Charlotte Property Management Weekly: Lies, Damn Lies, & Rent-To-Own Statistics: 5 Ways to Increase Your Odds of Sale

“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.

Charlotte Property Management Weekly: Hoop Dreams & Lottery Ticket Listing Agreements

“Sure your home will sell. Besides (wink, wink), do you really want some dirty tenant destroying your house and using the would-be rent money to up fit their new meth lab?” (“Aggressive” Charlotte Realtor pushing for a “sale only” listing agreement)

“Everything became pretty clear at that moment. Being a rock star looked like a great job.” (Singer Tom Petty reminiscing about meeting Elvis Presley as an 11-year old)

Hoop Dreams was a documentary based on two Chicago high school students, William Gates and Arthur Agee, who had dreams of playing in the National Basketball Association. They both went to a top Indiana private high school that NBA great Isaiah Thomas had attended, practiced all of the time, and did well in the all-star camps. Their friends told them they were great, school mates looked up to them, and they just knew the NBA was in their futures.

Of course, neither of them made it to the NBA; it’s not a surprise. I think we’ve heard this story a million times. A kid puts all his eggs in the sports basket and is left with no future when it doesn’t pan out. This has fostered the NCAA’s student-athlete model (kids are students first, athletes second); I’m sure you’ve seen the ubiquitous commercials where student-athletes are filmed saying, “I was a NCAA athlete, but upon graduation, I’ll be going pro in something else.” Then it shoots to this early twenty-something teaching tuba to kids or putting on a real estate firm pin (well, maybe not yet, but give the National Association of Realtors time).

I mean, let’s be real. I’d rather be a NBA player than, let’s say, a residential property manager in Charlotte. Wouldn’t you? Let’s see… You get to be a physical specimen (as you basically work out for a living), have adoring fans follow you from town to town, make millions of dollars, decorate your mansion(s) as tackily as you want, and drive a different sports car every day of the month. We could probably make this arrangement work, right? So why wouldn’t we encourage all kids growing up to be a NBA (or WNBA) players? We’ve seen the “Whatever Your Mind Can Conceive, You Can Achieve!” banners hanging in our middle school classrooms. Didn’t we conceive this? Then it should have happened for us, right?

Well, real life took over. We grew up to be five feet six inches tall. Our vertical leaps are barely clearing the jump ropes. We’re getting winded walking to the mailbox. We’re not even the best basketball player in our own families; Mom’s set shot is just impossible to guard!

I see a similar misguided scenario coming from the mouths of Realtors. “Sure, you can sell your house. Let me just list it ‘For Sale” for you. I’m sure it won’t take that long.” Oh really? What about the eight other houses in your subdivision for sale that include two in foreclosure selling for $80K less than yours? Buyers will be lining up to purchase your listing? Why? “It’s because I buried a miniature statue of Saint DefinitelySellQuickly in your front yard for luck. It always works.”

The odds of selling some of the houses that are listed on the market are not far off from the odds of making the NBA. Yet I commonly see vacant houses for sale sit on the market for over a year. I wonder who is going to buy them when they are not even priced in the ballpark of the other homes for sale. Yes, miracles do happen; I’m not sure that’s a business plan, though. And, if it is, why not aim higher and try the NBA thing?

Yes, some sellers will insist on putting their house up for sale only and eating the monthly costs. I’m not talking about the clients who have cash to burn. But I am talking about the Realtors who are not educating and offering their sellers other options to sell such as rent-to-own, lease options, and seller financing. Sellers need to know about these! These options create opportunities for tenant-buyers which, in turn, give us a fluid market to transact real estate for the sellers (when banks aren’t lending). It’s good for everyone!

“Tenants are risky. I would never rent-to-sell my own house!” I agree- selling outright is better!! But that can be said of a lot of things in life. Marrying a billionaire supermodel would have been a better option than marrying your spouse. Taking a part-time job making $10M a year would have been a better option than your current gig. Watching the Super Bowl in the commissioner’s luxury box last year would have been a better option than going to your buddy, Phil’s, place (with stale pretzels, a cracked 20-inch television screen, and his whining wife). The point I’m trying to make is that the best options are not always the ones that are realistically available.

Unless you are stapling a winning lottery ticket to the client’s copy of the listing agreement, make sure the rent-to-own and lease conversations happen in this economy. Making the NBA is hard, especially when Mom is beating you up in the driveway!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company” (www.BDFRealty.com and www.RentToSell.com). 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.

Charlotte Property Management Weekly: “(Real Estate) Investing with the Stars”

“What do I look like to you? A moron? Don’t answer that… But seriously, my real estate investment properties are illiquid and have declined in value. You still say I should double down?” (Charlotte Real Estate Investor)

“Buy straw hats in the winter…” (Russell Sage, Wall Street Financier)

Buying (and selling) at the right time is the heart of many popular Wall Street mantras on how to become wealthy:

1. Buy low, sell high
2 Buy when you see blood in the streets
3 Buy when everyone else is selling. And vice-versa.

Of course, dummy! Everyone knows that. That’s not the hard part; the hard part is to know when that low time to buy is. If we only knew that, then this life would be so much easier. But is it really that difficult?

The people who have made great wealth in this country are like poker players. Poker is a game of waiting and then seizing the right opportunities when they present themselves. And when the opportunities come, good poker players bet heavily on them. It’s not complete luck; they know that certain hands have greater odds of winning.

Let’s look at 2 examples of billionaires “playing poker”:

1. Michael Bloomberg (Billionaire and current Mayor of New York City): After 9/11, the stock market tanked as investor fears abounded. I remember seeing the front page of the New York Post in the fall of 2001 where Mike urged his constituents to buy stocks after the Dow dropped below 7,000; he certainly was! He basically said that people ask him for investment advice all the time (because he’s a billionaire) and that was the best advice he could give them.

2. Warren Buffet (needs no introduction): Buffett experts will tell you that if took away Warren’s 20 biggest investment deals, his overall returns would be flat! He started his investment company in 1956; that’s a big deal every 3 years on average. That shows he does not have supernatural ability to pick stocks right all the time; rather he took really big bets (and was right) on a few great opportunities.

So how do you identify a great opportunity to invest in? Bloomberg will tell you that when the stock market is heavily discounted due to temporary events, you buy. The American stock market will recover, it always does. Buffett will tell you that if you see a good company’s stock trading at a steep discount, you buy. Good companies work through tough times and reward shareholders.

Can you think of anything else that is heavily discounted due to temporary events? Yes, this is when we get to the topic of real estate- good guess! The temporary events are the mortgage meltdown, banks not lending, and the rising unemployment rate. A lot of people need to sell and are ready to let great real estate go at bargain basement prices.

As Will Rogers famously said, “Buy land, they ain’t making any more of it.” So, if the stock market always will come back, it makes sense that real estate should rebound even more convincingly. Companies can always issue more stock, but great pieces of real estate can’t be replicated. And at these prices during the holidays, Wal-Mart has got nothing on the Multiple Listing Service this year!

So are you urging your clients to buy investment real estate? Are you buying any yourself? Buffett waits years so he can cherry pick an opportunity like this. Do you really think that the real estate market will continue to stay down?

It’s time to “Invest in Real Estate with the Stars” instead of waiting to buy it from the “Stars” when they sell!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company” (www.BDFRealty.com and www.RentToSell.com). 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.

Charlotte Property Management Weekly: Tenant Tradeoffs: Another Piece of Chocolate Cake or Look Good With Your Shirt Off?

“I don’t like the prior bankruptcy on this prospective tenant, but they make great income. The other tenant has a 430 credit score, but has perfect landlord history. Should I accept either into the property?” (Charlotte Property Manager)

“If you can’t be with the one you love, love the one you’re with.” (Crosby Stills Nash & Young)

One of the main things I learned during my MBA classes was that business, like life, is all about tradeoffs. Examples of this are rife everywhere:

-- If you want increased national security, you have to give up some individual freedoms
-- If you want a guy with a great personality, you probably have to give something up on looks (and vice-versa)
-- In Season 7 of 24, Jack Bauer must make the decision to rescue now-fugitive Tony Almeida from FBI custody or let the bad guys kill his daughter at the airport
-- If education is going to be our national priority than we must give less resources towards health care and building roads
-- Another piece of chocolate cake or look good with your shirt off?

How does this look with property management? Well there are perfect tenants out there, but most are like us, blemished in some way or another. With the poor and worsening economy, using old standards of tenant selection (600+ credit scores, no criminal background, rent less than 25% of gross monthly income, good landlord history, gainfully employed) are sure to keep most of your houses vacant (not good!). However, the last thing you want to do is put in a tenant who is not going to pay and then rip up your house (not good either!). So this is where tradeoffs come in. What should they be?

The first thing is setting priorities. What are the most indicative signs that someone will be a good or a bad renter? What should we care about the most? In my experience, the order should look like this:

1. Employment: It’s tough to pay rent with no money coming in (duh!) and finding a job quickly is proving to be difficult in this economy. Hint: If unemployed, ask the tenant for 4-6 months of rent upfront.

2. Landlord history: Some people always pay their rent before anything else. However, it’s important to make sure you are actually talking to the past landlords and not the tenant’s friends. Hint: Ask the “past landlords” how much rent they charged. Friends usually don’t know this and their guesses are way off.

3. Rent they paid at their last house: I like this one. If all things are equal (same job, family, etc.) and what they paid their last landlord is near what they are supposed to pay you, it’s a good sign. Be wary of big jumps ($700/month rent to $1,200, for example).

4. Credit: Everyone always has this at the top of their list, but I don’t see this as that important. If they have 700+ scores, approve them. If their scores are bad (sub 550), find out why and have an open mind. You can get some great tenants this way; if you’re still too scared to move forward, ask for an additional month of security deposit.

5. Income: The numbers need to make sense. If the make $3K/month, have a car payment of $1K, and are supposed to pay you $2K/month for rent, they can only go hungry for so long.

6. Criminal background: This is usually much ado about nothing. Just watch out for violent felons who could potentially ruin your week.

Now is the time for tradeoffs. If #1, #3 and #6 are good, #2 and #4 are awful, and #5 is marginal, what do you do? Panic? How would your profile look on these 6 criteria? Look at the entire picture of the prospective tenant and make an educated decision with the data provided. Do you need to wait until you find Mr. and Mrs. Right who score “superlative” on all six criteria?

Of course not! Stop worrying and eat a little chocolate cake. You can still have a great beach body without the well-defined abdominals. Or a great tenant without the perfect qualifications!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company” (www.BDFRealty.com and www.RentToSell.com). 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.

Charlotte Property Management Weekly: 5 Signs the “Home Sales Swine Flu” Has Infected Your Rental Market

“Yes, I would like some cheese with this whine. Thanks.” (Brett Furniss, Charlotte Property Manager and author of Charlotte Property Management Weekly)

“President Obama has declared the swine flu outbreak a national emergency…” (Charlotte Observer, 10/25/09)

Swine flu is now officially both a national emergency and a pandemic! I’m not entirely sure what that means, but it sounds pretty bad and pretty official. I imagine the only party happy about this is the pigs, who take an undeserved public relations hit, but see the demand for its flesh fall among the cautious populous (making its mortality rates decline significantly). If only the scheming cows from the Chick Filet commercials had thought of this, they could have saved themselves millions in dollars of advertising (with better results!).

Fortunately, I have not been personally infected by swine flu (yet…). I have been affected, though. I’ve seen this new, safer way to catch your sneeze by depositing this spittle storm into your own shirt! Yes, the one you are wearing. I’ve seen some guys on the street do it recently and I still can’t stomach the idea of my shirt doubling as a tissue. This is healthier? What is the point of tissues then? That is the next superfluous budget item to go, I’m sure. I’m thankful I haven’t seen any females do this. Apparently they believe in Fernando Lamas’s (Billy Crystal’s Saturday Night Live character) mantra, “It’s better to look good than to feel good.” But, I digress.

However, I have been affected by the “home sales swine flu” that has infected the Charlotte rental market. “What the heck does that mean?” you may ask. “And why do you keep italicizing so much in this article?” Well, let me explain. Being that few people can sell their homes, home sellers are flooding the rental market with their houses. This is creating supply and demand issues that are making it difficult for property managers to fill properties quickly and efficiently (sniff, sniff). Unfortunately, it has become painfully obvious Charlotte is infected. I’ve heard from other real estate professionals in other cities that they are observing the same thing.

So what about your market? If it has been infected by the HS H1N1, the following five symptoms should have started to appear:

1. Rentals are on the market for a much longer time (duration)
2. Monthly rental prices have fallen and continue to drop significantly
3. There are a lot more rental homes on the market! (number)
4. Realtors who never worked on rentals before are now listing several
5. Tenants are consistently trying to negotiate down already depressed monthly rents

As your real estate doctor, I can tell you that if your market is showing these symptoms, it is infected. The only known 100% cure for HS H1N1 is a mixture of “Excess Cash” and “Time.” If you wait long enough with this mixture, it will go away on its own. You should check with your local economist to get a general range on how much “Time” it will take to subside. And always double your initial estimate on how much “Excess Cash” will be required.

If you are not lucky enough to have a healthy amount of “Excess Cash” and “Time”, the following steps can be taken to slow the effects of HS H1N1 until it subsides:

1. Lock your existing tenants into 1 to 2-year leases ASAP at current rental rates
2. Lower the rental rates on your vacant homes by 10%
3. Increase marketing expenditures on vacancies while advertising the lower rate
4. Do NOT work with tenants who are more than 30 days behind. You must evict and get someone else in your rental!

Trust your doctor. Follow these simple steps to survive the outbreak in your market!

Brett Furniss is the President & Owner of BDF Realty, “Charlotte’s Most Innovative Property Management & Investment Company” (www.BDFRealty.com and www.RentToSell.com). 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.