What Should I Reply Back To My L/O tenant Buyers When They Ask Me How My Rent To Own Program Works

sounds to me that you'd like to hear the Cliff Notes version of Lease Options...

In order to do a Lease Option you need to have a 'motivated' seller who owns a property without much equity in it, may have a mortgage on it, and just wants out of it, expecting no money from it... AND is willing to keep his name on title for a couple of years, and agrees to leasing his property. You have to do your calculations to figure out how much you need to collect every month from a possible tenant/buyer to pay the mortgage, the taxes, the insurance, and how much (amortization) will be credited to purchase price of house at the time (usually 2-4yrs) when buyer exercises his option to purchase.

The buyers you have with 5K to 20K may or may not work for your deal; it all depends on your numbers... and if buyers will be able to get a loan in 2-4 yrs to purchase the property when they will be required to do so. You also need to know what clauses to put in contract, for example, if buyers want to get a loan before the 2 year term, or if they want to get a time extension, etc...

I suggest that you learn more about Lease Options before you start telling your sellers and buyers that you can do a lease option.
One book that I found helpful was Investing in Real Estate with Lease Options, from Wendy Patton (link below)
http://www.amazon.com/Investing-Estate-Lease-Options-Subject-/dp/0471718...

Or... you could also partner with another investor who is an expert on Lease Options?

I'm sure Karen will chime in when she sees this post, and provide her expert opinion on Lease Options

You know that I really admire your drive and "no fear" attitude, but Valerie is completely right!!!

You HAVE GOT to KNOW and UNDERSTAND how a technique works before you start advertising for buyers and sellers to participate! Especially in something which is not a normal technique that people are familiar with, like LOs. Nobody (except a fool) is going to hand you $20k to get into a house when you can't even explain how it works to them! Remember when we talked and talked about not wanting to ruin your credibility before you even get started?

I strongly suggest that you start with wholesaling and really get that down and get a few deals under your belt before moving on to the next thing.

When you try to start out with more than one technique before becoming proficient in the first one, it's like hunting bear with a scatter gun instead of my preferred method of hunting with a grenade!

This is what we are taught here and what works. (Not the grenade part, that's my own idea. Just for emphasis!)

Karen

Thanks for weighing in and I appreciate your suggestion.

Goodluck in your investing...

It was great talking with you today. I appreciate your words of encouragement. Believe me, it meant lot.

Thanks for your suggestion

Best wishes in your investing

TC, I'm basically in agreement with all the above information. I haven't read Wendy Patton's book, but Wendy and I both spoke to the same REIA group one evening a few years ago, and I had a chance to spend some time with her afterward. She has a solid approach to lease options.
I usually like to interview potential tenant/buyers to find out what they are looking for. I let them know that we work with a number of different properties and I need to gather some information from them to match them with the properties that will work best for them. And then I find out about areas, how much they have to spend, and other requirements they have for a property. I tell them that we'll begin the matching process and get back with them with any properties that will match their needs.
If they begin to ask me about my program, I let them know that it varies with each property, but I will share those details regarding any property that we match them with. I do point out to them any major concern areas I see with what they are requesting. For example, if they want a property for $300 per month, and the average rent for the area is $800, I will explain to them that the numbers have to be consistent with what is available in the area--I provide a great service, but I'm not a miracle worker.
I believe in full disclosure, but I like to pick my timing on when I disclose certain information. I let people know that our arrangements are absolutely fair and reasonable, and once we discuss specific arrangements, if they want to go try and find something comparable in price and quality, they are welcome to search to their heart's content. We ARE the best game in town for people who have credit issues and want to get into a lease option, and I have no problem telling people that--it's simply true.
If you are interested in some things to assist with your lease options, please send me a private message, and I'll need an email address. I simply cannot publish it all here. I'll include my profit chart that, if followed, will make sure your sandwich lease option transactions are set up to be profitable.

Well I see the heavy hitters have stepped up the plate and gave out a lot of great advice to help keep you out of trouble and become stronger. Like Kareng said you don't need to ruin your credibility, its all you have right now and people will talk about you, you just want the to talk good about you and the great help you gave them so they will tell their friends and family.

Good luck and keep pushing with your eyes open !!

My comments on these posts are generally designed to have a few specifics for the person who posts, but to expand the knowledge generally for future readers, and give them something to apply. In my previous post, I did more of the latter.
I'd like to refer more to the former now, TC, and basically share that my experience as a real estate investor has been that being focused on what you want to accomplish, and using a specific strategy to get there will get you to your goal faster and easier than by allowing yourself to meander down other paths. I think Karen has provided some solid advice here, and hope that others who may be reading will also recognize the importance of becoming good at one strategy and using it successfully.
Wholesaling is not a beginner technique, it is a technique that works well for beginners and experienced investors. Not only Dean Graziosi, but also Donald Trump and Warren Buffet still do wholesaling deals. Master it at the single family residential level, and you can then apply it to other types of properties as well in the future. And the accompanying knowledge that we gain through wholesaling makes us into really solid investors with good people skills, analysis skills, negotiating skills, etc.

Thanks for sharing that with me and I appreciate you for weighing in on this post.. I admire the way you pour out your knowledge on DG.com. I had to save your reply technique on how to reply when they ask me about how it works. I remember a couple of months ago you had shared your L/O profit chart on DG.com and I wrote it down on my yellow note pad. I'm about to PM you with my email address.

I had to do some quick research on Donald Trump and Warren Buffe....these folks are so amzaing. I just realized Donald Trump bought a golf course close to my school and he renovating it into a hotel resort which is above 90,000 sq ft. the renovation will be completed in 2014. Immediately I confirmed it I called the number on their website in order to see if they have any job opportunities. They told me I should call back on Monday.

Thanks again

Thanks for weighing in. I appreciate it.

Goodluck in your investing

I admire your thirst for knowledge!! I LUV reading and learning more from everyone that responds!!!
I would add to all excellent advice above to seek out your power team members.... Specifically a lease opt or land contract, rent to own attorney, tell him exactly what you want to do........ You may have found a motivated seller who will rent to own you his property. You also MAY have found a buyer who may rent to own this from you. Now say what contracts or paperwork do I need to make this deal happen and ask if he/ she can represent you when you bring the two together.
As you start the consultation on this note you are building your team and getting an education on how this works. Fear is the one thing that holds us back and lack of knowledge on a strategy another. All above r right in saying u need experience and this is how u can get some. The attorney will handle all the paperwork. I also suggest finding a mentor to guide you through one deal like this. You will learn FAST from someone that can help you through the first one.
Also if you keep gathering sellers and buyers in this strategy you can pass off seller or buyer on another deal to your mentor in exchange for your first deal mentor ship make that call to an attorney and start your strategy experience!!
Good luck and don't let fear stop you !!!
Jay

In response to one of your questions- ask the rent to own buyer what they have for a down Pymnt
, what their capable of for MNTHLY Pymnt, what area, what size house ex: 3 bdrm ?
When their looking to buy,
Keep ALL info in a file under rent to own or lease option buyer
Email, phone,'address etc.
then u can match them up with what you find or what a partner or other investor finds to make a profit from your marketing

Thank you for your kind words.. Honestly speaking DG.com is like my bible to REI. Anytime I feel kind of overwhelmed I just log in Dg.com and it automatically puts me in the right mindset. The amount of great knowledge which I have gained now is nothing compared to when I first started 5 months ago.

I appreciate your advice.. It meant a lot.

All the best in your investing

A rather important point in consideration that jbtoggs post reminded me of is the fact that tenant/buyers, by nature, are going to be credit challenged. That is why they are interested in a Lease Option. They cannot qualify for a decent loan at present, but they do not want to be a renter.
I've discovered that...ooh, wait for it...things can go wrong! Isn't that amazing? And these tenant/buyers are not in a good position to correct these things that go wrong, so they will often leave you hanging with a delinquent payment, an unrepaired problem, or damage that they created.
There is one real solution to both the risk of a credit damaged tenant/buyer, and any damages or delinquencies they create--collect LOTS of money up front. Then, if there is a problem, at least you can remedy it with money you received from them.
If you do not collect a large option consideration, I GUARANTEE, you are not getting a tenant/buyer, you are getting a renter, and the problems and issues that come from renters. I suggest 4 to 10% of the purchase price of the property, I usually push for around 5 to 6%, but will often test to see if I can get more. This larger amount also increases the likelihood that they will follow through with the exercise of their option.

Thanks for sharing. oh yea coach thats amazing and you got a great point. Makes complete sense to me. Collecting MORE option fee upfront = HIGH likelihood of them exercising their option. Also, I feel like MORE option fee upfront will impact a good sense of responsibility in them taking good care of the property like it is theirs and paying on time.

One again I appreciate sharing this..

Happy investing

TC, thanks for your response, and you are correct that it does tend to make them more responsible regarding the property.
I'm sure I've posted this additional tip somewhere in the forum, but cannot remember exactly where. I offer my tenant buyers the opportunity to go in 50/50 on the purchase of a homeowner's warrantee on the property that will cover major repairs for a year. This way, if something breaks and needs replacement or repair, there is a warrantee to cover the bulk of the cost. They only pay the first $100, maybe less. They are more likely to get things fixed quickly, and I don't get a call in the middle of the night to tell me that the water heater stopped working. (Believe me, even if they know they are responsible, they still call). My cost for this is usually around $250, and using the warrantee approach gives me another selling point on my program for both the sellers and the buyers.

Yes I agree with you. Thanks for sharing this great tip...

Happy Holidays and good luck in your investing

Love your attitude and drive for REI! There is some GREAT advice above which I'm learning from too! Thought I would add a couple more ideas that i have heard about for L/O:

-have someone who does credit repair on your power team. This helps to make sure (as much as possible) that they will qualify for a bank loan to purchase the house and exercise their option.

-with sandwich L/O have contract with owner 5 years and contract with leasee 2 years so in case they fall through you can find another leasee and fulfill your option with the owner.

-do a lease option with a handyman/contractor/tradesman who is willing to fix up the property. they always have spare supplies around from jobs and are more likely to fix the house up which puts more investment into the house for them and potentially you get a better house if they do not follow thru on their option.

Best of luck with your investing and happy holidays!

Thom

I appreciate your kind words and your suggestion. Thats one thing I love about Dg.com which everyone sharing their thoughts and we all learn from each other. How is awesome is that:)

Happy holidays to you as well and Good luck in your REI journey

I wanted to follow up on the post from Thomgilbert, some excellent suggestions. I particularly wanted to comment on the first suggestion about someone who does credit repair on your team. I've taken a slightly different slant, but either approach should work well.
I have a seasoned mortgage broker on my team who is used to getting loans for credit challenged people. I tell my tenant/buyers that I am going to introduce them to Jeremy, who will help them get ready and obtain a loan. He is the "credit police" for the next 18 months, the term that I use for my lease options. They have a meeting with him at the beginning, he assesses their credit and what they need to do, and gives them some direct instructions, and some "Thou Shalt Not's" for the next 18 months to protect them from further damaging their credit. He provides them with his contact information, and instructs them to contact him at any point that they are going to use their credit for more than a $100 purchase.
It's a great hand-off. I do this after they have made the commitment for the lease option, as they are more likely to listen and follow through if they are already on board with the lease option program.
There are a number of ways to assist the tenant/buyers to be successful, and also to protect your interest in the property. One really important suggestion is that you create a photographic file of the condition of the property prior to move-in as evidence of condition.
Thanks again, Thomgilbert for bringing up some additional important suggestions.

I love it.. The "credit police" for sure.. I agree with you in regards to the "THOU SHALT NOT" rules for example they should not buy a car during lease term period.

Another great way which I learnt from one of Dean's conference call with Philip Tirone http://www.monsterfollowup.com/go/17271 which can be of a great assistance to these tenant buyers is for them to get 3 secured credit cards with a spending limit of $100 - $300 and they got to make sure they open these these cards in the same week. Also they should not spend more than 30% of the spending limit of the secure credit cards. like you said so many great ways to help them out...
Thanks again for sharing another great tip! Will definitely saved this...

Happy Investing

TC, yes, that's exactly what I am referring to. I use two examples to illustrate, and these are the ones that kind of get them thinking the right way:
"These are the Thou Shalt Not rules for you for the next 18 months--not forever, just for 18 months to help you to get qualified so you can become a home owner.
"If your car breaks down, Thou Shalt NOT buy another car where you use your credit, you will get the old one fixed with rubber bands and duct tape if you need to. I do not want to drive by the property and see a new car parked out front because you will be sabotaging your ability to buy this house.
"If your big screen TV falls on the floor and breaks into a million pieces, Thou Shalt NOT go buy a new one using credit, I don't care if you're using a 13 inch Salvation Army used television set.
"Remember that this is a short term arrangement, designed to help you get into home ownership, and we're willing to do all on our part to help you, as long as you do your part."
I have found that I need to get firm with people and to use examples, but I honestly want to provide them the best opportunity of success that I can.
We then introduce them to our mortgage broker, and he will follow up with them periodically to make sure that they remain on track.