I have been doing some research the past couple months on lease options, in particular sandwich lease options. I personally feel this would is the best method for me, to start out with at least. After doing research and educating myself on this method, I found the sellers are the hardest ones to find, not so much the buyers. My question is can you find deals and work with realtors to find properties to put under contract? What are the pro's and con's of working with realtors to find deals? Are they opposed to it? What is the process? Can I call a Realtor about a property and ask if the owner would be interested in a lease to own option? Where does the Realtor come in and what is their commission? I am in the New Orleans area for arguments sake. Thanks in advance!
@Roy Pomes Do you have cash reserves in case a sandwich lease option (SLO) goes bad and you have to evict and do repairs? If not you should flip a few LOs first to build up that reserve before taking on your first SLO.
It's actually a bit of a misconception that buyers are easier to find than sellers. It's true that there are lots of people who are interested in buying a home on an LO. But most of them don't qualify. By contrast there are relatively few people who are interested in selling on an LO, but most of those who are interested do qualify. In my experience roughly 1:50 sellers are interested and qualify to sell on an LO, while around 1:50 buyers are interested and qualify to buy on an LO.
Can you work with a realtor to do LOs? In theory, yes. In practice, probably not. Most realtors only know of LOs by name. They've never done one and don't plan on ever being involved in one. LOs are 'unusual' in the world of realtors and they don't like doing anything unusual just in case they get sued. They would rather skip the commission on one 'weird' deal than risk losing their license, obviously. They will also try to convince you that doing LOs is illegal.
I highly recommend you not bother. Learn from my experience. Some years ago I ran a test and wrote 700 (yes, seven hundred) LO offers and took them to the listing agents. A few weeks later I followed up directly with the sellers. Only 2 of those offers had even been presented, despite the agent's all assuring me they had presented the offers and they were rejected.
Instead of wasting your time with the agents. I suggest you go direct to the sellers. Just go to the MLS website and take down the addresses of all the properties you're interested in, create a route on google maps, hand write a short note for each, and go stick it on their door. This the lease option equivalent of "driving for dollars". I get a call back for every 5-10 notes.
Once you have a qualified seller the commission can be handled in several ways. If their agent is OK with waiting the seller can simply pay the sale commission when you exercise your option. If the listing agreement has a lease provision then the seller will instead pay the lease commission when you take possession. Or if the agent is the disagreeable sort and the deal is really good you can offer to pay the commission out of your own pocket.
@Doug Pretorius Thank you so much for the information. As I said, I am just starting out and I've only been doing research and educating myself. The more knowledge the better and I thank you for the advice and tips. It just seems that finding the actual homeowners is more difficult as a majority of the properties for sale are listed under a realtor on behalf of the owner. Obviously there are ways of finding the homeowner, like FSBO, craigslist, facebook, etc... but I did not know of the option of leaving a note. This was new to me and I'm glad you mentioned it. Thank you very much for this!
Hi @Roy Pomes
We typically stay away from homes that are under contract with a Realtor. We just wait until they expire. A lot of the deals that we get are from properties that expire with a Realtor. We find that way, knowing that they can't get their price on the conventional market, they will be more open to hearing about alternative options.
However if a Realtor refers us a seller or buyer, we'll pay them a referral fee of up to 25% of whatever we collect for a down payment (usually 3%-10% or the Purchase Price).
Hope that helps,
@Chris Prefontaine Thank you Chris. This cleared it up for me a bit. Try to stay away from realtors but if we do work with them, we usually give them 25% of the non refundable down payment we receive when we put a new tenant/buyer in the house. And of course, this is anywhere from 3-5% of the total sale price we agree on with the new buyer. Is there an easy way or any tricks of finding listings that have expired with realtors? Thanks in advance!
We Use MyPlusLeads.com. We use to have to be licensed Realtors or know of a Realtor to get them but MyPlusLeads got rid of that. Might be leaving money on the table by saying only 3%-5%. We tell our buyers it's anywhere from 3%-10%.
If you're interested in learning some more strategies I can give you a few things to check out. BP doesn't like when I give it out here so message me.
Hope that helps,