“I can’t do lease options. They are way too risky!” (Concerned Charlotte Realtor)
“That's why it's a short cut. If it was easy, it would just be the way.” (Paulo Costanzo in Road Trip)
“It ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in introducing a new order of things, because the innovator has for enemies all those who have done well under the old conditions, and lukewarm defenders in those who may do well under the new. The coolness arises partly from fear of the opponents – who have the law on their side – and partly from the incredulity of men, who do not readily believe in new things until they have a long experience of them.” (Machiavelli in The Prince)
Risk, or implied risk, is an interesting thing (or a great board game that my brother would destroy me at when we were kids). Risk brings fear, and fear is scary, right? But risk is also a great motivational tool. I mean, what would history look like if the characters didn’t take risks?
1. Rudy, the supermarket clerk, enjoys watching Notre Dame football games in his free time
2. David decides to stick with what he knows out in the fields and stays out all of the whole Goliath-led Philistine / Israeli conflict
3. Obama decides to let America continue to be a capitalistic society (kidding, kidding, kidding…)
Life is about taking risks; so is business. And so is real estate. I was talking to a friend of mine who owns a business and he said something to the effect of, “My lawyers tell me a lot of things they don’t want me to do. Some I listen to, some I don’t.” I was in a real estate seminar recently and one of the presenters harped on that rental contracts need to make sure to include what would happen to the renters if the house burned down. I mean, give me a break. What are the odds that a house burns down? You need to pay a lawyer to write this into a contract? What about if a helicopter crashes into the house instead?
Maybe it’s the whole McDonalds thing. They got sued because someone burned themselves after ordering coffee from them that was hot (shocking!). This person did not sign a disclosure, prior to receiving it, saying that they understood the risks of drinking coffee. Out of the trillion cups of coffee McDonalds has served since it opened, this was an issue one time. If McDonalds had to disclose every risk a customer undertook while visiting their restaurants and eating a happy meal, no one would ever have time to eat there. Yet how many billions can they claim have been served successfully in the last 50 years (without incident)?
If coffee is risky, it has nothing on what I’ve heard about lease option (rent-to-own) contracts! I never knew so many things could go wrong! I thought it was just people renting a home, and then trying to get qualified to buy it from the seller. If they didn’t buy it, they just moved out at some point. But the risk of rent-to-own, versus “regular” real estate transactions, has apparently reached a level known as “crazy dangerous.” (Think parachuting into a Taliban village wearing American Flag pajamas)
Aren’t riskless transactions a myth? Think about it. Buying and selling a home should be relatively riskless, right? I’ve never heard any Realtors say that closing brokerage deals was something to be concerned with. But… what about the houses that sold for $1M a few years ago and now sell for $400K today? That sounds pretty risky to me; risky to the tune of $600K of lost net worth.
Before I get a bevy of Realtor hate mail, I don’t think that this was the Realtor’s fault at all (I’m a Realtor!). My point is that every transaction has risk for someone at some point. Warren Buffet is considered one of the greatest investors who ever lived. However, if you invested your money with him in 1974, you would have lost almost half of it! In 1990, you have lost almost a quarter of it! You could have safely put your money away in US treasuries for 2-3% a year instead. Why would you take on the extra risk (potentially losing half your money- gulp!) and pay Buffett’s management fees on top of that?
It’s because we want to do better than barely beating inflation. Your clients want to do better than have their house sit on the market while they bleed money every month. They want a professional, like Warren Buffett, to use his tremendous ability to maximize their assets. Isn’t this why your client hired you? Then why is a lease option (or some other creative sales tool) “out of the question”?
Professionals know there are always risks. But professionals educate themselves so they can mitigate them and offer (almost) all of their clients a better return than playing it the safest.
"Take calculated risks. That is quite different from being rash." (George S. Patton)
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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