Charlotte Property Management Weekly: Rent-To-Own- A Great Lead Generator for Traditional Brokerage!

The following is an excerpt from "A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants" by Brett Furniss (2010)


My companies, BDF Realty, Inc. and Rent-To-Sell Realty, Inc., have been marketing lease options (rent-to-own and rent-to-sell) for years to help our clients meet their real estate and financial goals.


In August of 2009, I was asked by Realtor Magazine to participate in their “Putting Together Lease-To-Own Deals That Pay” (www.BDFRealty.com/FurnissRentToSellWebinar.wmv) webinar. During the webinar, the host asked the presenters what percentage of their company’s revenues came from lease options. The other presenter quickly answered, “100%.” I thought about it and said “15-20%”; afterwards, I felt like a fraud. Why was I asked to participate as a “lease option expert” when 80-85% of my company’s revenues derived from elsewhere?


At the time, I took this to mean the revenue directly attributed to transacting deals for rent-to-own tenant-buyers (who wanted, or had to, rent before buying) and rent-to-sell home owners (who wanted rent-to-own tenants to rent, then buy, their homes). As I thought about it over the next several months, I realized I had nothing to feel guilty about. This is perhaps better understood by looking at my real estate business history:


My Timeline:

2003-2004 I was an investor who bought and lease optioned out my own properties through BDF Realty

2005-8/07 BDF Realty became a rent-to-own company that marketed to lease option tenants. However, 95% of our revenue came from buyer agency commission. The lease option candidates, who thought they would have to rent before buying, qualified to buy immediately!

8/07–12/08 Rent-To-Own home buying waned with the complete uncertainty in the credit markets. Rent-To-Sell became a catalyst to build up our property management business from which we derived most of our revenue.

1/09–Present Property management continues to provide a large part of our revenue. The rent-to-sell program continues to differentiate our property management services, while providing sales listings as well. Rent-To-Own buyer agency (the main focus of this Guide) is now the fastest growing part of our business.


So, the moral is, rent-to-own and rent-to-sell are marketing differentiators for us, but we derive most of our revenue from the traditional sources (buyer agency commission, property management, and listing sales commission).


Bottom line, I believe lease options (rent-to-own and rent-to-sell) are a great way to supplement real estate income while being a tremendous lead source for traditional brokerage.



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. For a FREE look into his new book, A Real Estate Agent’s Complete Guide to Representing Rent-To-Own (Lease Option) Tenants: Delight Clients, Fill Vacant Homes, and Earn $2,250 Upfront* (*Minimum!) go to www.RentToOwnAgentGuide.com. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: It’s All About the Narrative: The Key to Maximizing Your Rent-To-Own Client’s Value

“I can’t sell this couple on anyone. If their financial history was made into a movie, it would be in the “Horror” section. Well, the “Drama” section would fit, too. And with eight kids, it could probably be get into the “Adult Content” section as well… (Charlotte Realtor bemoaning the plight of their rent-to-own client with less than stellar credentials)



“Beauty is in the eye of the beholder.” (Plato paraphrased)


In the world of corporate mergers & acquisitions (M&A), the name of the game is negotiation. If you are a big company, you want to acquire a competitor for as little as possible. On the other hand, if you’re the smaller fish (or “acquiree”) you want to sell yourself for as much as possible. So the companies go back and forth and try to pitch their case for their “true value” as fervently as possible.


But how does one find “true value?” Well, the common method is to take book value (what you can sell all your assets for) and add in the future value of projected cash flows. From this, you get what the company is worth. This sounds so simple.


If it was so simple, the majority of young males right out of college wouldn’t lie to women at bars and tell them they were “investment bankers.” Investment bankers are the people who value the companies and put these deals together. By doing so, they make a lot of money and work a ton of hours. This accomplishes two things for these young suitors:


1. Women think they are probably rich and, thus, would be a good future mate

2. Women think they have a legitimate excuse for seldom calling and shouldn’t be offended if they only hear from them at late hours of the night after “work” functions


But, I digress…


The reason these investment bankers make so much money is not when they calculate the book value of a company; this is easy. In normal deals, anyone can appraise the assets and give a market value. And, on most deals, this yields the least amount of money. The trick (and there most of the worth is locked) is in the estimated value of future cash flows. What are they really worth?


An example: A drug company has cash flows of $100M a year and is growing at a 10% clip. This should be easy to value, right? But what if the company has a drug in their pipeline that (they say) is two years away from being patented and serves a $2B market. What is that worth? Shouldn’t that be used in the value calculation? Probably, right? That’s the main reason why the big pharmaceutical company wants to buy them. But there is no guarantee the drug will ever be approved. Hmmm…


This is where it gets tricky. And this is where the investment bankers earn their money. What do they do?


They create the narrative. They tell a story (that fits their goal) and use chosen statistics to back it up. This isn’t lying; no one knows what is going to happen in the future.


Four years ago, Wachovia Bank bought Golden West Financial for $25.5B on the investment banker narrative that it would give them a formidable bank presence on the West Coast and access to the lucrative California market. The investment bankers that Golden West hired said this deal would increase their future cash flows for years! As you know, it didn’t work out like that. A few years later, Wachovia almost went bankrupt as a result of this deal and was gobbled up by Wells Fargo.


It works the other way as well. When Google was a start-up and looking for capital, they made many promises of how they would provide great, future returns for their investors; all they needed were a few millions dollars. They swore they would revolutionize the internet. And Google’s investment bankers were right- their investors made obscene returns on their money and most don’t ever have to work again. It turned out that the value of the company’s future cash flows in the narratives told was extremely understated.


So, how does this tie into rent-to-own tenants? Most of the time, on paper, there “book value” is very low. They have lower credit scores, might have a foreclosure on their record, and might have even had to be evicted. Who wants to work with this person? Based on their record, you probably don’t even want this person renting your home. They’ll never buy and might not even pay rent! If you don’t want them, how will you sell someone else on their merits? Before you shut the door, remember that book value is a small part of valuation.


The question is: What is their future value? What is the narrative behind the tenant’s story? We run into good people all the time that have had some difficulties in their life. Divorce ripped apart their financial situation; neither spouse was willing to pay a bill (crushing their credit) and they both hoarded and hid their cash. Or job loss happened and they couldn’t get rehired. Or their son got sick and they didn’t have the proper insurance coverage; they leveraged everything they had to save him. Wouldn’t you do the same thing?


When you have a questionable candidate, be like an investment banker. Find out what the story is. Many times, this is where the “true value” is found and how you can sell the probability of good future cash flow for the seller. Once you find these selling points, you can create a narrative which creates value for you, your client, and the seller (win-win-win). 700+ credit stories are easy to sell (great book value); the harder cases are where you earn your money through the narrative (while increasing your client base and earnings).

Remember, maximizing value is all about the narrative!

Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: Why Don’t Big Real Estate Firms Embrace Rent-To-Own?

“My Broker-In-Charge highly recommends we stay away from rent-to-own transactions. They just aren’t safe.” (Traditional Realtor)

“You can fool some of the people, some of the time. But you can’t fool all the people, all the time.” (Bob Marley)


Big real estate firms used to make a lot of money. Big real estate firms still do make a lot of money. That is why I find it difficult to criticize, or offer any type of advice, to entities that have had so much success (especially those that have done so for a long time). The biggest firm in my market in Charlotte made $6 BILLION dollars a few years ago. That’s billion, with a “B.” That’s awesome! At least I’m impressed…


So, I thought about it. These people running these firms must be really smart (I’m not being facetious at all); they’ve made a lot of money for a long time. Why are they so anti-rent-to-own? Why are they scaring their agents with stories of disaster and endless risk? Smart people don’t make strategic business decisions on a whim. So why are they so overtly steering away their agents from rent-to-own (lease option) transactions?


This is what I came up with:


1. Lower margin deals- this is usually true.


2. They are not in the property management or credit repair business. This is not a core competency and once again, is a lower margin business.


3. Brokers have already been trained to do general brokerage. It’s hard enough to get people to do one thing well, why confuse things?


4. If they are not going to train for rent-to-own, these transactions can be risky. I mostly mean this on the rental side of the equation. If you don’t know how to screen tenants and have a property management mechanism in place, you can send your clients into financial ruin instead of saving the day.


5. It’s cleaner. If a client doesn’t get approved for a mortgage, they get shown the door. If they do get approved, then an agent can show them houses and write an offer. They get paid 30 days later. No fuss, no muss.


6. They believe we are in a temporary situation. The market will hit bottom and banks will start lending again soon.


7. The thing to do is cut expenses, which means not expanding the training budget to teach lease option. This is true of most of Corporate America; everybody cut their expenses to the bone. This is why corporate profits are up, while revenue (and employment) is flat or down- this is also known as “hunkering down.”


8. For profit reasons, they just have a focus on procuring listings, not necessarily filling them. Sales is a numbers game; get enough listings and some will be bought. Plus, having their signs in everybody’s yards for a long time is great branding (though it really shouldn’t be…). It’s also free advertising (free for the firm, that is. Not for the owners of vacant homes!)


So, the bottom line is that lease options are more hassle, for less money, to address what they view as a temporary situation.

Maybe this is smart business.


But maybe not…


Businesses that help clients (even when it is not convenient or profitable) tend to be the ones that stick around; so do their customers. Real estate professionals are supposed to use their acumen to create solutions for their clients that help them manage their “biggest investment of their lives.” This means increasing cash flow, stemming losses responsibly, and using techniques appropriate for the times. It doesn’t mean amassing listings because a firm knows a certain percentage of them will turn into short sales.


Protect profit margins or customers? Why not both?


Are we learning anything about what not to do from the bankers? Or will history repeat itself?


Let me know your thoughts.


Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com. For a FREE subscription to “Charlotte Property Management Weekly” via RSS, click here. Or by e-mail, click here.