Charlotte Property Management Weekly: Which is Better? Colts or Saints? Sale, Rental, Rent-To-Own, or a Combination?

“I’ll always do what’s in my client’s best interest.” (Dutiful Charlotte Realtor)

“…That new technologies replace existing ones because they are cheaper and more consumer-friendly.” (Harvard professor Clayton Christensen on “disruptive technologies”)

“…The Indianapolis Colts opened as a four-point favorite to beat New Orleans in the Super Bowl.” (Yahoo Sports, 1/24/10)

Super Bowl time is here which means there will be rampant speculation about which team is better. Most people from Indianapolis don’t think there is anyway Peyton Manning will let them lose, while New Orleans fans think that destiny is on their side. Of course, no one knows exactly who is right, but that doesn’t stop them from arguing about it non-stop for two weeks.

One way to try to figure out who will win is to look how they played in the regular season and equate this to who has the advantage if the game is played a certain way. For example:

1. If it is a great weather and a lot of points are scored, the Saints should have the edge. (The Saints were the #1-ranked team in total offense this year and the Colts were #9)
2. If it is a defensive struggle, the Colts should win. (Colts were #18 in total defense, while the Saints were #25)
3. If the weather is bad and teams need to run the ball, the edge goes to the Saints. (The Saints were #6 in total rushing and the Colts were #32)
4. If there is a lot of passing, the Colts should have the slight edge (The Colts were #2 in passing while the Saints were #4)

The point is that different circumstances will favor a certain team’s strengths, thereby giving them the advantage.

The same methodology can be used when helping a client figure out the best strategy to market their home. If the:

1. Client needs to sell immediately and can afford to wait: Sale
2. Client wants to sell but cannot afford to wait long: Sale and rent-to-own marketed concurrently
3. Client wants to hold the property as a long-term investment: Rental
4. Client is ambivalent; they just want to move: Sale, rental, and rent-to-own marketed concurrently
5. Client wants to sell and has plenty of equity in the property to sell (owner-occupied): Sale
6. Client can sell if they receive a market offer: Rent-to-own
7. Client does not have enough equity to sell: Rental or short sale
8. Client wants to sell and the home is vacant: Rent-to-own

Just as different game situations favor a certain team’s strengths, different client needs favor different sales methods. One size does not fit all! Great agents know this and strategize accordingly- that is why their clients love them!

My prediction: Saints 31, Colts 21. Happy picking!

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: Getting Paid- A Growing Problem for Everyone! (Except Realtors & Clients Doing Lease Options)

“I have a lot of home listings for sale. The only problem is I don’t get paid unless they sell!” (Frustrated and Broke Charlotte Realtor)

“FHA bailout? New real estate fees, loan rules to avert one” (USA Today headline, 1/20/10)

“The point of a business is to make money doing what the customer wants, ethically.” (Marketing Professor Steve Nelson at Grand Canyon University)

The biggest symptom of our current economic problems is that people don’t have the money to pay their bills. Think about it. Why is the FHA in trouble? It’s because the home owners they lent to couldn’t pay. Why did the banks need to get bailed out? It’s because the clients they lent to couldn’t pay. Why are many businesses going under? It’s because their customers are businesses that are going under (because they didn’t get paid).

In property management, there is domino effect of people not getting paid. If the tenants lose their jobs and don’t get paid by their employers, they can’t pay the rent. If the rent isn’t getting paid, then the owner of the home isn’t getting paid (and neither is the property manager). If the owner isn’t getting paid, then the bank where the mortgage is held isn’t betting paid. Then the bank goes under.

Okay, this isn’t much of a revelation. Noah wasn’t famous because he saw it was raining out; he was famous because he built an ark in time that saved his family (and the majority of the world’s animal kingdom). Point taken. So how can we make sure that we and our clients get paid?

For Realtors that have vacant listings for sale, you can open them up to accept lease option (aka rent-to-own and lease purchase) tenants. With the number of homes for sale and the dwindling pool of buyers (see USA Today FHA headline above), most listings are sitting vacant for extended periods of time. By getting a paying tenant in the property, you can get your clients paid. They, in turn, can pay the banks. This is good!

This is not paramount to some agents, which is confusing to me. Just last week, we were working with a Realtor who had his client’s vacant house open “for sale” and “for rental”. When we entered an offer on behalf of our prequalified rent-to-own tenant, the agent said his client would accept a sale or a straight rental, but not a rent-to-own. Our client wanted to be a homeowner; starting the process of building up a down payment and closing costs while building a life in their future home was important. When asked what the owner’s back-up plan was, the agent said the owner would give the home to a property manager if our client wouldn’t just rent it out.

Let’s take a look at this back-up plan. We are property managers so there is no disrespect here. However, let’s look at the costs. Property managers charge fees for placing tenants and there is a lot of rental homes on the market; look at the biggest property manager in your town and see how many homes are available for rent! This is not the property manager’s fault; it is merely a function of the market as houses are not selling and they are being put on the rental market. So, undoubtedly, there will be a few months of holding costs in addition to the property management fees.

In terms of getting paid, the agent is not getting any money for passing on his listing to the property manager and is costing his client even more money. Agents that make a habit of engineering “lose-lose” deals (clients are paying more and he is getting paid nothing) don’t typically last very long in any business.

What could have happened? The lease option deal could have closed and everyone could have gotten paid.

1. The client could have had a tenant making their mortgage payment every month.
2. The listing agent could have been paid by asking for half of the option fee as compensation. Option fees are typically 1%+ of the purchase price.
3. The buyer agent could have collected the other half of the option fee.

The best part of this scenario is that the rent-to-own tenant could have bought within 1 year. This would have allowed the agents to split the 6% selling commission then. The client would have been thrilled being that in addition to GETTING A TENANT FOR FREE WITH NO ADDITIONAL HOLDING COSTS, they would have had a tenant who might buy their home within a year. A true win-win-win could have been created.

There are many ways to get paid on lease option deals, but this is a good equation:

½ of option fee (provided by tenant) for both parties + 3% selling fee upon sale = Happy clients and agents

Help clients get paid and get paid too! Isn’t this what businesses were created to do?

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: A Realtor’s $100K Case for Rent-To-Own- It’s All About the BATNA

“Straight sale or no deal.” (Charlotte Realtor when presented with a rent-to-own offer)

“There’s nothing like playing with house money.” (Las Vegas Credo)

Oh, it has been difficult finding Realtors who want to deal with rent-to-own prospects for their listings for sale. Some won’t call you back. Others will take offers and then not respond to them. Some will tell you that their clients are not interested. Then others will ask for the world: 10% down, first and last month’s rent, and a rent premium of 20%, and the closing within 6 months (if they had this, would immediate financing be an issue?).

But, as Tupac said, “I ain’t mad at cha. Got nuttin but love for ya.” I view the reluctance of Realtors to enter into rent-to-own deals as more of an issue that needs to be corrected from my side of altar. If I was presenting rent-to-own better, Realtors on the other side of the transaction would be eagerly calling me back. I honestly believe that almost all Realtors want to do the best thing for their clients. However, my presentations are not addressing the lingering uneasiness they have. More specifically, I am not showing them the:

1. Value of rent-to-own for their clients (they only see the risk)
2. Incentives- more on this in next week’s article (they don’t see how they can get paid)

First of all, let’s address the value objection. In the book, “Negotiation Genius” by Deepak Malhotra and Max Bazerman, they have a 5-step framework for a successful negotiation. The first step is “Assess Your BATNA.” OK- done. Next step is…

Wait! What the heck is a BATNA? BATNA is the acronym for Best Alternative To Negotiated Agreement. Or in layman’s terms, if this deal doesn’t work out, what am I going to do instead? Everyone does this mentally to a certain degree in their head without thinking about it.

Example: OK, Mark just asked you out. Do you say “yes” and go out with him this week? He’s average looking and needs to trim his nose hair, but he seems sort of funny. If you say “yes”, you’ve got a date (and a free meal) on Friday night. If you say “no”, you might be sitting at home alone (again) this weekend watching TV and listening to your friend, Molly, complain about her awful life for an hour over the phone. Oh geez, it could get worse; Molly might feel inclined to stop by if she knows you’ll be home…

So either you can go out with Mark and complete the negotiation with an agreement (a date), or turn him down. Your BATNA would be to stay home, watch TV, and try to dodge Molly.

But this is life! It could get even more complicated- who knows? Mark’s friend, Hot Dan, might call (improbable as it may be…) and ask you out. If you go out with Mark, that would destroy your chances with Hot Dan. But is he really going to call? You heard he likes Suggestive Suzy. Decisions, decisions, decisions…

This is the same exact scenario for a rent-to-own offer. Right now, your client has a vacant house on the market; they are losing money as they have to pay two mortgages (vacant home and where they live now). For this example, let’s say the payment on their vacant home is $2K/month. The hope is, of course, that the wait is worth it and they sell their vacant home in the near future. Let’s analyze the negotiation:

Offer: Rent-to-own tenant offers $4K option fee down, $2K/month, and wants to buy the home at the market price within two years.

Seller BATNA: Continue to pay $2K month and wait for a coveted buyer who will be bringing a below market offer.

Rent-To-Own Buyer BATNA: Look for another suitable home out of the 10,000+ homes on the market that are vacant.

However, what about if there is an agreement reached?

Agreement: Seller stops having to make a $2K payment every month and realizes a potential NET GAIN of $96K!! Instead of paying $2K a month, they are receiving $2K a month. ($2K + $2K = $4K X 24 month lease = $96K!). Don’t forget the $4K option fee payable to the owner which ups the net amount to a cool $100K! Rent-to-own buyers get an opportunity to build their credit, accrue a down payment, and begin building a life in a home that will be theirs. Everyone wins.

Before you say it (“But rent-to-own tenants never buy!”), let’s say that they don’t and move out at the conclusion of their lease. It’s now spring of 2012 and the market looks a whole lot better, doesn’t it? Maybe you can list the house for a lot more in a much better sales market?

Know your client’s BATNA and act accordingly! Maybe on second thought, you may want to take that date with Mark (to avoid Molly) and forget the roving-eyed Hot Dan who never seems like he’ll settle down. Mark’s lonely, you’re lonely, why not get together?

Next week’s article will cover how to build incentives into a rent-to-own transaction for your favorite person- you!

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: The Tipping Point is Coming- Are You Prepared for Lease Purchase?

“I understand that qualified buyers are becoming scarcer by the day. More and more houses I list are sitting vacant on the market while the owner eats the mortgage every month. Do I just tell them to wait for the market to come back or is there something I can do?” (Charlotte Realtor)

“In sociology, a tipping point or angle of repose is the event of a previously rare phenomenon becoming rapidly and dramatically more common. The phrase was coined in its sociological use by Morton Grodzins, by analogy with the fact in physics that adding a small amount of weight to a balanced object can cause it to suddenly and completely topple.” (Wikipedia definition of “tipping point”)

"The Times They Are A-Changin’” (Bob Dylan)

The tipping point is an interesting phenomenon. Malcolm Gladwell wrote a New York Times bestseller on the subject, bringing up a myriad of examples to illustrate it. In a business application, it basically says that a product’s life cycle (from conception to death) does not grow in a steady, predictable pattern; rather, it starts like a flat line of a few buyers that grows slowly to a certain point, then spikes suddenly upward (explosive growth!). This “certain point” is referred to as the tipping point. If you charted any successful product’s sales growth on a piece of paper, you wouldn’t draw a straight line going up, but rather a line that looks like a hockey stick. All companies want to enjoy the rapid sales (cha-ching!) that result on the blade of that stick.

I remember when I worked in telecommunications in the early 2000’s, almost every sales meeting touched on motivating us to sell a certain service. “It’s great”, “Clients just need to see the value in it”, “It’s all the rage in Europe”, and “Did I forget to mention how worthless you are?” were the usual exhortations we were subjected to. We just couldn’t sell it. “It’s garbage!”, “Why would clients waste their money on something they’re never going to use?”, “They can just pick up their phone if they want to communicate with someone!”, and “Let’s see you sell it!” were our explanations for our low sales numbers for this service. And what was the service we couldn’t sell? In hindsight, I can LOL. It’s probably something you use every day- text messaging.

It’s not like text messaging didn’t have business applications that we could reasonably sell our customers on using. Hospitals could send texts to their ambulance driver’s cellular phones with addresses to go to without the fear of no or poor cellular coverage affecting the response time. If you needed to get an important message to your boss while he was in a meeting, the text would get it done simply and discreetly. During 9/11, the cell towers were overwhelmed and cellular calls were futile, but texts still got through (for the few customers who actually bought this service from us!).

However, as the text messaging user base continued to slowly trickle in and grow (as we begged and pleaded each of our clients to use the service), something happened. Everyone started to ask for text messaging to be added to their orders (Asking us? Is this a joke? Did our sales manager put you up to this?) This $10 a month add-on service started to become real money as hundreds of thousands of users added it to their plans each month. This text messaging revenue lasted for years and still provides huge returns for my old company (and the wireless industry in general!). The tipping point was achieved and the profitability in that growth was beautiful for those who were able to take part in it.

So what does this have to do with lease purchases? The lease purchase tipping point is coming. People want to buy and the banks are not willing to play along. Banks are concerned with risk issues of their own (commercial real estate loan default, credit card default, upcoming bank regulation by Congress, keeping a huge cash buffer so they don’t ever have to take money from the government again, etc.). Consumers want to buy homes, but banks will continue to raise credit score requirements, down payment requirements, and reject any loan that doesn’t fit a tight cookie-cutter model so they can further eliminate their risk.

At that same time, more consumers than ever want to buy homes for the usual reasons (marriage, divorce, having kids, job changes, etc.). More vacant houses than ever will sit on the market unsold while eating away at the owner’s dwindling finances. More Realtors than ever will leave the real estate business as sales transactions dry up further. Babylon the Great (the banks) has fallen and we will all wait for the scraps of a few loans they occasionally leave us. Or will we?

Across the country, some enterprising Realtors are putting lease purchase deals together and transacting real estate. Their buyers and sellers don’t really understand how the whole “lease purchase” thing works, but they do. Every deal is a struggle of educating the other parties involved, showing the mutual benefits, ignoring naysayers who only believe in “clean” buy/sell sales, and negotiating commissions to reflect the value of what they bringing to the table. They are supplementing their income (and value!) now, but see the need for their services increasing every day during the next few years.

And at what point will these pioneers really be rewarded? At the tipping point, of course!

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: Sales- You Gonna Do It the Hard Way or Like Rick Pitino?

“I’m okay at sales. I send out 1,000 postcards and call all my internet leads every month. I’m just trying to figure out how to convert more of them this year.” (Pensive Charlotte Realtor)

“That’s right! You’re not your dad. He could sell a ketchup popsicle to a woman in white gloves.” (David Spade to Chris Farley in "Tommy Boy")

“Put. That coffee. Down. Coffee’s for closers only.” (Alec Baldwin in "Glengarry Glen Ross")

Man, sales can be tough. I remember coming out of college and working in sales for a telecommunications company in New York City. That was rough. My manager was from the “no excuses” school of sales. Every question I asked was interrupted with “I have an idea- sell something” or “will you please sell something, PLEASE?” The problem was that even though I was trying hard, the customers I was cold calling didn’t seem to care. Most of them, when I was able to get them on the phone, responded negatively to my request for an appointment; responses ranged from asking me to do things that were anatomically impossible to my personal favorite, “kill yourself.”

The weekly sales meetings were the worst. I was on the #2 team nationally in sales so most of the salespeople sold a lot of phones. All of the meetings were run the same way. There would be announcements and then we would go around the conference table giving our sales numbers verbally. “Schenk?” “120 units.” “Great job!” “Nichols?” “85 units.” “Way to go! I’m impressed you closed the IBM deal.” “Furniss (me)? “(cough) (mumble)” “Furniss- didn’t hear you. How many units?” “Zero.” “Zero? Wow- way to be an asset to the company! At least you’re a consistent loser!”

For those of you keeping score at home, the top 3 insults from my sales manager were:

1. How is Furniss like a rowboat? No sales.
2. I have a great idea on how to solve the nation’s drug problem. We just have to have Furniss become a drug dealer. Nobody will buy.
3. Do you know Furniss is actually Bob Hope’s long lost brother? No Hope.

I thought this experience was the norm for people who were new in a sales job. Then I read a story about the University of Louisville hiring Rick Pitino as its head basketball coach in 2001. Pitino was joining a program that was in turmoil (aka they weren’t winning a lot). Pitino knew that his success would hinge on his ability to recruit and sell great players on joining his program. In 2002, he signed a highly coveted recruit, Francisco Garcia (now with the NBA’s Sacramento Kings). However, Pitino didn’t even sell him on Louisville. He came on his own accord even as he was heavily recruited and offered multiple scholarships by major college basketball programs across the country. How did this happen?

It happened largely by accident. Pitino used to be an assistant coach with the New York Knicks in the early eighties. There was a young ball boy that Pitino would talk to from time to time. It turned out that this ball boy wound up as friends with this high school star from the Bronx (approximately 12 years later after both had left the Knicks for several years) and told Garcia that he would be very comfortable with Pitino as his collegiate coach. That was all it took. Garcia was convinced; he willing to sign with Louisville without even meeting Pitino!

As I was cold calling and taking abuse, Rick Pitino was cracking jokes with a ball boy. Who had better results? Coach Pitino. Caring about others trumps sales pitches. Referrals trump cold calls. Relationships trump all. People like to do business with people they like. And a “friend of a friend” is much better than a stranger on the phone.

Sales can be easy. Treat people well and reap the rewards!

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.