BiggerPockets

Hey ya'll. I've been trying to sell a home using a Realtor for a few months now, with no success, and I've got another one 90% fixed up and ready to go. So I am going to go ahead and do (my first) Rent-to-Own on them. I figured I would write my ideas here on what I'm planning on doing, then leaving the floor open to you guys who have done it before. Please let me know any suggestions, things you would change, or things you like. Thanks!

First, I am in process of creating a website. I can build the basic site, which doesn't need to be fancy, but should get the job done. I'll post both on this site. (www.ghrent2own.com) and list the specs - rental price, purchase price, how a "rent to own" works, and lots of pictures. I will also list my phone number (see next paragraph).

Next, I figure I will advertise in the newspaper and on a sign in the front yard. Both these will give both my phone number (which goes to a line I have dedicated only for leaving messages) and the website.

As for the rent to own program itself, I was thinking of doing a two year lease and separate 2 year option. I will charge market rent - but the highest market rent I can justify. ($690-$790). The same thing applies for the purchase price. I will charge 1 month's rent for an option fee and 1 months rent for security deposit.

I will not offer a "rent credit" (to avoid legal issues later) but rather offer to match any amount (up to $200 per month) that the tenant/buyer pays extra toward savings. So if rent is $690, and they pay $890, they will actually have $400 earned toward a down payment.

If at the end of the period they decide not to buy or cannot, but do not break the lease or destroy the property, I will then allow them to keep their portion of the money they paid extra (if they paid $200 per month for 1 year, they will get their $2,400 back, but they would not get the money I offered to match or the option fee). So the extra money they pay works almost like a security deposit. I need to check the legality of this process, but I feel it is the most fair thing I can do. It gives me security knowing they aren't gonna leave the house with cement poured down the drains but it also doesn't put the tenant in a worse position than when they moved in. pretty Win-Win I think.

I guess that is the plan. I really do want the tenant to buy the property (I don't just want to be a landlord, and I'm working with Hard Money Lenders and they want their money back eventually) and I think this is the best way I can think of doing that. Thanks for reading through this long post, but I hope you all might have some good suggestions. Thanks!

Brandon

Brandon, I like the plan! A couple comments for you and Scott.

First, advertising. I believe the Internet is necessary *and* sufficient. I saw no adverse consequences 4 years ago when we halted all newspaper ads. Scott is right on. Just get an online marketing plan together and execute. Use google analytics, adwords, etc.

I would also find a good mortgage broker to add to your "team." Tenant/Buyers like to know a licensed mortgage professional is there to help. A T/B "win." The broker can quickly assess the T/B capability to buy and where they need help (e.g. credit, down payment, etc.) The broker gets new business ("win") and you are one step closer to closing (you "win" also.)

I like the idea of your matched savings. Make sure you think out and define the "rules" of how the program works. I can put in my 2 cents later if you want.

Finally, regarding the option fee. Per my post at http://www.biggerpockets.com/forums/83/topics/32925-lease-options-illegal- you know my thinking. For entry level properties, a low (or very low) option fee translates into more candidates, more applications, more business. I like having multiple showings the first day a property goes on the market. Your stated goal is to move (sell) the property and a low option fee helps facilitate this goal. Scott's comment "a large percentage of people never complete the option" is probably historically correct for investors who use option payments as a revenue source.

I recommend you set a goal for 100% T/B execution and set the plan (you already have), systems, processes, and team in place to make it happen. You should end up with some happy customers!

I haven't had any success using metro newspapers for getting RTO tenants - mostly signs and Craigslist work for me. It will take a long time to get traffic from a website, so I don't think that will be worth the effort unless you plan on using this strategy for a lot of property.

Brandon,
Interesting and creative! I like how you think. There have been some great comments/suggestions as well.

I have very good results for my RTO's with craigslist ads and signs. Don't stop with just one sign. Put them around in the neighborhood. They work really well near exits from places such as Walmart, pharmacies, churches, etc. I also had really good success with a "pick your neighbor" campaign. I had someone distribute flyers to all of the neighbors giving info on the house and encouraging them to "pick their neighbor."

Scott makes a VERY good point when he says that 1mo seems a bit low for a lease option fee. I think you would end up with more "tenants" than you would "tenant/buyers." If you are going to base your option fee on the monthly rent amount I think you should try to get at least 5-6 months rent as your option fee. (I pretty much hold to 2-4% of sales price right now.) Chris mentions that the lower fee would get you more candidates, and I would agree with that. I think, though, that your candidates would end up being more "tenant" than "tenant/buyer". I can't help but think that setting your monthly rent at no more than market and using one month rent as an option fee is setting yourself up for folks with a "tenant" mindset that will not treat the property "as their own." But that's just me :D

Just my .02, and your mileage may vary!

regards,

Bill

Good plan. I have been very sucessful with rent to own property, I currently own 123 of them. This is the advise I want to offer you, obviously you don't want to hold the property past a couple years. I do three things to ensure a conversion on my properties 1. I get them a secured credit card 2. I debt negotiate their collections 3. I report there rent to the credit bureau[LINK REMOVED] today loans are score driven and you must help them increase their credit score. Many people were not given the same opporunities as we were and you will be doing them a great justice by helping them rebuild their credit not only for real estate purchase but auto loans, credit cards, even helping them secure a job. Good Luck!

Yes the seller can contribute up to 6% closing costs