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How To Get Realtors To Bring You Lease Options
By Tony Seruga, Yolanda Seruga And Yolanda Bishop
Property investors have a valuable resource sitting right under
their noses, but many either ignore it, or dismiss this
potentially valuable tool without even exploring their options.
The resource in question is your realtor. Many investors are
too quick to dismiss the realtor as not having the best deals,
or their best deals are done before the property hits the open
market.
While it is true that real estate agents tend to focus on the
retail market, they are in business to make sales, and that can
often mean thinking outside the square, for both the realtor and
investor.
Remember, the agent not only has sales skills, but will pick up
valuable information in the normal course of their business. A
good agent will know what properties are coming on the market
and, more important, which properties would best qualify for a
lease option transaction, as opposed to a traditional outright
sale.
And that's where you, as an investor, enter the picture. If you
put the time and effort into helping an agent understand the
lease option process, they will soon be coming to you with
proposals.
A lease option consists of two elements, the first of which is
the lease. This is a contract for use and possession of the
property, thus creating a lessor/lessee relationship.
The second element provides a purchase option, which is a
unilateral agreement where the seller agrees to give the buyer
the exclusive right to the leased property.
It can be a win-win situation for all parties, including the
agent, particularly in situations where the seller doesn't need
their equity out, or they don't have any equity in their home.
First, you will generally have to educate the agent about lease
options. Select a small number of successful realtors, write to
them, outlining what you propose then follow it up with a
personal presentation.
Spend some time networking and getting to know the agent so you
build up a personal relationship. You want to reach a stage
where the realtor will automatically call you if a seller
suggests they will rent their house.
What you are really doing here is leveraging the agent's
knowledge. Realtors liaise with sellers regularly, so they know
who is in trouble, who can rent, and which homes are vacant.
Your relationship with the realtor will only grow, if they are
paid – promptly! No professional operator will wait years on
payment for work they have done, so be prepared to give the
agent a percentage of the commission upfront, when the lease
option is signed.
If you're a really serious investor, you may consider becoming
a licensed agent yourself. This allows you to receive commission
and gives you access to a database of comparables – data you
need to buy and sell.
Be aware that an option is not the same as a regular contract.
A regular contract is a bilateral agreement that legally binds
both parties to an agreement, while an option only binds the
seller.
Lease Options are not an arrangement to sell like contracts for
deeds are. They are strictly a lessor/lessee agreement, meaning
that if the tenant decides not to use their option to purchase,
the owner will benefit from any market appreciation.
A lease option is a technique that involves gaining "control"
of a property, but not ownership—just the right to possess a
property now and purchase that property at some future date with
terms you define today.
A lease option is attractive in a situation where sellers have
reasonable debt and can be considered a low risk of defaulting.
Conversely, sellers with a heavy debt burden are in financial
trouble of some sort and you need to get the deed by either
buying the property outright, or making the sale "subject to".
The main point is, you must get this person's name off the
title as fast as possible or you could get caught up in their
mess, particularly if a creditor puts a caveat on the property
and has to be paid before you can take up the option to
purchase.
Sellers with good debt are motivated by different circumstances
– a change in their life, job transfer, building a new home,
etc. They are good prospects for the lease option.
It's unlikely a seller will happily volunteer the fact that
they are in financial difficulty, so it is up to you to always
research the title before doing the deal to make sure that
person is the name on the title and that there are no hidden
liens on the title.
Consider this example of when a lease option should be applied.
A professional person (such as a lawyer) builds a new home. The
old home is worth $250,000 and our lawyer friend owes $150,000,
giving him/her $100,000 worth of equity.
The lawyer isn't behind on payments and doesn't need the
$100,000 cash out for the new house. The old home is on the
market and vacant, but hasn't sold. The lawyer can afford the
repayments on both houses, but doesn't want to be making extra
house payments.
He/she may be out of pocket each month by making payments on a
vacant house, but our lawyer friend isn't just going to hand
over the deed and let someone else be responsible for the
mortgage, not when he has all that equity invested in the
property.
As an investor, you don't want to be handing over a large
amount of cash for the title, so the perfect solution for both
parties is a lease option.
Say you take out an option on the house for $180,000 and make
payments equal to the lawyer's mortgage commitments. You then
sell the property for $220,000 on a 2-year lease option with
payments still covering his mortgage payments.
At the end of the term, you make a $30,000 profit, the lawyer
hasn't had to worry about mortgage payments for a couple of
years, he gets his equity back in cash, and the buyer gets a
home they may not have been able to afford earlier – a win-win
situation for all parties.
About the Author: Tony Seruga, Yolanda Seruga and
Yolanda
Bishop of http://www.maverickrei.com
specialize in commercial
and investment real estate. As of May, 2006, they and their
partners are managing over $600 million dollars worth of new
projects.
