Owners – There are services in many cities that allow you to find all out-of-state owners, or owners where tax bills are sent to addresses not at the property (non-owner-occupied). Out of state owners are far away from their property and many times want to get rid of the far away headache and move on with their life. Also, they may not really know what the current market is anymore.
8.Vacant Homes are an indication that someone is making a payment on a home that is not being used. Find the owner and write them a letter. You can write a letter right to the home and hope it gets answered, or find the owner through the post office, township tax records or hire a skip trace service (you know, a “private eye”). Skip trace services are great ways to find not only sellers that you want to find, but later missing tenants you want to find. They can be fairly inexpensive per search. Check around for a good company that gives good prices and reliable service. Also ask for a recommendation for a skip trace service from a Realtor® or a place that does background checks. You’ll start to hear a few names again and again, and you’ll be able to make an informed choice.
9.Real Estate Investor Clubs or Associations (also known as REIAs) always have other investors with homes that they haven’t sold or want to sell. Network and let others know what you do. I have bought several very good deals from other investors, either because they had their hands full at the time with their own deals, or they were out of their area. You should be a member of a local real estate investor club and be regularly attending meetings. It is one of the best places to network.
10.Corporate Relocation Departments have inventory of homes that have not sold. If the company does not do a corporate buyout, then the owners would be great candidates for a lease option. They have relocated and need to have someone in that home and making payments.
11.Your Local Chamber of Commerce can tell you what businesses are leaving, who is coming in, etc. If you have many properties, they might also list you as a rental company and refer incoming people in the area to call you.
12.Word of Mouth. After you have been in this business and networked over a few years, you will start to get deals brought to you by word of mouth. Someone knows someone that knows that you buy homes. I have bought some of my most profitable homes from word of mouth.
There are many ways to find sellers and get lease option deals, but my favorite ways are:
1)Calling Sellers right from Craigslist or the newspaper
2)Working with Real Estate Agents
Motivated Landlords
Landlords can be great motivated sellers, especially if they are burned out. If the economy is slow, they might have higher vacancies than in a fast or hot market. In my experience, I have found there are two basic types of burned out landlords:
1.The one that has watched a lot of late night TV and decided to make their millions in real estate.
Unfortunately, there are many people that buy real estate with no knowledge or experience. They think they know it all after a high-powered, adrenaline-rushed sales pitch. There are, however, many state and federal laws that regulate this business. This type of landlord will fall for the professional tenants and their stories and experience, and often end up getting burned.
Understanding how to screen tenants and select them is key not only to being a good landlord, but also the business of selling using lease options. By being a member of a local real estate group, investors will get the education and assistance they need to be successful as an investor. If you want to find a group in your area you can check the National Real Estate Investors Association website – in the back of the book for a group in your area.
2.The second type of landlord is not really “burned” like the first type of landlord, but they are retiring and moving on with their life. They don’t need the money from the sale of a home, and in many cases they don’t want it yet. They usually have huge capital gains to contend with, and may not want to pay those gains yet, or they may want to plan for a 1031 exchange.* [A 1031 exchange is an IRS section that allows a person to exchange their kind of property to another like kind of property, of equal or greater value, and therefore defer (not avoid) the capital gains on the first property. For instance if a seller has a home that they bought 10 years ago for $80,000 and it is now worth $140,000 and they have depreciated the property from $80,000 down to $40,000 then there is a $100,000 gain they need to realize ($140,000 value less the depreciated value of $40,000 = $100,000 of gain). This would be a long-term capital gain, but many sellers still don’t want to pay on this amount. By optioning their home to you, they might be able to better plan for a 1031 tax deferred exchange. There are sellers that will sell to you on an option to avoid the taxes now but like the benefits of renting their homes. They like the cash flow and with this solution they can still benefit from cash flow and avoid the other issues of being a landlord that they don’t like or won’t have time for now.
When I purchase a home from a landlord, one of the benefits to him or her is that I will usually assume the maintenance completely on the home, or ask them to assume only the first $500. I also will take on the advertising, vacancies, and showings, etc. You can be very creative when structuring a deal with an owner of a home. The benefits for a landlord include but don’t have to be limited to:
A.Maintenance - sellers don’t have to deal with issues and calls. Even if they pay a portion of the costs, I will handle the work.
B.Showings - sellers never have to show the home again. I will do the showings, take the calls and discuss the home with all tenant prospects.
C.On Time Rent – they don’t have to worry about the tenant paying each month. Their rent check comes from me regardless of whether or not the tenant has paid me on time. My check is good and on time each month.
D.Advertising – they don’t have to advertise the home anymore. I will pay for all the adverting and handle all of the calls.
E.Vacancies – they don’t have to worry about vacancies anymore. I will pay whether the home is vacant or not. [You can negotiate this also if the seller is willing – e.g. you have one month free rent in each X (any number you choose) months of the lease if you don’t have it occupied (all contracts with landlords are negotiable, but you should only negotiate with them to pay rent in a slower market, a buyer’s market)].
F.Insurance – they have extra liability protection when they lease option to me. I carry a $1,000,000 liability policy on properties that I don’t own and am only optioning. This liability policy is really to protect me; however, if something really bad were to happen on this property, this insurance would be utilized in a defense, which would also protect the owner of the home.
These benefits alone will allow a landlord to feel comfortable with selling, but also allow them to take less in rent then they usually receive. Talk about these benefits to help them see the advantage in leasing the home to you with an option. They now have less headaches, overhead, fees and expenses, so they can lease it for less. With a lower payment to the seller, you can also rent it to someone and increase your cash flow. It is hard to determine the exact amount to reduce their normal rent because there are many factors, but normally several hundred per month or more is reasonable.
How to Evaluate Seller Ads in the Newspaper
Besides placing your own ads in the newspaper to attract sellers, you can also answer their ads. In lease options I find that most sellers need or want their cash out. The best way to find a seller for a lease option is not the FSBO section of the newspaper, but the For Rent section of the newspaper. What you will want to do is to
