Helping others to succeed as an investor- working with lease option buyers
Published by: Danny Welsh, CMO of HIS, Greatest Real Estate Giveaway Director on 17th Sep 2009 |
View all blogs by Danny Welsh, CMO of HIS, Greatest Real Estate Giveaway Director
Helping others to succeed as an
investor- working with lease option
buyers
Do you take an active role in
assisting potential buyers who can’t get conventional financing
to repair their credit so that they can buy from you? i.e.
basically creating buyers for yourself by taking renters and
earning their loyalty and down payments by showing them how to be
owners?
Why or why not?
When you do, how is the best way you go about it specifically?
Let’s all share what works for us.
Comments
Subscribe
3 Comments
From my perspective you have to always ask yourself what the risk/reward is on every single transaction! More importantly, know what your exit strategy is beforehand and whether or not it makes sense to enter into a lease option. It's not too difficult!
More to To Danny's points. Ask yourself the following, what is my personal tolerance to the possibility of having to deal with a renter who is a credit risk? Do I have the financial capability to deal with someone that may potentially become delinquent on his/her rent payments? More importantly, do I have the type of personality to constantly be using my own funds to make my mortgage payments while chasing after my rents without losing my cool? If the answer is no to either of these questions, this is probably not a good option for you because the last thing you want to do increase your stress levels and placing yourself at financial risk because of the actions of someone else. So make sure that you weigh the pros and the cons of entering into a lease option agreement!
It is important that you have a strategy or system in place to determine who you will and who you won't work with! One ways to you can eliminate some of the risk is by creating a relationship with an experienced mortgage lender who is willing to pre-approve all of your buyers for a lease/option. Note that I'm not talking about obtaining an approval for financing today, I'm talking about getting a good idea about where the prospect sits today and what the prospect has to do tomorrow in order to obtain financing in the future. By following this recommendation, you will know exactly what the risks are for you upfront, what the probability is of the buyer being able to obtain financing down the road, and how long the term of the lease/option period needs to be before the buyer can obtain their own financing. If you're serious about lease/options, this is valuable information to have when making a final decision, and it costs you nothing to obtain it! It's a great way to limit your exposure!
Another individual you should have on your team is a loss mitigation expert. A loss mitigation expert is someone who is knowledgeable in helping people overcome their personal financial challenges through legitimate credit repair. Having someone on your team who understands how to resolve past credit issues and increase your buyers credit score can help you close faster on all of your lease/option agreements! This individual can help instruct your buyers on what they need to do so that down the road their credit score will allow them to obtain financing. And once again, it costs you nothing to obtain this information! It also limits your exposure!
Don't be afraid to put all of your prospective lease/option buyers through this system because it will not only help you, it will help them as well! Prospects with less than perfect credit are afraid to look at their credit history, they know it stinks! By being proactive and taking these additional steps, you'll set yourself apart from most other private investors in the eyes of your prospective buyers! They will not resent you, they will appreciate the level of your professionalism! I would venture that you'll end up being the only one that shows them a clear path to resolving their financial challenges! Combine that with your willingness to work with them, they will think you're the greatest real estate investor in the world and will refer all of their friends and family to you that need to purchase a home! Regardless if they think they can qualify to purchase right now, they know you will help them!
Cash is king! I would never advise that you collect zero funds at the time the lease/option agreement is signed, but I also wouldn't say that you can't be flexible! The deal that you made on the front-end when you purchased the home will have an impact on what you can or cannot do on every transaction. Remember that your exit strategy should be in place before you even purchase the home, so you know what you need/want to have in cash on every transaction. The easier you make if for them to enter into an agreement with you, the quicker you will handle cash flowing your property! Here's a secret; Many people who are experiencing challenges in obtaining financing don't necessarily have bad credit! In many case, they simply can't document their income, i.e. self employed, etc. Don't be afraid to ask for cash upfront and don't be afraid of being creative!
The current economic situation has made it impossible for many families to qualify to obtain financing to purchase a home. Now more than ever savvy real estate investors can make huge profits doing lease/options. If you're smart, if you make sure that doing lease/options is something you can handle financially and emotionally, then the sky is the limit! If you follow the two strategies that I've outlined, you can also eliminate most of the risk right from the onset! Through effective marketing you can easily position yourself as the expert in your community helping people achieve the dream of home ownership!
By the way, have you ever noticed the huge pile of money that you're leaving on the table on every single lease/option that you accept or reject! It's right there before your eyes, and it has absolutely nothing to do with the monies that you earn at the settlement table! Hint: The systems that you put in place will help you tap into this additional stream of income! Can you imagine the power of having only one individual sharing their story with others about how you helped them overcome their financial challenges! Instant cash profits!
Click here to sign up now.