How Do You Find a Property to Buy Using a Lease-Option?
If you want to find a property to lease-option, there are dozens of ways. Some require a bit more creativity and ingenuity than others. Nevertheless, even in hot markets--in a seller's market--”there are always lease-option opportunities. And in cooler markets--in a buyer's market--”finding a property is downright easy. We've divided these techniques into ones in which a Realtor is necessary or highly helpful, and other techniques that anyone can do, with or without a Realtor.
Multiple Listing Service
If you're working with a Realtor--or decide that's the route you want to go--then your first step is to ask your agent to search the multiple listing service for properties available as lease-options. In down markets, there will be some, though probably not a huge number. In stronger markets, there will be few if any.
MLS: Other Delayed Purchases
Be sure your agent also searches using other terms that describe similar structures. These terms include "lease-purchase," "rent-to-own," "rent-to-buy," "land contract," and "contract for deed." In each case, the owner is signaling that he or she wants to sell, but is willing to wait for the sale occurs. Some of these techniques, and some of these terms, are more often used in certain areas of the country than others. So search for them all.
MLS: Owner Financing
Search for properties on which the owner is willing to hold financing. This means the owner is willing to act as the bank. He doesn't need all the money at closing. He's willing to take payments over time while the tenant is living in the home. And many owners don't have the lending criteria as strict or inflexible as the big banks.
But don't stop there. Have your agent look for other properties in the MLS that are lease-option possibilities. Remember: A lease-option couples a lease with an option to purchase. So your agent should be looking for owners who are trying to rent their properties but are open to selling, or for owners who are trying to sell, but are open to renting.
MLS: Properties for Rent and for Sale
The first step is to find those properties in the MLS listed both for rent and for sale. Even if they're not listed as "lease-options," these are properties that the owners are willing to lease and to sell. All you're asking is that they lease now and sell later.
MLS: Expired Listings for Rent
The next step is to find those properties in the MLS that were listed for sale, but those listings either expired or withdrawn, and are now listed as for rent. These are properties that the owners really would like to sell. But they weren't able to, so they're willing to rent. Again, you're offering a solution to their problem. You're willing to rent now, and may be willing to buy later.
MLS: Expired Rentals Now for Sale
Along the same lines, look for properties that first were listed as rentals, but now are listed for sale. There probably will be fewer of these than those first for sale, now for rent, but it never hurts to look. These, too, are properties that the owner is both willing to rent and to sell.
Thus far, we've identified properties that we know the owners have been willing to both rent and sell. Now we'll move on to owners who might be willing to both rent and to sell.
MLS: Vacant Houses for Sale
Start with owners who are trying to sell, and whose house is vacant. These owners may have bought a new home, but haven't yet sold the old one. They're paying two mortgages--usually an uncomfortable situation. You can help out by providing a quick revenue stream--your rent payments--while offering the possibility of a sale in the future. Have your agent refine the search still further by initially targeting the properties that have been on the market the longest (longest days on market).
You'll find more prospects among owners who are renting out their homes. It may be their former primary residence, and they've moved on to a new home. Or it may be a property they've held as an investment property for awhile. It's important to remember that many owners are "reluctant landlords." It wasn't their original intent to rent out their property. They don't particularly enjoy the whole rental process, and they don't like the hassle of dealing with tenants. But somehow they've become landlords and they're trying to make the best of it.
For these owners, the solution you're offering is the immediate gratification of a rental, and the longer term possibility of a sale. It may help if the property is vacant, but even reluctant landlords whose tenants have given proper notice, and haven't moved out, may be eager to end their landlording hassles.
Those are a few ways of finding lease-options on the multiple listing service. And yet, believe it or not, there are usually many more lease-option opportunities outside of the MLS than on it.
As you've already seen--and as we've already said--many lease-option properties won't be advertised that way. You (or your agent) have to make it happen. You may have to "educate" an owner that the best solution to his dilemma is a lease-option.
But we're nowhere near done. If you're not able to find a real estate agent to help you find listed properties that can be lease-optioned, if you can't find the right home using the techniques above--or if you'd simply like to do it yourself--here are some additional techniques that don't involve the MLS at all.
Non-Multiple Listing Service Sources
Many rental properties--single-family homes, townhouses, and condos--are rented out directly by the property's owner. Remember, as we pointed out above, that many owners are "reluctant landlords." All the points made above apply to non-listed rentals. In addition, these owners are facing the hassle of dealing with calls from many "tire kickers" and less-than-serious callers. So, many get frustrated pretty quickly.
And the person seeking a lease-option has another advantage: The ability to speak directly to the owner. Now, technically, even if a property is listed with an agent, you can speak directly to the owner. But the owner has decided to use a real estate agent, in part, to avoid all that hassle. It's poor form, and usually not a good idea, to try negotiating directly with a seller when that seller is represented by a real estate agent. In the case of non-listed rentals, there is no such buffer. You can call and, in most cases, speak directly with the owner.
There can be another advantage, too: Not having to deal with a real estate agent who doesn't understand lease-options, doesn't "believe in them," or thinks that he or she is protecting the owners' interest by not accurately presenting your offer to the owners.
You can find these properties in the classified ad sections of newspapers. You can also find them on online services such as Craigslist. And you can find them by looking at bulletin boards at your local supermarket or other locations. And if you can't find enough by looking, then place your own ads in the newspaper, on Craigslist, and on bulletin boards.
Here are some clues to properties that might work out as lease-options.
For Sale by Owner (FSBOs) Properties
These are properties that the owners are trying to sell themselves. People often try to sell properties themselves for two reasons: In a seller's market--when there's more demand than supply--FSBOs figure that the house will pretty much sell regardless of who the agent is, how much marketing is used, or even the price of the house. So why, FSBOs wonder, should they pay an agent 4%, 5%, 6%, or even more when all it'll take is a "For Sale" sign. In a seller's market, it's very difficult to find lease-option properties, especially among FSBOs.
The picture changes sharply in a buyer's market--when there's more supply than demand. In a slow market, some sellers think they can't afford to pay an agent's commission. They think that they'll end up with more money in their pockets if they sell the home themselves. They're often wrong, but that's their strategy.
One other thing to keep in mind about FSBOs: The asking price of their house is far more likely to be too high than too low, or even properly priced. In part, they don't have access to all the tools a real estate agent does. In part, they're emotionally attached to their homes.
Sometimes, they had an appraisal on their property for one purpose, such as a refinance or home equity line of credit (in which cases, the appraisals tend to be on the high side), and they think that the appraisal was an accurate reflection of the value upon resale. It isn't. And sometimes they've used one of the many online services, such as Zillow, to price their homes. Those services sometimes are reasonably accurate. Often, they're not.
So, in any market, hot or cold, FSBOs are likely to be overpriced. And in a slow market, that means most will sit there and just not sell. That's why you, the buyer, should have a real estate agent on your "Dream Team" even if you're planning on finding the property yourself. Your agent can quickly tell you whether the price being asked by the seller is reasonable.
When dealing with a FSBO, a lease-option buyer can offer closer to what the FSBO actually wants. The catch, of course, is that the sale will occur a year or more into the future, not today. If the FSBO needs all of his equity out of the property, this strategy won't work. But if the FSBO can wait a year or two, there are golden opportunities for the lease-option buyer. The tenant-buyer explains to the FSBO that he can pay what the FSBO is asking (or close to what the FSBO is asking). Just not right away. It's the same basic strategy that's used above, for listed homes for sale. But now you can make your case directly to the seller.
Sometimes owners will advertise lease-options. They understand the benefits of lease options to themâ€”immediate cash flow, often at higher-than-market rent, plus a good opportunity to sell their homesâ€”and decide to try it themselves. You can find these anywhere owners advertiseâ€”local newspapers, bulletin boards, Craigslist, and so on. In structured formats, such as newspapers and Craigslist, look under both properties for rent and properties for sale.
Some investors put together lease-options, then market the lease-options to tenant-buyer with a markup. These are called "sandwich lease-options" because the structure resembles a sandwich: An owner on one side (one slice of bread in the "sandwich") lease-optioning the property to an investor; the investor in the middle (the meat in the sandwich), and the tenant-buyer on the other side (the other slice of bread in the "sandwich").
Excerpted from How You Can Buy a Home With Poor or No Credit Using Lease Options. To order, just click here. If you're interested in buying or selling using a lease option, e-mail Don@Solutions3DHome.com or go to http://www.Solutions3DHome.com