Describe A Time When You Moved To A New House Lease-Option and Rent-To-Own Properties – 11 Ways to Find Them When They’re Not on the MLS

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Lease-Option and Rent-To-Own Properties – 11 Ways to Find Them When They’re Not on the MLS

A lease-option (also known as rent-to-own and similar to lease-purchase or land contracts) is a great way to find property to buy when you can’t buy traditionally. Maybe you have bad credit or no down payment. Or maybe you’re unsure about a new neighborhood and want to rent before buying. The problem is: Lease-options can be hard to find. Many are not listed as “lease-options” on the MLS (the “Multiple Listing Service”–real estate database used by realtors), and others are not on the MLS at all. There are a few little-known ways to find lease-options when they’re not listed on the MLS.

But, first, the basics:

A lease option combines a lease for a piece of property with an option to purchase the property at some point in the future. There is no “standard” lease. But the lease may be specific to your area. (The secret to this technique is in the option.) The lessee is said to have the right to occupy the property for 12 (or 24, or whatever you choose) months, paying a monthly rent of $xa. It has the same basic provisions as any lease: keep the property clean, do no illegal activities, pay rent on time, etc. There is nothing unusual about the lease.

The magic is in the choices. This option gives the lessee-buyer (the lessee who can become the owner) the right to purchase the property for a specified amount during a specified period as long as he complies with the terms of the lease.

So those are the basics. The problem is: How do you find them? If you go to a realtor, he/she won’t find anything like this–if at all–on the MLS. But don’t let that stop you. There are many, many of them. You just need to know where to look.

Non-MLS rentals

Many rental properties – single-family homes, townhouses and condos – are rented directly by the property owner. Remember, as we mentioned above, many landlords are “reluctant landlords”. All points above apply to non-listed rent-els. Additionally, these owners are having trouble dealing with the many “tire kickers” and calls from less-serious callers. Hence, many get discouraged very quickly.

And there’s another benefit to someone looking for a leasing option: the ability to speak directly with the owner. Now, technically, even if the property is listed with an agent, you can speak directly to the owner. But the owner has decided to use a real estate agent to avoid all this hassle. It is bad form, and generally not a good idea, to attempt to negotiate directly with the seller when the seller is represented by a real estate agent. In case of non-listed rent, there is no such buffer. You can call and, in most cases, speak directly to the owner.

There may also be another benefit: not dealing with a real estate agent who doesn’t understand lease-options, doesn’t “believe in it,” or doesn’t think he or she is protecting the interests of owners. Presenting your offer to owners.

You can find these properties in the classified ad sections of newspapers. You can also find them on online services like Craigslist. And you can find it by looking at bulletin boards at your local supermarket or other places. And if you can’t find enough by looking, place your own ads in newspapers, on Craigslist, and on bulletin boards.

Here are some pointers to properties that can serve as lease-alternatives:

For Sale By Owners (FSBOs) Properties

These are properties that owners are trying to sell themselves. People often try to sell property themselves for two reasons: in a seller’s market–when demand exceeds supply–who the agent is according to the FSBO, how much marketing is used, or even the price of the home. So, why do FSBOs wonder if they have to pay an agent 4%, 5%, 6% or even more, when it’s just a “For Sale” sign. In a seller’s market, lease-option properties can be very difficult to find, especially among FSBOs.

The picture changes rapidly in a buyer’s market – when there is more supply than demand. In a slow market, some sellers feel they can’t afford an agent’s commission. They think that if they sell the house themselves, they will have more money in their pocket. They are often wrong, but that is their strategy.

Another thing to remember about FSBOs: the asking price of their home is likely to be too low or even too high for fair value. To some extent, they don’t have access to all the tools that real estate agents do. To some extent, they are emotionally attached to their homes.

Sometimes, their property is appraised for a purpose like refinancing or a home equity line of credit (in which cases, the appraisal is on the higher side), and they feel that the appraisal is an accurate reflection of its resale value. It isn’t. And sometimes they’ve used one of the many online services like Zillow to price their homes. Those services are sometimes reasonably accurate. Often, they are not.

Therefore, in any market, hot or cold, FSBOs are likely to be overpriced. And in a slow market, that means most will sit there and not sell. That’s why you, the buyer, should have a real estate agent on your “dream team,” even if you plan to look for a property yourself. Your agent can quickly tell if the seller’s asking price is reasonable.

When dealing with a FSBO, a lease-option buyer can offer the FSBO closer to what they want. The catch, of course, is that the sale will happen not today, but a year or more in the future. If the FSBO wants all of his equity from the property, this strategy won’t work. But if the FSBO can wait a year or two, there are golden opportunities for the lease-option buyer. The tenant-buyer explains to the FSBO that he can pay what the FSBO is asking (or close to what the FSBO is asking). Just not right away. It’s the same basic strategy used above for homes listed for sale. But now you can present your case directly to the seller.

Owner-advertised lease-options

Sometimes owners will advertise lease-options. They realize the benefits of leasing options—immediate cash flow, often higher-than-market rents, as well as a better chance of selling their homes—and decide to try it themselves. You can find these anywhere owners advertise—local newspapers, bulletin boards, Craigslist, etc. Look for both properties for rent and properties for sale in structured formats, such as newspapers and Craigslist.

Owner-Advertisement: Other Delayed Purchases

Make sure your agent searches using other terms that describe similar structures. These terms include “lease-purchase,” “rent-to-own,” “rent-to-purchase,” “land contract,” and “contract to lease.” In each case, the owner indicates that he or she wants to sell, but is willing to wait for the sale to happen. Some of these techniques, and some of these terms, are used more often in certain areas of the country than others. So explore them all.

Owner financing

Find a property that the owner is willing to finance. This means that the owner is willing to act as a bank. He doesn’t need all the money at closing. A tenant is willing to make payments over time while he lives in the house. And many owners have lending criteria that aren’t as strict or flexible as the big banks.

But don’t stop there. Remember: lease-option A lease with an option to purchase by the couple. So look out for owners who are trying to rent out their property but are open to selling, or owners who are trying to sell but are willing to rent.

Properties for rent and sale

The first step is to find properties for rent and sale. Even if it’s not listed as a “lease-option,” owners are willing to lease and sell. All you’re asking is to lease it now and sell it later.

Formerly “For Sale” properties are now listed as rentals

This could be a property that was listed with a real estate agent or the owner was trying to sell himself. It doesn’t matter. But the house did not sell, and now it is rented. These are properties that owners really want to sell. But they couldn’t, so they are willing to rent. Again, you are providing a solution to their problem. You are willing to rent now and buy later.

Formerly rented now for sale

Along the same lines, look for properties that were previously listed as rentals, but are now listed for sale. First for sale, there may be fewer of these than there are for rent, but it never hurts to look. These are also properties that the owner is willing to rent and sell.

So far, we have identified properties whose owners are willing to rent and sell. We will now move on to owners who may be interested in both renting and selling.

Vacant Homes for Sale

Start with owners who are trying to sell and those who have a vacant home. These owners may have purchased a new home, but have not yet sold their old home. They’re paying two mortgages—usually an uncomfortable situation. You can help by providing a quick revenue stream–your rent payments–while providing the possibility of future sales. If you can, target properties that have been on the market the longest.

rent

You will find more prospects among owners who are renting out their homes. This may have been their former primary residence and they have moved to a new home. Or it could be a property that they have held as an investment property for some time. It is important to remember that many landlords are “reluctant landlords”. They did not originally intend to rent out their property. They don’t particularly enjoy the whole rental process and don’t like the hassle of dealing with tenants. But somehow they have become landlords and are trying to do the best they can.

For these owners, the solution you offer is immediate rental satisfaction and long-term sales potential. It may help if the property is vacant, but reluctant landlords whose tenants have given proper notice and haven’t moved out may also be eager to end their landlord’s troubles.

investors

Some investors put together a lease-option, then market the lease-option with a markup to tenant-buyers. These are called “sandwich lease-options” because the structure is like a sandwich: on one side the owner (a piece of bread in the “sandwich”) leases the property to the investor; Investors in the middle (the meat in the sandwich) and tenant-buyers on the other side (the second piece of bread in the “sandwich”).

So there are many ways you can find a lease option or rent-to-own home even if the property isn’t listed on multiple listing services. And a point worth repeating is this: Some homes will be “advertised” as leasing options. There won’t be many. You will reduce or eliminate your competition by looking where others don’t.

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