While most other buyerse are drowning in the “Credit Crunch”, you have a choice. Renting-to-own can allow you to buy your next home, even at a time when financing is so hard to obtain; but that’s not the only advantage it offers. Let’s take a look at some of the reasons why rent-to-own can be beneficial for you:
1. Flexibility. This is key. If you live in an uncertain market, you have the ability to get into your home now and still have the flexibility whether or not you want to buy. For most of you, buying is what you truly want and should plan for. Not buying is your “get out of jail card” if things don’t go well for you personally. Don’t go into a rent-to-own without being serious about purchasing the home.
2. Time. The rental period gives you time to improve your credit score and pay off some other debts or save more towards a larger down payment. It’s very important to take advantage of this time by taking the proper steps. We will discuss credit repair in more detail later in the book.
3. Option Credits. One imporant negotiating point is having all or part of your monthly rental payment count as a credit against the final purchase price. This is called an Option Credit, and it can be an excellent way to increase your down payment and equity in your new home. For instance, if the rental payment is $1,200 per month and $600 of that gets applied towards buying the home (your option credit), you will build up $7,200 of equity for one year ($600 X 12 = $7,200). This will be covered in much more detail later in this book.
4. Sweat Equity. If you are a handyman and want to buy a fixer-upper home on a rent-to-own basis, you can build Sweat Equity in the home by making improvements while you are a renter. Once you purchase the home, these improvements will increase the appraised value of the home in comparison to your contracted purchase price. Having an equity spread (the home is worth more than you are buyng it for) can be very helpful when you are obtaining financing. You will also want to consider asking the seller for option credits if you do certain repairs. For instance, if a repair is worth $3,000 but you can do it for $800, consider asking for a $3,000 credit from the seller. This would give you $2,200 in real value for your work, or sweat equity.
Wendy’s Wisdom: Buying a rent-to-own home offers a lot of benefits to you: Flexibility, the ability to live in the home before you buy it, being able to accumulate a down payment while you live in the home and much more!
Excerpt taken from Rent-To-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending Is Tight, Chapter 1, Pages 17-18.
To view this post in its original location, http://www.wendypatton.com/blog/rent-to-own-your-lifesaver-in-a-drowning-market.
Thursday, May 27, 2010
Wednesday, May 26, 2010
Keep Common Sense Involved in the Decision Making Process
While you are looking at homes and once you make an offer on a home, there are some questions you should be asking yourself to help keep common sense involved in the decision making process:
1. Does the home work for you and does it meet your NEEDS?
*Remember the difference between wants and needs?
2. Do the numbers work for you?
*Can you reall afford this home?
3. What sacrifices are you making to get this home?
*It helps to think specifically about what you might be giving up for this particular home.
4. Will the home meet your needs for the near future?
*Will your family be growing? Are the kids going away to college?
*Will you still want to mow that big back yard in a few years?
If you know that you are the type of person who easily becomes emotional in your decision making process, it might be a good idea to carry a note card with these four questions on it to remind you while are looking!
Wendy’s Wisdom: Remember to strike a balance between emotions and common sense in your home buying process. It will help you enjoy your home that much more once you actually move in.
Excerpt taken from Rent-To-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending Is Tight, Chapter 3, Pages 51-52.
To view this post in its original location, http://www.wendypatton.com/blog/keep-common-sense-involved-in-the-decision-making-process.
1. Does the home work for you and does it meet your NEEDS?
*Remember the difference between wants and needs?
2. Do the numbers work for you?
*Can you reall afford this home?
3. What sacrifices are you making to get this home?
*It helps to think specifically about what you might be giving up for this particular home.
4. Will the home meet your needs for the near future?
*Will your family be growing? Are the kids going away to college?
*Will you still want to mow that big back yard in a few years?
If you know that you are the type of person who easily becomes emotional in your decision making process, it might be a good idea to carry a note card with these four questions on it to remind you while are looking!
Wendy’s Wisdom: Remember to strike a balance between emotions and common sense in your home buying process. It will help you enjoy your home that much more once you actually move in.
Excerpt taken from Rent-To-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending Is Tight, Chapter 3, Pages 51-52.
To view this post in its original location, http://www.wendypatton.com/blog/keep-common-sense-involved-in-the-decision-making-process.
Tuesday, May 25, 2010
How to Stage Your Home If You’ve Already Moved Out
If you have already moved out and your home is vacant, there are still some tricks you can use to help increase the appeal of your home. Obviously, moving all of the furniture back into the house isn’t really a workable option – after all you need it. However, if you do have a few pieces to spare that you can use to properly stage one or two rooms it may be worth it. If you don’t have any, then borrow from a friend or relative.
The best thing to do with a vacant home is to make use of the decorative accents. You can still put art on the walls and decorative touches on countertops. Add live or artifical plants in the right places. Only use live plants if you are close enough to water them regularly. You still want to make the best use of layered lighting you possibly can.
In other words, just because your home is empty doesn’t mean you can’t decorate it. Any real esate agent will tell you that empty homes just do not show as well as occupied or staged homes. Even if you don’t rent-to-own your home, this chapter should help you sell it for more and quicker. It is all about standing out in the buyer’s mind.
Another possibilty, if it’s in your budget, is to hire a professional home stager that has their own inventory to furnish and stage your home. This can be costly, so you’ll want to evaluate whether you think it’s a worthwhile step toward getting your home sold.
Excerpt taken from Rent-To-Sell: You Hands-on Guide to SELL Your Home When Buyers are Scarce, Chapter 4, Pages 78-79.
To view this post in its original location, http://www.wendypatton.com/blog/how-to-stage-your-home-if-you’ve-already-moved-out.
The best thing to do with a vacant home is to make use of the decorative accents. You can still put art on the walls and decorative touches on countertops. Add live or artifical plants in the right places. Only use live plants if you are close enough to water them regularly. You still want to make the best use of layered lighting you possibly can.
In other words, just because your home is empty doesn’t mean you can’t decorate it. Any real esate agent will tell you that empty homes just do not show as well as occupied or staged homes. Even if you don’t rent-to-own your home, this chapter should help you sell it for more and quicker. It is all about standing out in the buyer’s mind.
Another possibilty, if it’s in your budget, is to hire a professional home stager that has their own inventory to furnish and stage your home. This can be costly, so you’ll want to evaluate whether you think it’s a worthwhile step toward getting your home sold.
Excerpt taken from Rent-To-Sell: You Hands-on Guide to SELL Your Home When Buyers are Scarce, Chapter 4, Pages 78-79.
To view this post in its original location, http://www.wendypatton.com/blog/how-to-stage-your-home-if-you’ve-already-moved-out.
Monday, May 24, 2010
Stock Market Performance
As the stock market continues to flunctuate, it increases the number of people looking to invest elsewhere. Also, as people become more educated about real estate as an investment, they are more likely to look away from the stock market for the increased security and greater potential returns in real estate. More people have been made millionaires by investing in real estate than in any other business.
As these national trends continue to provide solid growth in real estate, people will continue investing and continue buying with confidence in their own homes, vacation homes, retirement homes, and investment properties. The overall favorable national trends contribute to greater potential growth. Remember, however, that national trends do not cause every real estate market to grow. The real estate investor looks for emerging markets to capture the greatest appreciation and highest profits. The national trends help influence the overall market. Where the Baby Boomers, Echo Boomers, and Immigrants are moving will cause areas to experience the sharpest demand and highest growth potential. These are the emerging markets.
Knowing these general trends puts you in the right direction, but where do you look more specifically? For example, you know that Baby Boomers are moving to warmer climates, but that is still pretty general. It is important to know what factors to look for in markets to see what potential they might have. Several things can influence local markets.
Local Market Influences
• Location within a market
• Quality of schools
• Amenities
• Condominiums versus single family homes
• Strength of vacation home market
• Businesses in a market
• Businesses moving to a market
• Population growth
Excerpt taken from Making Hard Cash in a Soft Real Estate Market, Chapter 5, Pages 47-48.
To view this post in its original location, http://www.wendypatton.com/blog/stock-market-performance.
As these national trends continue to provide solid growth in real estate, people will continue investing and continue buying with confidence in their own homes, vacation homes, retirement homes, and investment properties. The overall favorable national trends contribute to greater potential growth. Remember, however, that national trends do not cause every real estate market to grow. The real estate investor looks for emerging markets to capture the greatest appreciation and highest profits. The national trends help influence the overall market. Where the Baby Boomers, Echo Boomers, and Immigrants are moving will cause areas to experience the sharpest demand and highest growth potential. These are the emerging markets.
Knowing these general trends puts you in the right direction, but where do you look more specifically? For example, you know that Baby Boomers are moving to warmer climates, but that is still pretty general. It is important to know what factors to look for in markets to see what potential they might have. Several things can influence local markets.
Local Market Influences
• Location within a market
• Quality of schools
• Amenities
• Condominiums versus single family homes
• Strength of vacation home market
• Businesses in a market
• Businesses moving to a market
• Population growth
Excerpt taken from Making Hard Cash in a Soft Real Estate Market, Chapter 5, Pages 47-48.
To view this post in its original location, http://www.wendypatton.com/blog/stock-market-performance.
Friday, May 21, 2010
Something to Think About Over the Weekend..
" All life is an experiment. The more experiments you make, the better."
- Ralph Waldo Emerson
Have a terrific weekend!
Wendy
To view this post in its original location, http://www.wendypatton.com/blog/something-to-think-about-over-the-weekend.
Standard Lease Option Deals
Wendy’s Ethics Rule: Don’t do lease options with potential buyers who have no way of ever being able to get a mortgage. That’s just being greedy and taking advantage of someone. It is not fair to the buyer. If the buyer messes up, shame on them! If you mess them up, same on you!
My typical strategy is to lease option from a seller and then to lease option that home to a buyer.
How Lease Options Work
SELLER > options to > INVESTOR (may buy) > options to > BUYER (may buy)
The above illustration depicts a sandwich lease option. In a sandwich the meat is in the middle-that’s the best part. You (the investor) are in the middle of this transaction; your reward is the meat-the difference between what you can pay for the home and what you can sell it for. There are other ways to make this deal even better and more profitable, which are discussed in Chapters 5 and 9.
A variation of the sandwich lease is the lease purchase. While a lease option gives the investor the right to purchase real estate, the lease purchase guarantees that he or she will purchase the property during a given time period. Under some circumstances I will committ to buying certain homes using this technique- for instance, with specific Realtors, with deals that have a very good potential for profitability, when I have a solid buyer lined up, with high appreciating markets, and with very long-term deals. I do not use lease purchases much when I’m selling, because they are hard to enforce. If your buyer defaults, you have to sue him specifically for nonperformance in order to get him to buy your home. It is costly and very time consuming to do this. If your buyer cannot get a mortgage it is also a waste of time. I would recommend moving on and, in most cases, finding a new buyer. I therefore use lease purchases mostly to buy and rarely to sell.
Excerpt taken from Investing in Real Estate with Lease Options and ‘Subject To’ Deals, Chapter 1, Pages 6-7
To view this post in its original location, http://www.wendypatton.com/blog/standard-lease-option-deals.
My typical strategy is to lease option from a seller and then to lease option that home to a buyer.
How Lease Options Work
SELLER > options to > INVESTOR (may buy) > options to > BUYER (may buy)
The above illustration depicts a sandwich lease option. In a sandwich the meat is in the middle-that’s the best part. You (the investor) are in the middle of this transaction; your reward is the meat-the difference between what you can pay for the home and what you can sell it for. There are other ways to make this deal even better and more profitable, which are discussed in Chapters 5 and 9.
A variation of the sandwich lease is the lease purchase. While a lease option gives the investor the right to purchase real estate, the lease purchase guarantees that he or she will purchase the property during a given time period. Under some circumstances I will committ to buying certain homes using this technique- for instance, with specific Realtors, with deals that have a very good potential for profitability, when I have a solid buyer lined up, with high appreciating markets, and with very long-term deals. I do not use lease purchases much when I’m selling, because they are hard to enforce. If your buyer defaults, you have to sue him specifically for nonperformance in order to get him to buy your home. It is costly and very time consuming to do this. If your buyer cannot get a mortgage it is also a waste of time. I would recommend moving on and, in most cases, finding a new buyer. I therefore use lease purchases mostly to buy and rarely to sell.
Excerpt taken from Investing in Real Estate with Lease Options and ‘Subject To’ Deals, Chapter 1, Pages 6-7
To view this post in its original location, http://www.wendypatton.com/blog/standard-lease-option-deals.
Thursday, May 20, 2010
Live Webinar Tonight!
If you want to make an extra $40k or so?
Then join tonight's webinar and learn how.
As usual, I only focus on tactics that require no cash or credit that even a rookie can do, so anyone can do this (even from home).
The "Filthy Riches" webinar is tonight AT 8:00 PM (Eastern).
To Join, CLICK HERE!!
See you there!
Wendy
To view this post in its original location, http://www.wendypatton.com/blog/live-webinar-tonight.
Then join tonight's webinar and learn how.
As usual, I only focus on tactics that require no cash or credit that even a rookie can do, so anyone can do this (even from home).
The "Filthy Riches" webinar is tonight AT 8:00 PM (Eastern).
To Join, CLICK HERE!!
See you there!
Wendy
To view this post in its original location, http://www.wendypatton.com/blog/live-webinar-tonight.
Wednesday, May 19, 2010
Example of how to do Rent-to-Own Home Transactions
Now, let’s take a look at a sample transaction to help you understand the process. John and Joan Homebuyers were told by their loan officer that they couldn’t qualify for a mortgage right now. “Not until you’ve improved your credit score.” They live in a down real estate market and know that now is a good time to buy. They have always dreamed of home ownership. They want a home NOW. They enlist the help of Sally Agent, a local real estate agent, who understands how to do rent-to-own home transactions.
From talking with their loan officer, John and Joan have determined that once they qualify for a mortgage, they can afford the payments on a $220,000 home. So they begin to look in that price range.
Alan and Ashley Homeseller live in the same market. A few months ago Alan received a promotion at work that requires them to relocate to another city. Alan and Ashley know the real estate market is down, but they have no choice but to sell their home now. They have it listed with real estate agent Thomas Broker (and yes, I do go to great lengths to come up with these names).
Alan and Ashley have had their home listed for 4 months at $225,000 without any offers. The need to get their home sold is getting urgent. Their agent, Thomas, recommends Alan and Ashley reduce the asking price to $215,000. He also suggests that they market their home on a rent-to-own basis for $225,000 (Wendy is very impressed with this agent because this agent knows that a rent-to-own is worth more than an outright sale – in almost all cases). After Thomas explains how it works to them, Alan and Ashley agree to add rent-to-own to their listing agreement.
Not long after, Sally Agent shows the house to John and Joan, who decide to make an offer on it. For their initial offer they offer $215,000 for the purchase price, agree to the asking rent amount of $1,500 per month, but ask for a $500 per month option credit. For their option fee, John and Joan offer 1% or $2,150 and a $250 security deposit. They also ask that all appliances in the house (refrigerator, stove, dishwasher, washer and dryer) be included.
After receiving their offer through Thomas, Alan and Ashley make a counter offer of $220,000 for the purchase price, $200 per month option credit and an option fee of 2.5% or $5,500 with a $750 security deposit. They agree to all appliances, except for the refrigerator which is brand new and they want to take it with them.
Getting closer to the agreement, John and Joan counter back, accepting the $220,000 purchase price, but ask for a $350 per month option credit and an option fee of 2%, or $4,400 with a $500 security deposit. They agree to let Alan and Ashley take the refrigerator, but they ask for an 18 month lease and option period instead of 12 months to give them extra time to get their credit in order. (By the way, most tenant-buyers will require 18 months or longer. Very few buyers can repair their credit in less tim with the current mortgage climate.)
Happy to finally have buyers for their home, Alan and Ashley accept the last offer. After conducting the proper screening, they agree to sign all of the paperwork and move in within two weeks, giving Alan and Ashley time to move out.
Excerpt taken from Rent-To-Sell: Your Hands-on Guide to SELL Your Home When Buyers are Scarce, Chapter 2, Pages 20-21.
To view this article in its original location http://www.wendypatton.com/blog/example-of-how-to-do-rent-to-own-home-transactions
From talking with their loan officer, John and Joan have determined that once they qualify for a mortgage, they can afford the payments on a $220,000 home. So they begin to look in that price range.
Alan and Ashley Homeseller live in the same market. A few months ago Alan received a promotion at work that requires them to relocate to another city. Alan and Ashley know the real estate market is down, but they have no choice but to sell their home now. They have it listed with real estate agent Thomas Broker (and yes, I do go to great lengths to come up with these names).
Alan and Ashley have had their home listed for 4 months at $225,000 without any offers. The need to get their home sold is getting urgent. Their agent, Thomas, recommends Alan and Ashley reduce the asking price to $215,000. He also suggests that they market their home on a rent-to-own basis for $225,000 (Wendy is very impressed with this agent because this agent knows that a rent-to-own is worth more than an outright sale – in almost all cases). After Thomas explains how it works to them, Alan and Ashley agree to add rent-to-own to their listing agreement.
Not long after, Sally Agent shows the house to John and Joan, who decide to make an offer on it. For their initial offer they offer $215,000 for the purchase price, agree to the asking rent amount of $1,500 per month, but ask for a $500 per month option credit. For their option fee, John and Joan offer 1% or $2,150 and a $250 security deposit. They also ask that all appliances in the house (refrigerator, stove, dishwasher, washer and dryer) be included.
After receiving their offer through Thomas, Alan and Ashley make a counter offer of $220,000 for the purchase price, $200 per month option credit and an option fee of 2.5% or $5,500 with a $750 security deposit. They agree to all appliances, except for the refrigerator which is brand new and they want to take it with them.
Getting closer to the agreement, John and Joan counter back, accepting the $220,000 purchase price, but ask for a $350 per month option credit and an option fee of 2%, or $4,400 with a $500 security deposit. They agree to let Alan and Ashley take the refrigerator, but they ask for an 18 month lease and option period instead of 12 months to give them extra time to get their credit in order. (By the way, most tenant-buyers will require 18 months or longer. Very few buyers can repair their credit in less tim with the current mortgage climate.)
Happy to finally have buyers for their home, Alan and Ashley accept the last offer. After conducting the proper screening, they agree to sign all of the paperwork and move in within two weeks, giving Alan and Ashley time to move out.
Excerpt taken from Rent-To-Sell: Your Hands-on Guide to SELL Your Home When Buyers are Scarce, Chapter 2, Pages 20-21.
To view this article in its original location http://www.wendypatton.com/blog/example-of-how-to-do-rent-to-own-home-transactions
Tuesday, May 18, 2010
Live Webinar on Thursday, May 20th
You could probably use an extra $40k or so couldn't ya?
Everyone could.
And now, most everyone can!
Not only that, but what if I told you that generating that kind of money could be done from houses no one else wants (or at least you THINK no one wants them) and that most properties in the $100k range will NEVER create a profile like you can get from a house for $5k.
You see, my friend has been working on something HUGE that is going to show just how this is possible.
As usual, I only focus on tactics that require no cash or credit that even a rookie can do, so anyone can do this (even from home).
My friend calls it his "Filthy Riches" system and he wants to share how these types of deals work and how much you can really make.
Everything will be revealed on an upcoming live webinar this Thursday May 20, 2010 and it is open to all my subscribers.
You have to register in order to get access, but it doesn't cost anything to join us and as long as you have a computer and internet - you can access it live.
REGISTER RIGHT AWAY >> CLICK HERE!!
Hope to see you there!
Source
Everyone could.
And now, most everyone can!
Not only that, but what if I told you that generating that kind of money could be done from houses no one else wants (or at least you THINK no one wants them) and that most properties in the $100k range will NEVER create a profile like you can get from a house for $5k.
You see, my friend has been working on something HUGE that is going to show just how this is possible.
As usual, I only focus on tactics that require no cash or credit that even a rookie can do, so anyone can do this (even from home).
My friend calls it his "Filthy Riches" system and he wants to share how these types of deals work and how much you can really make.
Everything will be revealed on an upcoming live webinar this Thursday May 20, 2010 and it is open to all my subscribers.
You have to register in order to get access, but it doesn't cost anything to join us and as long as you have a computer and internet - you can access it live.
REGISTER RIGHT AWAY >> CLICK HERE!!
Hope to see you there!
Source
Monday, May 17, 2010
What Makes a Motivated Seller? & Finding Motivated Sellers
Each seller will have his own reason for being motivated, and not all of them are able to do rent-to-own. The best motivated sellers for rent-to-own are the ones seeking what I call “good debt relief”. This usually means that the home they are trying to sell is a payment burden but they aren’t generally in financial trouble. Here are some examples of motivated sellers:
Wendy’s Wisdom: The best “motivated sellers” to find for rent-to-owns are those with two homes and two mortgage payments.
Finding Motivated Sellers
My favorite ways to find motivated sellers are in this order:
1) Working with Realtors / real estate agents
2) The “For Rent” ads
3) Advertising to find them
4) Getting sellers to call you
5) Distressed builders
6) For Sale by Owners- FSBO’s
There are many other ways to find motivated sellers, but these are more than enough for what you will need to find your home.
Excerpt from Rent-To-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending Is Tight Chapter 5, Pages 66-67.
- They built a new home and the old one hasn’t sold yet
- They purchased a new home and the old home hasn’t sold yet
- They recently got married and each had their own home- now they need just one
- They were given job transfer to a new area and haven’t sold their old home yet
- They inherited the property
- They are landlords and are selling a rental property
- They are selling a vacation home, or have retired and moved into their vacation home and are selling their old home
Wendy’s Wisdom: The best “motivated sellers” to find for rent-to-owns are those with two homes and two mortgage payments.
My favorite ways to find motivated sellers are in this order:
1) Working with Realtors / real estate agents
2) The “For Rent” ads
3) Advertising to find them
4) Getting sellers to call you
5) Distressed builders
6) For Sale by Owners- FSBO’s
Friday, May 14, 2010
Something to Think About Over the Weekend..
It's a good thing to turn your mind upside down now and then, like an hour-glass, to let the particles run the other way.
- Christopher Morley
Have a great weekend everyone!
Networking with Realtors
You only need to work with two to four listing agents per year to make a comfortbale living. You can find listing agents in the real estate section of your newspaper or through personal contacts or your investor groups. I have on Realtor in my area who gives me only one deal a year, but I make at least $30,000 each time. I stay in touch with her every few months just to keep my name fresh and to keep the realtionship moving forward.
Realtors know lots of other Realtors, so if you have one contact, you can network through that one to access many others. Call the local real estate board to find out when they have local functions, and go mingle. Exchange business cards at the functions. If you don’t have cards, get some printed. It’s more important at this point for you to have their cards than for them to have yours, but having a card to exchange is more professional. You want them to know who you are and how to get in contact with you. Take a Realtor out to lunch.
Rent a conference room and invite Realtors to a wine and cheese party; then give them a presentation about lease options or lease purchases. Draw them in by focusing on what’s important to them: “Would you like to sell more listings and make more money this year? I can teach you for free!” Do something to advertise it that grabs their attention without giving away all the details. Don’t be alarmed if only five or six people show up, because those few are very interested in creative solutions. You might even put on your invitations: “Would you like to be more creative than your competition? Would you like to know things that your competition doesn’t know yet? I can teach you some creative ways to sell your listings that your competition hasn’t even thought of."
If you are not sure who to call to get started, talk to the people in your local investing group, since there will be some Realtors in your group. These are not the Realtors you will be working with, as these are investors themselves and not traditional listing agents, but they should be able to tell you who the listing agents are in their offices. The top listing agents from the companies are also listed in the paper. It’s worth starting a database or spreadsheet to keep up with who is where and what they do, especially with the people you begin to contact and develop realtionships with.
Your local investors group can also be a great resource for brainstorming more ideas on drawing people in. Not only will they be interested in giving you feedback, but you may even find a money or managing partner there who is also keen on investing in the lease option strategy. You can then go in as a team and make a presentation.
Excerpt taken from Investing in Real Estate with Lease Options and “Subject-To” Deals Chapter 10, Pages 138-139.
Realtors know lots of other Realtors, so if you have one contact, you can network through that one to access many others. Call the local real estate board to find out when they have local functions, and go mingle. Exchange business cards at the functions. If you don’t have cards, get some printed. It’s more important at this point for you to have their cards than for them to have yours, but having a card to exchange is more professional. You want them to know who you are and how to get in contact with you. Take a Realtor out to lunch.
Rent a conference room and invite Realtors to a wine and cheese party; then give them a presentation about lease options or lease purchases. Draw them in by focusing on what’s important to them: “Would you like to sell more listings and make more money this year? I can teach you for free!” Do something to advertise it that grabs their attention without giving away all the details. Don’t be alarmed if only five or six people show up, because those few are very interested in creative solutions. You might even put on your invitations: “Would you like to be more creative than your competition? Would you like to know things that your competition doesn’t know yet? I can teach you some creative ways to sell your listings that your competition hasn’t even thought of."
If you are not sure who to call to get started, talk to the people in your local investing group, since there will be some Realtors in your group. These are not the Realtors you will be working with, as these are investors themselves and not traditional listing agents, but they should be able to tell you who the listing agents are in their offices. The top listing agents from the companies are also listed in the paper. It’s worth starting a database or spreadsheet to keep up with who is where and what they do, especially with the people you begin to contact and develop realtionships with.
Your local investors group can also be a great resource for brainstorming more ideas on drawing people in. Not only will they be interested in giving you feedback, but you may even find a money or managing partner there who is also keen on investing in the lease option strategy. You can then go in as a team and make a presentation.
Excerpt taken from Investing in Real Estate with Lease Options and “Subject-To” Deals Chapter 10, Pages 138-139.
Thursday, May 13, 2010
Subject-To Advantages
A subject-to involves getting the deed to a property without taking on a new mortgage. Instead, the seller signs over the deed to his home “subject to” the existing mortgage. The buyer makes the mortgage payments on the seller’s existing loan but does not take out a new mortgage to acquire the home.
Subject-tos have at leaset eight advantages. Some are the same as buying an option.
1) Minimum or zero down. Usually you only need to pay the seller a small amount to sign the deed over to you. It’s even possible that, if they owe more than you are willing to pay, they may pay you to take the deed from them.
2) No financing required. When you do a subject-to, you don’t need to get a mortgage because you are taking over the seller’s mortgage payments. Techinically, you are not assuming the seller’s mortgage. You are just making the payments on their existing mortgage.
3) Ownership. The day the seller deeds the property to you it is yours. You are the true owner of the home.
4) No qualifying. If you buy a home traditionally, you have to go to a bank or mortgage company and qualify for a loan.
5) No income or credit checks. Not once has a seller ever asked to look at my income or check my credit. They are more worried about their situation and how to get help from you.
6) You can buy them with your IRA. Very few companies handle self-directed IRAs. If you use your IRA for the option payment, the rent payment and any other income goes back into the IRA. Remember, the income from the Roth IRAs is taxfree for life. You can also do a subject-to with your IRA when there’s a mortgage already in place.
7) Great return on your investment (ROI).
8) The seller will love you. You will be making a positive difference in someone’s life.
Excerpt taken from Investing in Real Estate with Lease Options and “Subject-To” Deals Chapter 4, Pages 44 - 47.
Subject-tos have at leaset eight advantages. Some are the same as buying an option.
1) Minimum or zero down. Usually you only need to pay the seller a small amount to sign the deed over to you. It’s even possible that, if they owe more than you are willing to pay, they may pay you to take the deed from them.
2) No financing required. When you do a subject-to, you don’t need to get a mortgage because you are taking over the seller’s mortgage payments. Techinically, you are not assuming the seller’s mortgage. You are just making the payments on their existing mortgage.
3) Ownership. The day the seller deeds the property to you it is yours. You are the true owner of the home.
4) No qualifying. If you buy a home traditionally, you have to go to a bank or mortgage company and qualify for a loan.
5) No income or credit checks. Not once has a seller ever asked to look at my income or check my credit. They are more worried about their situation and how to get help from you.
6) You can buy them with your IRA. Very few companies handle self-directed IRAs. If you use your IRA for the option payment, the rent payment and any other income goes back into the IRA. Remember, the income from the Roth IRAs is taxfree for life. You can also do a subject-to with your IRA when there’s a mortgage already in place.
7) Great return on your investment (ROI).
8) The seller will love you. You will be making a positive difference in someone’s life.
Excerpt taken from Investing in Real Estate with Lease Options and “Subject-To” Deals Chapter 4, Pages 44 - 47.
Wednesday, May 12, 2010
Buy Unsold, Discounted Inventory from Builders in Distressed Markets Part 3
Previously, we have talked about outright purchase at a reduced price, lease option, and lease purchase. Today, you will read about the fourth strategy: short sale.
Short Sale
Another possibility when buying from a motivated builder is the short sale. In this case, the builder is usually behind on payments and in the foreclosure process. One effect of the sudden swing in many of the hot markets is that foreclosure rates have climbed. In fact, just from the second quarter to the third quarter of 2006, foreclosures in your area, check local newspapers that post legal notices or check http://www.realtytrac.com/.
Smaller-scale builders who either built homes on spec (no prearranged end buyer) or who had their building contract canceled are most likely to be in such a position because they have limited funds. In this case, the builder completed the property but has been unable to sell due to the dramatic change in the local market. The drop in property values might have eaten up all of the potential profit and the builder now is unable to sell. He might owe more than the home is worth. He either fell behind on the payments right away, or after some time his funds dried up. Either way, the lender started the foreclosure process. A savvy investor can step in and negotiate with the lender for a reduced purchase price to buy the property.
The investor documents to the lender the new current market value. For example, let’s say the builder built a single-family home to sell for $350,000. Due to the sudden change in the market the value of the home has dropped 15 percent, down to $297,500. Every lender has different rules and strategies to follow when negotiating short sales. For the sake of simplicity, we’ll say that in this case there was only a primary loan. To sell the property quickly and not have to complete the expensive foreclosure process and be forced to resell later, the lender is usually willing to take a reduced price on the property. This is typically in the range of 80 to 85 percent of market value. Keep in mind, however, that a lot of things have changed in the foreclosure market. Today, we do not see lenders taking the discounts that they once did.
There is no question, foreclosure investing is a detailed and complicated strategy. It takes a lot of time and experience to become an expert. In the county we live in, the average homeowner in foreclosure receives 120 letters from investors. Today, there is a fierce level of competition for these leads. That means it takes time and money just to get the leads. Foreclosure is the most time-intensive investing strategy. If you do have lots of time to spend, by all means develop this skill, as it has the potential to be very profitable. If not, other strategies will be more desirable to you.
Always keep timing in mind when buying from a builder in a down market. Buying while values are going down can be risky because it isn’t easy to predict how far down they will go. The optimum time to buy is when the market has hit rock bottom and is poised to start climbing back up. In many of the hot markets in 2004 and 2005, rock bottom might come quickly and the upturn could happen quickly or slowly. Most of these areas still have indicators for strong housing markets, such as solid employment with new jobs created, low interest rates, new people moving to the area, and businesses coming to the area. A huge inventory of new construction, in part, caused the oversupply and resulting market change. As this inventory is reduced and with fever homes being built due to the market downturn, the result might be a swift change where the available supply doesn’t meet the demand. Watching the market inventory can be a good way for investors or home buyers to time their purchases and maximize potential profits. To learn more about timing during market cycles and optimizing the time buyer.
Excerpt taken from Making Hard Cash in a Soft Real Estate Market Chapter 11, Pages 118-120.
Short Sale
Another possibility when buying from a motivated builder is the short sale. In this case, the builder is usually behind on payments and in the foreclosure process. One effect of the sudden swing in many of the hot markets is that foreclosure rates have climbed. In fact, just from the second quarter to the third quarter of 2006, foreclosures in your area, check local newspapers that post legal notices or check http://www.realtytrac.com/.
Smaller-scale builders who either built homes on spec (no prearranged end buyer) or who had their building contract canceled are most likely to be in such a position because they have limited funds. In this case, the builder completed the property but has been unable to sell due to the dramatic change in the local market. The drop in property values might have eaten up all of the potential profit and the builder now is unable to sell. He might owe more than the home is worth. He either fell behind on the payments right away, or after some time his funds dried up. Either way, the lender started the foreclosure process. A savvy investor can step in and negotiate with the lender for a reduced purchase price to buy the property.
The investor documents to the lender the new current market value. For example, let’s say the builder built a single-family home to sell for $350,000. Due to the sudden change in the market the value of the home has dropped 15 percent, down to $297,500. Every lender has different rules and strategies to follow when negotiating short sales. For the sake of simplicity, we’ll say that in this case there was only a primary loan. To sell the property quickly and not have to complete the expensive foreclosure process and be forced to resell later, the lender is usually willing to take a reduced price on the property. This is typically in the range of 80 to 85 percent of market value. Keep in mind, however, that a lot of things have changed in the foreclosure market. Today, we do not see lenders taking the discounts that they once did.
There is no question, foreclosure investing is a detailed and complicated strategy. It takes a lot of time and experience to become an expert. In the county we live in, the average homeowner in foreclosure receives 120 letters from investors. Today, there is a fierce level of competition for these leads. That means it takes time and money just to get the leads. Foreclosure is the most time-intensive investing strategy. If you do have lots of time to spend, by all means develop this skill, as it has the potential to be very profitable. If not, other strategies will be more desirable to you.
Always keep timing in mind when buying from a builder in a down market. Buying while values are going down can be risky because it isn’t easy to predict how far down they will go. The optimum time to buy is when the market has hit rock bottom and is poised to start climbing back up. In many of the hot markets in 2004 and 2005, rock bottom might come quickly and the upturn could happen quickly or slowly. Most of these areas still have indicators for strong housing markets, such as solid employment with new jobs created, low interest rates, new people moving to the area, and businesses coming to the area. A huge inventory of new construction, in part, caused the oversupply and resulting market change. As this inventory is reduced and with fever homes being built due to the market downturn, the result might be a swift change where the available supply doesn’t meet the demand. Watching the market inventory can be a good way for investors or home buyers to time their purchases and maximize potential profits. To learn more about timing during market cycles and optimizing the time buyer.
Excerpt taken from Making Hard Cash in a Soft Real Estate Market Chapter 11, Pages 118-120.
Monday, May 10, 2010
Buy Unsold, Discounted Inventory from Builders in Distressed Markets Part 2
Yesterday, we talked about the first strategy, outright purchase at a reduced price, that can be used when buying from builders in a distressed market. Today, we will be going over the six advantages to the Lease Option and Lease Purchase strategy.
Another approach would be to lease option or lease purchase from the builder. A lease option is obtaining an option to purchase a contract on a property for a specific period of time. During this time period, you rent the property from the seller. At the end of the option period, you may either purchase the property, renegotiate, or forfeit the option. A lease purchase is obtaining a purchase contract on a property for a time period, during which you also rent; however, during or before the end of the specific timeframe, you are obligated to purchase the house.
Let’s examine each of these advantages in greater detail.
There Are Several Advantages to the Lease Option, Lease Purchase Strategy:
1) Fixed purchase price at onset and capture of appreciation during option period
2) Lower payments
3) No mortgage required!
4) Higher price when selling to a rent-to-own buyer
5) Monthly credit toward principal from builder
6) No requirement to perform on option at end of term (lease purchase would require the purchase—the only difference between the two strategies)
1. Fixed Purchase Price at Onset and Capture of Appreciation During Option Period
You determine the purchase price at the time of the contract and any appreciation during the lease period would be yours to capture as profit.
2. Lower Payments
You should be able to negotiate a monthly rent (your payment) to the builder that is lower than your payment would be if you were to buy the property outright and have to make mortgage payments to a bank. This allows you to place a tenant or rent-to-own buyer into the property to make your payments for you with less likelihood of negative cash flow.
3. No Mortgage Required!
You do not have to obtain a mortgage on the property during this time. As such, you do not incur any loan origination fees at the closing, which saves you several thousand dollars in closing costs. The only down payment you might need to make would be your option fee, which you can typically keep very low, many times nothing at all. This will save your cash so you can do more deals with other builders in the same situation.
4. Higher Price When Selling to a Rent-to-Own Buyer
If you place a rent-to-own buyer in the property, you should be able to collect an option fee from that buyer, which is non-refundable whether the buyer chooses to purchase or not. Additionally, a typical rent-to-own buyer expects to pay a premium for the same home versus a conventional buyer. This allows you to mark up the price (slightly above retail) for an additional profit for yourself.
5. Monthly Credit toward Principal from Builder
You might be able to negotiate a monthly credit from the builder. For each month’s rental payment you can ask for a certain amount (sometimes 100 percent) to be credited toward the end purchase price by the builder, paying your down balance due when you purchase the home. It is not required to offer this credit to your tenant buyer, or if you do, you would credit much less, thereby increasing your profit margin.
6. No Requirement to Perform on Option at End of Term
If you do a lease option and the market fails to appreciate sufficiently during your lease period, you do not have to close on the property or buy from the builder. Lease options can be powerful ways to acquire real estate from motivated builders with very little money out of pocket. Given a lease period of sufficient time, the real estate market is likely to turn around and appreciate again, providing the investor with a nice profit. A lease purchase is a guaranteed purchase that would require you to purchase the home during or before the end of the lease period.
Excerpt from Making Hard Cash in a Soft Real Estate Market Chapter 11, Pages 116-118
Another approach would be to lease option or lease purchase from the builder. A lease option is obtaining an option to purchase a contract on a property for a specific period of time. During this time period, you rent the property from the seller. At the end of the option period, you may either purchase the property, renegotiate, or forfeit the option. A lease purchase is obtaining a purchase contract on a property for a time period, during which you also rent; however, during or before the end of the specific timeframe, you are obligated to purchase the house.
Let’s examine each of these advantages in greater detail.
There Are Several Advantages to the Lease Option, Lease Purchase Strategy:
1) Fixed purchase price at onset and capture of appreciation during option period
2) Lower payments
3) No mortgage required!
4) Higher price when selling to a rent-to-own buyer
5) Monthly credit toward principal from builder
6) No requirement to perform on option at end of term (lease purchase would require the purchase—the only difference between the two strategies)
1. Fixed Purchase Price at Onset and Capture of Appreciation During Option Period
You determine the purchase price at the time of the contract and any appreciation during the lease period would be yours to capture as profit.
2. Lower Payments
You should be able to negotiate a monthly rent (your payment) to the builder that is lower than your payment would be if you were to buy the property outright and have to make mortgage payments to a bank. This allows you to place a tenant or rent-to-own buyer into the property to make your payments for you with less likelihood of negative cash flow.
3. No Mortgage Required!
You do not have to obtain a mortgage on the property during this time. As such, you do not incur any loan origination fees at the closing, which saves you several thousand dollars in closing costs. The only down payment you might need to make would be your option fee, which you can typically keep very low, many times nothing at all. This will save your cash so you can do more deals with other builders in the same situation.
4. Higher Price When Selling to a Rent-to-Own Buyer
If you place a rent-to-own buyer in the property, you should be able to collect an option fee from that buyer, which is non-refundable whether the buyer chooses to purchase or not. Additionally, a typical rent-to-own buyer expects to pay a premium for the same home versus a conventional buyer. This allows you to mark up the price (slightly above retail) for an additional profit for yourself.
5. Monthly Credit toward Principal from Builder
You might be able to negotiate a monthly credit from the builder. For each month’s rental payment you can ask for a certain amount (sometimes 100 percent) to be credited toward the end purchase price by the builder, paying your down balance due when you purchase the home. It is not required to offer this credit to your tenant buyer, or if you do, you would credit much less, thereby increasing your profit margin.
6. No Requirement to Perform on Option at End of Term
If you do a lease option and the market fails to appreciate sufficiently during your lease period, you do not have to close on the property or buy from the builder. Lease options can be powerful ways to acquire real estate from motivated builders with very little money out of pocket. Given a lease period of sufficient time, the real estate market is likely to turn around and appreciate again, providing the investor with a nice profit. A lease purchase is a guaranteed purchase that would require you to purchase the home during or before the end of the lease period.
Excerpt from Making Hard Cash in a Soft Real Estate Market Chapter 11, Pages 116-118
Buy Unsold, Discounted Inventory from Builders in Distressed Markets Part 1
Amid endless media speculation aout whether there was a real estate bubble, and if there was, when it would burst throughout many of the hottest real estate markets of 2004 and 2005, the bubble either burst or deflated rapidly. Home builders had been building at unheard of rates. In areas such as Las Vegas, Phoenix, Washington D.C., and much of California and Florida, real estate was appreciating at more than 20 percent per year. In some cases, appreciation was nearly 50 percent in some years!
An investor can adopt several strategies when buying from home builders in depressed or soft markets. The best strategy will depend on both you, the investor; and the builder. Even a combination of strategies might be the best approach.
Strategies When Buying from Builders in Depressed Markets:
1) Outright purchase at a reduced price
2) Lease Option
3) Lease Purchase
4) Short sale
Outright Purchase at a Reduced Price
Obviously, the first option is to purchase the house outright from the builder. With this strategy, not only do you accept all of the closing concessions, free upgrades, and price reductions available to the public, but you would also want to negotiate the purchase price vigorously. The key here is to ensure that the deal you are buying is not only a good deal now, but will be a good deal next year if the prices haven't recovered in that year. In addition to securing a better price, you might be able to negotiate guaranteed rents or mortgage payments for a period of time. In this case, the builder is guaranteeing rental or mortgage payments for a certain predetermined amount for a given period of time. This helps cover you, the investor, should you have trouble keeping or getting the property occupied or sold.
Your exit strategy on this approach could be either to hold the property as a rental until its value has gone up enough that you are ready to sell and make your profit, or, if you have secured a low enough purchase price, to wholesale the property to a home buyer or another investor.
We will continue tomorrow with Lease option and Lease purchase in Part 2 of Buy Unsold, Discounted Inventory from Builders in Distressed Markets.
Excerpts taken from Making Hard Cash in a Soft Real Estate Market Chapter 11, Pages 113-116
An investor can adopt several strategies when buying from home builders in depressed or soft markets. The best strategy will depend on both you, the investor; and the builder. Even a combination of strategies might be the best approach.
Strategies When Buying from Builders in Depressed Markets:
1) Outright purchase at a reduced price
2) Lease Option
3) Lease Purchase
4) Short sale
Outright Purchase at a Reduced Price
Obviously, the first option is to purchase the house outright from the builder. With this strategy, not only do you accept all of the closing concessions, free upgrades, and price reductions available to the public, but you would also want to negotiate the purchase price vigorously. The key here is to ensure that the deal you are buying is not only a good deal now, but will be a good deal next year if the prices haven't recovered in that year. In addition to securing a better price, you might be able to negotiate guaranteed rents or mortgage payments for a period of time. In this case, the builder is guaranteeing rental or mortgage payments for a certain predetermined amount for a given period of time. This helps cover you, the investor, should you have trouble keeping or getting the property occupied or sold.
Your exit strategy on this approach could be either to hold the property as a rental until its value has gone up enough that you are ready to sell and make your profit, or, if you have secured a low enough purchase price, to wholesale the property to a home buyer or another investor.
We will continue tomorrow with Lease option and Lease purchase in Part 2 of Buy Unsold, Discounted Inventory from Builders in Distressed Markets.
Excerpts taken from Making Hard Cash in a Soft Real Estate Market Chapter 11, Pages 113-116
Friday, May 7, 2010
Negotiating Tips
You don't need to be an expert negotiator to negotiate successfully. The point of this is to teach you some useful tips and tricks to help you negotiate better. The reason we need to know how to negotiate is that everyone (including you) likes to negotiate to some extent.
Here are a few tips and examples to follow:
Don't Give Away Anything without Asking for Something in Return
This tit-for-tat technique helps ensure that even if you are giving your tenant-buyers a key aspect that they want, you are getting something in return. A good way to handle this is either with a question, "If I gave you the $5,000 in option credits you are asking for, what do you think is a fair exchange for that?"
Or, you can ask for what you want, "If I give you the $5,000 in option credits you are asking for, I would need for you to agree to a price increase of $1,000, plus be responsible for any repairs that are necessary during the lease."
By asking a question, you give the tenant-buyer a chance to voice what they think is a fair exchange for what they are asking for. It may turn out to be MORE than what you would have asked for. If it isn't enough you can always negotiate up from what they propose.
By stating what you want, you are more limited. The tenant-buyer may even try to negotiate you down from that position. However, if there are a few key things that you really want out of the negotiation, this is a good time to go after them.
Wendy's Wisdom: Just a reminder again that most tenant-buyers will not try to negotiate much. I just want you to be prepared in the event that you do need to negotiate.
Last Minute Add On
This trick is used to capture small concessions at the last minute after everything else has been agreed upon. The idea is that once you are already emotionally invested in the deal, you don't want to let it go over just a couple of little things thrown in at the last minute.
There are a couple of effective ways to counter this technique:
1) Say no. At this point the tenant-buyer is likely just as emotionally invested in the deal as you are, and isn't going to walk away from it if you won't give in on these last minute requests. Hopefully, you also have everything in writing, signed and the deposit in hand.
2) Counter by asking for something in return. This is the tit-for-tat technique that will allow you to meet their last minute request if they are willing to give up something in return.
This type of situation is more likely to occur with questions or requests after everything is signed. For instance, "Can we put our stuff in the garage a week early?", "Can we move in on the 28th versus the 1st since it is a weekend?", or "Can we start to paint the master bedroom before we move in?" I will usually try to accommodate these requests if I can, especially if it doesn't affect me either way. I will usually let them move in or get in early if possible. In this case I might give them free rent for those days, but they must have paid their entire balance in full to move in. I then request they also put the utilities into their name on the day they want to move in. Sometimes I even suggest this approach after we have agreed on everything. I do this so I can then reduce my expenses of utilities for a few days. Of course, all of the paperwork would be signed, as well.
Wendy's Wisdom: Remember, most tenant-buyers won't be very strong negotiators. They typically negotiate most with the option fee and accept most everything else.
Excerpt taken from Rent-To-Sell: Your Hands-on Guide to SELL Your Home When Buyers are Scarce Chapter 13, Pages 155-167
Here are a few tips and examples to follow:
Don't Give Away Anything without Asking for Something in Return
This tit-for-tat technique helps ensure that even if you are giving your tenant-buyers a key aspect that they want, you are getting something in return. A good way to handle this is either with a question, "If I gave you the $5,000 in option credits you are asking for, what do you think is a fair exchange for that?"
Or, you can ask for what you want, "If I give you the $5,000 in option credits you are asking for, I would need for you to agree to a price increase of $1,000, plus be responsible for any repairs that are necessary during the lease."
By asking a question, you give the tenant-buyer a chance to voice what they think is a fair exchange for what they are asking for. It may turn out to be MORE than what you would have asked for. If it isn't enough you can always negotiate up from what they propose.
By stating what you want, you are more limited. The tenant-buyer may even try to negotiate you down from that position. However, if there are a few key things that you really want out of the negotiation, this is a good time to go after them.
Wendy's Wisdom: Just a reminder again that most tenant-buyers will not try to negotiate much. I just want you to be prepared in the event that you do need to negotiate.
Last Minute Add On
This trick is used to capture small concessions at the last minute after everything else has been agreed upon. The idea is that once you are already emotionally invested in the deal, you don't want to let it go over just a couple of little things thrown in at the last minute.
There are a couple of effective ways to counter this technique:
1) Say no. At this point the tenant-buyer is likely just as emotionally invested in the deal as you are, and isn't going to walk away from it if you won't give in on these last minute requests. Hopefully, you also have everything in writing, signed and the deposit in hand.
2) Counter by asking for something in return. This is the tit-for-tat technique that will allow you to meet their last minute request if they are willing to give up something in return.
This type of situation is more likely to occur with questions or requests after everything is signed. For instance, "Can we put our stuff in the garage a week early?", "Can we move in on the 28th versus the 1st since it is a weekend?", or "Can we start to paint the master bedroom before we move in?" I will usually try to accommodate these requests if I can, especially if it doesn't affect me either way. I will usually let them move in or get in early if possible. In this case I might give them free rent for those days, but they must have paid their entire balance in full to move in. I then request they also put the utilities into their name on the day they want to move in. Sometimes I even suggest this approach after we have agreed on everything. I do this so I can then reduce my expenses of utilities for a few days. Of course, all of the paperwork would be signed, as well.
Wendy's Wisdom: Remember, most tenant-buyers won't be very strong negotiators. They typically negotiate most with the option fee and accept most everything else.
Excerpt taken from Rent-To-Sell: Your Hands-on Guide to SELL Your Home When Buyers are Scarce Chapter 13, Pages 155-167
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