Lease Option obstacle

General Real Estate Investing
1

Quick question! I have come across this seller objection twice and have not figured out a way around it yet.

I basically call For Rent Ads in my newspaper and back into the sellers. I ask them if they will be open to a lease of more than 2 years. I then ask if they would consider selling at the end of the term. And I try and only deal with motivated people by calling ads that are a few months old. When I meet with them everything goes well until the security deposit is brought up. They think they are renting and want 1st months rent, security deposit and sometimes the last month. I was taught I should tie up the deal in writing and then do due diligence, check comps, rents and then run ads to attract tenant buyers. How do I tie up the deal without putting up the security deposit right away? I could build in a “subject to” clause but I have found that doesnt work with reators, they want cash. I also thought of maybe paying when occupancy is taken. I live in a small town and finding desperate sellers seems to be very tough, I think that there are some good deals around though. Thanks for your input!

2

Reframe your approach. You’re communicating to the seller that you’re personally looking to rent a house with an option.

Of course the seller wants a deposit from YOU.

You are suggesting that you’re the tenant/buyer.

Forget that.

Instead ask, "Would you be interested in selling for today’s full retail price, in return for a long term rental agreement, or not?

If not, you move on. If yes, then it’s a matter of marketing to your buyers.

Last year I made this offer to an investor whom had a house she couldn’t seem to market correctly. I found her 2-month old, stale, for-rent listing on craigslist.

I asked about the house and if she had considered selling it, if she could get her price.

After I explained what I did, and my success selling houses at retail, on terms, using long term rental agreements, it was a piece of cake to get her to let me put a bandit sign in her yard, along with her ‘for rent’ sign.

Now, I had more on my mind than collecting what would be a $5,000 fee, which is NOT enough money to screw with normally.

Instead I wanted high-quality, market feedback without risking anything, and I wanted to build a buyers list instantly using a real deal. You can’t buy this information.

Anyway, We had a race. If I found a tenant/buyer, I would get half the money collected as my fee. If not, I got nothing.

Well, as it turned out, her head start was a disadvantage to me. She got the renter first, but I captured a TON of potential buyers I hadn’t had before. I mean I was able to legally advertise a real house, with real numbers, and a real address.

Now, this whole thing started by talking up the advantages of seller financing, instead of renting.

Notice something about what I didn’t say?

I didn’t use the term “lease” or “option.”

So frame your offer as a benefit to the seller. without using the buzz words of all the seminar gurus. This way the seller’s minds won’t close like gangrene-infected clams. And you know how awful that can be.

And the sellers won’t even think to ask you for a deposit, but will expect you to market their houses to retail buyers, who’re gonna rent their house for a couple years first.

Hope that helps.

FWIW

3

Javi always has good stuff. :shocked

4

FWIW,
Thanks for the advise. Im a little unclear on the language you would use with the seller. I actually have an example maybe you could use to clarify. I spoke witha a realtor, she has a vacant house available.
Value = ~$180,000
Payments = $1950
2 year lease = yes
She told me I could fill out a rental application after a showing. I have told her Im an investor but I think she may have forgot. So I would say… Ill pay you full value in exchange for letting me also try and rent the house, I have experience with marketing. How would I tie this up with agreements so I could still protect myself? Thank you again for taking the time to discuss this with me!

5

Well, the first obstacle is attempting to work with an agent. Fail.

The thing you say is, “If I can find a buyer for your house, and net you ‘x’ dollars over the next ‘x’ months, would you be interested, or not?”

If yes, you introduce the idea of a ‘xx-month rental agreement’ to accomplish that.

If you get agreement on that, you introduce the idea that you get paid to find that full net-price buyer. That is, after you find the buyer, you get a fee from the buyer (over and above the net sale price).

You don’t need to tell the seller that you’re collecting $20,000 from the buyer. It’s none of the seller’s business.

Meantime, the seller gets a full asking price. He doesn’t get anything else.

Of course, it won’t happen like this, unless you can prove that you’re a reliable, responsible, honest operator with a track record.

This is where your credential book comes in handy. It contains your history, your referrals, your references, your community involvement, your driver’s license, your club and church memberships, your girls softball league sponsorship, and finally photos of your previous deals.

By the time you get through presenting yourself as the Father Theresa of Real Estate deals, the seller will just focus on the bottom line for him …which is a full price sale without any more negative cash flow, repairs, vacancies, calls to unclog the toilet, fixing the a/c, or banging on the tenant’s door trying to get the rent.

That’s talking directly with the seller. Imagine how much overhead and crap is involved trying to make it work, and pay a real estate agent.

The major benefits to the seller in NOT involving an agent is that the seller keeps the commission AND get a full sales price.

That said, this might be a value added offer to an agent with a listed house. The seller gets his price, the agent gets his fees, you get your fees, the buyer gets a house financed temporarily until he can get a new purchase money mortgage. It’s win/win/win.

I described the clunkiest approach.

Frankly, I work to establish with the seller what he would net after all conventional fees and costs were deducted from the retail price, and then work to get the seller that amount …without lowering his price any further.

Many sellers would be happy to pay an agent if he could get a full price offer. But what happens when he can’t? Sometimes it means the seller is upside down and has to pay out of pocket, or become a fsbo type of seller.

These become very good candidates for what we want to do.

That is, low/no equity situations where the seller’s options are limited.

Is that helpful?

6

I really appriciate all of your advise. I do not have any previous houses, im trying to get a first deal under my belt, what would be your suggestion? I cant really say, “Here are my past deals”. Also, the people I am calling are for rent ads, not FSBOS. How would I present the offer to them? Again, I appriciate your patients with a total noob like myself but I really, really want to do my first deal. Thank you all for your support!

7

Be simple and straight forward with the prospects.

Tell them what you’re interested in doing.

Fearing ripping off Tod Toback completely here, he suggests something like this (he provides this information for free, so I’m not ripping him off exactly).

"Dear homeowner,

I saw your ad on Craigslist and I was interested in possibly doing a rent to own on the property you have listed.

If you’re not sure what a rent to own is, basically I, or one of my buyers would rent the property from you for a couple of years and then buy the property.

In other words, I buy the property and rent it for a couple of years first.

If this is something that you would consider, please give me a call at xxx-xxxx (cell).

P.S. I can often structure a deal where you can get full price and you wont have to take care of any maintenance, or repairs, and you won’t have to pay a real estate commission.

Please give me a call at xxx-xxxx (cell)

Best regards,

Joey"

[this is from nolimitsrealestateinvesting.com]

I think a faster way to get this ball rolling is schedule a couple of hours a day, every day, to call every stale fsbo and frbo ad that offers a 3/2 for sale in a nice area, and ask the same question the email contains.

If you’re willing to make 100 contacts a day via email, you’ll have a deal nailed down in two weeks.

You’ll have to use your sister’s, mother’s, brother’s and dad’s emails, because Craigslist will ban you if you send more than 20 emails a day from the same address.

Of course I’m kidding about using your relative’s emails. Just create five gmail addresses. I use givemeyourhouse@gmail.com Or equitystrippingoldladies@gmail.com j/k

8

You need to change your script. When you call and ask if they are willing to lease long term then sell at the end of the lease, you’re coming off as a tenant-buyer, not the investor.

When you call these people, first thing you need to find out is if they will consider selling the house other than leasing. Some owners probably tried to sell the house but couldn’t find any buyers therefore pushed them into leasing the homes. Also find out if they are investors themselves or first time landlords. Once you have this info then explain your program.

You’re an investor looking for good properties in good areas. Typically, you lease properties long term, takes care of all maintenance then purchase the house at the end of the lease term. You agree on a purchase price and sign an option agreement to that effect. Tell them that you will not be living in the house but rather you have a list of good people that you’ve pre-qualified who are your tenant-buyers and they are the ones who will be living in house.

You do this over the phone and if they are interested in learning more that’s the only time that you meet with them so they are not under the guise that you are regular tenant looking for a house to live in.

9

The Lease Option obstacle that I run into is getting any leads that will do a Lease Option.

Most of the FSBOs & FRBOs were not interested in doing Lease Options, but a couple of landlords did say they may consider selling at the end of the lease.

Once I told the landlord that I was working with pre-qualified tenant/buyers that would pay them top dollar to lease their house with the right to purchase, then I never heard from the landlord again. The FSBOs just wanted to sell outright. So without any leads I have no Lease Option business. I’m looking to do real estate as a full time business.

10

Peter, I have no idea what level of marketing you’re doing, but you’re describing surface scratching.

Of course a majority (most) of the FSBO’s and FRBO’s don’t want to do a lease/option. That means you’ve got to keep digging until you uncover someone who is ready, willing, and able to do a lease/option.

How many people do you have to contact? I don’t know.

Much depends on your people, personal, and sales skills.

More depends on how well you qualify prospects before you talk with them.

It sounds like you don’t have marketing, or lead generation experience, and that your expectations are too high for your skill and experience level.

That’s OK.

You start where you are, and anything worth doing, is worth doing badly (at first).

Meantime, maybe you’ll have to keep calling until you’ve talked with at least 1,000 leads, before you nail down a deal.

OK, really, if this was true, it would suggest that you’re a mouth breather…! Just kidding…! :anon

You’ll have a deal by the 1,000th call. Even a blind crow can find a McDonalds dumpster eventually.

I suggest you work on one thing at a time; what you know.

You know how to contact prospects.

Keep doing ‘that’ until you close on someone.

Forget how long it takes. Just keep track of how many prospects you have to dig through to create a conversion. Then note what the motivation factor(s) were that created the conversion.

Once you’ve closed on your first deal, you’ll now have high quality feedback on how to scale up.

For example, if it took you 1,000 phone calls over 60 days, to get 50 appointments, and of those 50 appointments, you had one conversion …then you know that it will require you to make 2,000 calls, and capture 100 appointments, in order to achieve 2 conversions.

Maybe it will require 2000 calls to get one conversion?

Maybe it will require you expand your farm, so that you can actually make 2000 calls? I don’t know. (Actually I do know, and it’s not going to take anywhere near this many, unless something is seriously and hopelessly dysfunctional).

Meantime, spend your time calling as many leads as necessary and possible to close on your first deal.

The rest will fall into place (or be obvious enough to make changes), over time.

You don’t have to wait to make everything work like clockwork, before you start. If you do, you’ll burn yourself out from disappointment, if not perfectionism.

When Walt Disney opened Disneyland, much of the park was yet unfinished. In fact, there was large patches of landscape covered with weeds.

Someone thought to tag the weeds with their Latin names, to make it all look intentional (and partly as an inside joke).

The hilarious thing was that visitors asked where they could buy the beautiful, yellow-flowering “Taraxacum Officinales” they were seeing all over the park.

Of course, they were effectively asking where they could buy “Dandelions.”

Bottom line, don’t quit. Your expectations are probably too unrealistic based on your current marketing, sales and negotiation skill(s).

FWIW :beer

11

I would say try to be as simple as possible. I would probably consult with a realtor and ask them if they would be willing to sell the house for you then and split the commission with you.
You can tell the seller that you would like to try to sell the house at the price she requests and if you aren’t able to sell the price at her asking price, then aks her if she would like to do a “rent to own” or “lease option.”