Have a Potential Buyer but Need more Convincing?

In this article

We’ve talked a lot these past few months about how to sell a property on land contract, how to qualify the buyer, and finally how to market and sell the note. All of this is very valuable information and on paper this looks very doable.  Yet, often what trips up investors from selling on financing terms is the fact that one aspect of the buyer doesn’t quite add up to your qualification standards. Maybe the prospective buyer fits all your criteria but only has 5% to put down, or maybe the prospect has more than enough down payment money, and great credit but suspect job stability. What are you to do?

Try the lease-option approach

Now, I am not going to suggest you setup a one-sided lease-option where you hold the property forever and the prospect only gets further and further away from homeownership.  I am talking about utilizing the lease-option as a trial period so the buyer gets an opportunity to build up credit history with you.

A couple years back, we had a property for sale on financing terms. It was a great property in a desirable neighborhood but for whatever reason we couldn’t find a buyer. One day, one of our sales agents presented an offer from a homebuyer who had suspect credit at best, but had a huge down payment, a stable job, and documentation to prove his willingness to pay on time. Upon meeting with the prospect we understood his situation much better and decided to sell to him, but on one condition; a lease-option. He could lease the property from us for 12 months, and upon making 12 one-time payments the lease could be converted to the land contract.

We could never have predicted the outcome. He turned out to be our best homeowner! He brought his payment in each month a few days early, hand delivered in the form of a cashier’s check. Needless to say, at the end of twelve months, he converted his lease to a land contract and was credited the principle portion of each of those payments for the previous twelve months. Since his conversion to the land contract he has continued to pay with cashier’s checks each month. As it turns out, he made positive changes in his life to re-establish his credit, and create stability in his family. Because we extended the opportunity of a lease option, he is now well on his way to homeownership.

This example is not an exception to the norm. There are many instances where a lease option can be a great trial period for prospective land contract buyers who do not meet all your requirements. If this story turned out the other way, and the prospect failed to live up to the terms of the lease, then we would have been left with the property, a nice down payment, and at least some payments.

Now, you have another tool in your toolbox for seller financing success!

Share your lease option experience. I appreciate your comments and feedback.

Image: Danilo Rizzuti / FreeDigitalPhotos.net

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.