business exactly) will include a copy of a Better Business Bureau certificate …and to really drill down on stability, include a photo of the youth athletic team(s) they support.
If assembled and presented correctly, the only thing a motivated Optionor will be doing is trying to sell us on their house in the hopes we don’t change our mind about helping them; not asking, “How’s your credit?” [My blog has a longer illustration of how to apply this.]
All that said, short of a credential book, we suggest continuing to drill down to the most motivated, anxious Optionors whose idea of checking our credit doesn’t occur to them. The one thing that seems to universally overcome most obstacles is a wad of cash.
It’s amazing how cash creates instant trust and credibility.
As far as ‘no down’ is concerned, it all depends again on how we both qualify the prospects and sell the deals. For example, not every seller needs, or wants, money up front. We want to work exclusively with these sellers.
We didn’t say ‘most’ don’t need, or want, money. However we can qualify these prospects up front by asking, “If we come to terms today, are you needing immediate cash out of this transaction?” Then wait for an answer. There’s several other ways to approach this, too, as you’ll read in any Ron LeGrand lease/option course, but I’ll just offer this one for now.
We might get an answer like, “Yes, I need money to bring the loan current.” Or, “Yes, I need money to move.” Or, “No, I don’t have to have money up front.” Or, “Yes, I want you to have ‘skin’ in the game.” The last answer just means that the seller just read a 'Lease/Option" book and now knows how to include the phrase “skin in the game” in his negotiations. Of course nothing ‘reeks’ of amateur status than inelegantly throwing out that phrase.
All translated: “I’ve got options and I’m an anal-retentive, know-it-all, worry-wort, that can’t really read people very well, and so I command the most narrow, unsophisticated, clunky qualifications so that I can brag to my friends that I never take a risk and negotiate like Donald Trump.” To this option-toting prospect we say, “NEXT…!”
Of course we’re going to walk from the sellers that insist on money up front and/or background/credit checks (or we’re going to assign this deal to a tenant/buyer with money to put down and willing to have his butt probed for credit problems).
Meantime, the insistence of cash up front, WILL eliminate most prospects. Our answer is to sift out the losers up front, or quickly sift raw prospects, so we won’t frustrate ourselves pitching losers. In the end we need to find the sellers who appreciate our solution so much that they won’t do anything to disqualify US.
Hope that helps. I need to write up an article on this topic. :beer
NOTE: Deals go bad. Everyone has a lease/option deal-gone-bad story, and all the amateurs ‘know’ their deal is gonna go ‘bad.’ The question is, “Why do deals go bad?” In my humble opinion, the deals that go bad, do so, because they are lopsided in favor of one party (the seller), or the other (rarely the buyer) at the get-go. Why?
Because the deals are NOT simply disguised sales of property. They depend on ‘fairy dust promises’ that somehow the option price is not ridiculous; that the Optionee’s credit will miraculously raise from the dead in time to exercise the option itself; or that either/both the Optionor or the Optionee have little if any competence at knowing how ot open escrow, much less finding, qualifying for , or actually closing on a loan.
Furthermore, a lot depends on the seller knowing how to provide a verifiable repayment history to support the buyer’s down payment ‘credits.’ Or how to demonstrate that the down payment/option credits being verified are bonafide and not just a figment of everyone’s imagination, or a gimmick? :banghead
If that’s not enough for a deal to go bad, it’s because the buyer (or seller) feels like they were cheated, lied to, or misrepresented by the other party (part of the lopsided deal dilemma). And the more money an Optionee puts up, the more reason for a fight later; especially if the Optionor has uber restrictions on the option; or doesn’t allow extra time for financing/qualifying hiccups’ to be solved.
I’m just outlining that deals don’t always go bad because the buyer has credit problems. They can go bad because the deals were just plain ‘bad.’ :banghead