Lease Option Market Update

12 Replies

I have been working diligently on the assignment of 2 Lease Option agreements for the past 2 months and I have not been very successful finding qualified tenant buyers.  I was wondering and wanted feedback from the BP community about whether the current real estate market is not attractive for the lease option strategy.  I recently heard it is much easier to get a mortgage and credit scores can be as low as 500 to qualify.  I would appreciate any feedback, suggestions, comments or anything else that would help me improve the success of my lease option business.  Have a Great Day!

Hi Robert,

What criteria are you using for your lease option tenants? Are you getting lots of applications, and no one meeting your criteria, or lacking applications?

I haven't done one yet, myself, but I have heard that partnering with a mortgage lender who is willing to sit down and talk to the prospective tenant buyer about what they would need to do to qualify can be very helpful. Also, paying more attention on your side to their income than the credit score. Good luck!

@Robert Burns There are only 2 possibilities:

1. You aren't marketing enough.
2. The terms of the deal aren't attractive.

So break it down for us. What are you doing for marketing? And what's the response? (number and quality of T/B).

What are the terms? How much down? How much per month? What's the price? How does that compare to rents and prices of similar homes in the area?

My primary types of marketing are bandits signs (90% of replies) and Craigslist (10%).  I have the calls go to a Google Voice # and then I check Google voice and ask for an email address to which I send an overview of the Rent to Own program and a brief overview of the properties.  In that email I stress if they are very interested in the Rent to Own program, the 1st critical step is for them to contact my mortgage broker for a mortgage pre qualification.   I get about a 25% reply to my email.  I then call these folks to discuss the program and conduct an initial qualification.  If I am satisfied with that conversation I send them to my local mortgage broker for a more detailed mortgage pre qualification.

Here are #'s on the 2 properties:

1. Lease Option Selling Price: $175,000

    Monthly Lease Payment: $1,300

    Option Fee: $5,000

    Lease Term: 24 months

2. Lease Option Selling Price: $154,000

    Monthly Lease Payment: $1,300

    Option Fee: $4,000

    Lease Term: 24 months

The biggest obstacle I found was these perspective tenant buyers did not have the up front option fee!

I'm about the turn the 1st property back to the seller for him to rent it because I'm not able to find a suitable tenant buyer and it's been nearly 2 months.

@Robert Burns The option fee and rent seem reasonable for those prices. Are the prices close to market value? I'm surprised you're not finding anyone with 2.5% to put down!

How many people total have contacted you for each of these properties?

As a last resort, if your mortgage broker managed to qualify someone for a mortgage right now, you could cancel the lease with the seller and just assign the option so they can close traditionally.

@Robert Burns , You should look at Facebook to do your marketing and Letgo also. In Your Facebook do a search for rent homes in that area, Lease Homes, or rental property, etc. you will find plenty of sites to get on and do your marketing. Use the same add for all I think you will see a much better response. best wishes. Tom
Originally posted by @Doug Pretorius :

@Robert Burns Ahh, that's probably it. I find I usually need to go through about 100 leads to find 1 with enough money.

 Hello Doug, I am new to real estate investing and have been interested in diving into the rent to own strategy. I was curious that you said you typically go through 100 leads to find one suitable tenant. I imagine that is time-consuming, what is your strategy when filtering through potential tenants in order to save time. 

Originally posted by @Robert Burns :

My primary types of marketing are bandits signs (90% of replies) and Craigslist (10%).  I have the calls go to a Google Voice # and then I check Google voice and ask for an email address to which I send an overview of the Rent to Own program and a brief overview of the properties.  In that email I stress if they are very interested in the Rent to Own program, the 1st critical step is for them to contact my mortgage broker for a mortgage pre qualification.   I get about a 25% reply to my email.  I then call these folks to discuss the program and conduct an initial qualification.  If I am satisfied with that conversation I send them to my local mortgage broker for a more detailed mortgage pre qualification.

Here are #'s on the 2 properties:

1. Lease Option Selling Price: $175,000

    Monthly Lease Payment: $1,300

    Option Fee: $5,000

    Lease Term: 24 months

2. Lease Option Selling Price: $154,000

    Monthly Lease Payment: $1,300

    Option Fee: $4,000

    Lease Term: 24 months

The biggest obstacle I found was these perspective tenant buyers did not have the up front option fee!

I'm about the turn the 1st property back to the seller for him to rent it because I'm not able to find a suitable tenant buyer and it's been nearly 2 months.

 Usually within two months I have a tenant buyer who will take the option for 10% down. My market is $200,000 to $250,000 properties. So, I generally see $20k to $25k down. A couple of tricks you might try are posting at hospitals. Head nurses can make $10k a month in my market. Picked one buyer up from using that technique. I buy a list of rentals and I mail to the occupants and I generally say something like, "If you've got money for a down payment but can't get a mortgage, call me. I can put you into your own home, No Bank needed." I just picked up a couple of buyers that way. Sometimes, I will drop fliers off at local self employed businesses. They can make great money but because of tax write offs won't show the income the lenders need to qualify them. One guy put $40k down. He didn't have to but he wanted to be sure he got my property. I was happy to oblige him. I have one guy who has $120k to put down if I can find a place that is within walking distance of his business. I'm looking really hard for that guy's place. Keep at it. People have money. Rather, the people you *want* as buyers have money. I have more buyers than houses right now.

What is everyone's opinion on calling every lead or just sending them an text with the lease option and property info.  I've tried calling and get tied up on the phone with folks who cant't "buy a donut" much less qualify for a lease option on a property.  Also do you think bandit signs just bring in lower quality tenant buyer leads?

@Robert Burns If you're overwhelmed with low quality leads it's not a bad idea to direct them to a website with all the qualifying details.

Bandit signs definitely tend to bring in a high quantity of low quality leads. But there's gold in them thar hills (of trash)!