“I’m sorry. My Broker-in-Charge does not permit us to do lease options. She said the percent of people that actually purchase is 8%.” (Charlotte Realtor)
“Statistics are like a drunk with a lamppost: used more for support than illumination.” (Winston Churchill)
Wow- 8%! I still can’t get over that figure. The things that come to the top of my head when I hear 8% are a:
1. Lousy tip
2. High sales tax rate
3. Decent annual investment return
I began to wonder about where this 8% statistic could possibly be derived from and how accurate it could be. The last time I checked, the National Association of Realtors doesn’t keep this statistic and I’m not sure how they could. Non-licensed investors seem to do more of these which would take it out of NAR’s jurisdiction. Home sales are public record and I’ve never seen them broken down into “Regular Sales” and “Lease Option Sales.” The only person you need to tell that you want to exercise your option to purchase is the seller; then a normal closing occurs. So I’m at a loss. Did they take a representative sample? Of whom and how did they find these people? Most people don’t register the options at the courthouse. Hmmm… 8%...
So I’m going to assume that this BIC was using this clumsily manufactured 8% statistic to support her firm’s wanting to sell homes and get the full sales commission right away. She was not trying to illuminate the public about her doctoral thesis, “The Myth of Lease Options in the 21st Century Post-Modern Era” where she painstakingly interviewed all home owners in the largest 20 cities in the United States.
I’m also going off the assumption that her point was that lease option deals don’t close often enough. That I am most certainly going to agree with! So the question is why. It boils down to the lease option tenant either not wanting to pull the trigger and purchase or being unable to get financing. It’s usually the latter.
To combat his, the top 5 things you can do to increase the odds of your lease option tenant buying the home they are renting are:
1. Make sure they have the ability to buy the home during their lease period! Taking an option fee when the tenant has no reasonable way of purchasing during their rental is basically stealing! This also makes a sale impossible.
2. Make sure the tenant has skin in the game by collecting a moderately sizeable option fee. You can use your own discretion, but 1-5% usually works with a $3K floor.
3. Entice the tenant to purchase by offering monthly rent credits (10-20% is sufficient). This makes it so they are walking away from a good amount of cash if they choose not to buy.
4. Use some of the option money to pay for half of the credit repair. Ask the tenant to pay the other half. People only value things that they pay for.
5. Align yourself with a good mortgage or credit repair professional that is going to provide on-going credit and budget counseling to the tenant.
If you practice these 5 things, you may help push the national lease option closing average to 9%!
Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes. You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.
“Statistics are like a drunk with a lamppost: used more for support than illumination.” (Winston Churchill)
Wow- 8%! I still can’t get over that figure. The things that come to the top of my head when I hear 8% are a:
1. Lousy tip
2. High sales tax rate
3. Decent annual investment return
I began to wonder about where this 8% statistic could possibly be derived from and how accurate it could be. The last time I checked, the National Association of Realtors doesn’t keep this statistic and I’m not sure how they could. Non-licensed investors seem to do more of these which would take it out of NAR’s jurisdiction. Home sales are public record and I’ve never seen them broken down into “Regular Sales” and “Lease Option Sales.” The only person you need to tell that you want to exercise your option to purchase is the seller; then a normal closing occurs. So I’m at a loss. Did they take a representative sample? Of whom and how did they find these people? Most people don’t register the options at the courthouse. Hmmm… 8%...
So I’m going to assume that this BIC was using this clumsily manufactured 8% statistic to support her firm’s wanting to sell homes and get the full sales commission right away. She was not trying to illuminate the public about her doctoral thesis, “The Myth of Lease Options in the 21st Century Post-Modern Era” where she painstakingly interviewed all home owners in the largest 20 cities in the United States.
I’m also going off the assumption that her point was that lease option deals don’t close often enough. That I am most certainly going to agree with! So the question is why. It boils down to the lease option tenant either not wanting to pull the trigger and purchase or being unable to get financing. It’s usually the latter.
To combat his, the top 5 things you can do to increase the odds of your lease option tenant buying the home they are renting are:
1. Make sure they have the ability to buy the home during their lease period! Taking an option fee when the tenant has no reasonable way of purchasing during their rental is basically stealing! This also makes a sale impossible.
2. Make sure the tenant has skin in the game by collecting a moderately sizeable option fee. You can use your own discretion, but 1-5% usually works with a $3K floor.
3. Entice the tenant to purchase by offering monthly rent credits (10-20% is sufficient). This makes it so they are walking away from a good amount of cash if they choose not to buy.
4. Use some of the option money to pay for half of the credit repair. Ask the tenant to pay the other half. People only value things that they pay for.
5. Align yourself with a good mortgage or credit repair professional that is going to provide on-going credit and budget counseling to the tenant.
If you practice these 5 things, you may help push the national lease option closing average to 9%!
Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company”specializing in rent-to-own (lease options) and rent-to-sell homes. You can follow his Twitter thoughts on the Charlotte real estate market by clicking on http://Twitter.com/BDFRealty. He is the author of the FREE E-Manual entitled “How to Rent-To-Sell Your Own Home” (http://www.RentToSell.com/RTS-Book.html) which details how to get the most potential buyers to your home in this challenging real estate market.
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