I'll never forget the first real estate seminar I ever went to. I left the building with so much hype that I was already mentally cashing my million dollar checks in my head. I was going to help my mom pay off her house. I was deciding whether I wanted a Dodge Viper or a Ferrari. I was also busy planning vacations to exotic places I had never been. A little FYI, I decided on the Ferrari and the Viper.
No money down investing. I mean, what could be easier than that, right? Does your story sound something like mine? Was the reality of making a fortune in real estate more challenging than you might have initially been led to believe?
What I Learned The Hard Way
It's just an honest statement that there are more gurus who currently make money from selling the courses than there are who currently make money from actually using the techniques. With the time commitment required to promote their courses and seminars, they just don't get to do much investing in there. That's why one of the most important things you can possibly learn is the subtle changes in the real world that will drastically affect your results.
I'm almost embarrassed to admit that as a real estate “guru”, I couldn't actually complete a sandwich lease-option my first bunch of attempts. I tried to sandwich this property and that property for 9 months and do you know how many deals I had to show for it? I had a pathetic big old zero. The owner would always inevitably change their mind or my tenant/buyers just didn't have enough of a down payment to make the deal really worthwhile. I just couldn't get it all together at the same time to get the big paycheck. That Ferrari sure looked further and further away.
I discovered something that would totally revolutionize my lease-option deals. It makes all real estate transactions happen faster and more efficiently. Artificially Created Competition.
Do you know what happens when you have 10 qualified tenant buyers to show your property to at the same time? You close that deal the same day, every time. Do you know what happens when you show one tenant buyer here and one tenant buyer there at their convenience? You don't close a deal for 9 months.
Instead of showing the property to your tenant buyers when they can arrange it, show them all at the same time. Here are some magic words that will revolutionize your lease-option deals.
“Mr./Mrs. Tenant Buyer, I'm going to be at the property on Tuesday at 7pm, can you meet me there? Great I'll be short on time so please be on time.”
You will place that same call with all of the different tenant buyers.
The Two Lessons I Learned The Hard Way
Lessson #1: Don't show the property to your tenant buyers at their convenience.
You see, I was showing the tenant buyers whenever they were available to view the property. I figured that I wanted it sold sooner than later so I'd better rush down as soon as I can and let them think about it. Wrong! By giving them all kinds of time to think about it, they just found more and more wrong with the home and they just got overly picky. There was no reason for them to jump into a decision.
If you show your property to 10 or more people at the same time, it will create the psychological effect that the property is in demand. People act quickly when something is in demand. Do you know what people do to make sure they are your selection? They drive down and get the option consideration that day. You sign the deal and the seller you are completing the sandwich lease-option with ends up happy.
Do you know what happens with the remaining 9 tenant buyers who didn't get the property? Well they eagerly await the next available rent to own and so your next deal runs more smoothly as well. You keep using your database of contacts until you get through them all.
Lesson #2: You need a database of a minimum of 25 quality tenant buyers to make this work consistently.
The real world taught me that most interested tenant buyers who respond to lease-option advertisements just don't have any money. If they don't have any money, how was I going to get paid? While it's great that my “”rent-to-own low down” ad was getting response, I wasn't properly filtering the people who responded. So many individuals assumed that “low down” meant “no down”. I just couldn't get rich doing that.
Here's what I did about it. If you don't have a down payment, you don't go on my list. In order to make this work, you need at least 25 quality tenant buyers. You need more than the 10 qualified tenant buyers who you will show the property to because some won't be able to make it on the specified date or the details of the house like how many bedrooms or it's location may not suit everyone.
I had an epiphany one day when dealing with another lease-option investor. We were discussing that we wanted to have better down payments, we wanted to know the tenant buyer's credit situation, we also wanted to know a little bit about their employment and we wanted to have the required due diligence checks completed.
Do you know who had already completed most of this for us? Mortgage brokers already knew pretty much all of this information. You see a certain percentage of the clients that mortgage brokers see don't qualify for a mortgage. I simply paid them a referral fee for their “turn downs.”
Before I spoke with my new tenant buyer, I knew their income, their credit rating, their employment history and most importantly, how much they could use as a down payment.
I then broke up my tenant buyers into two categories, a credit situation I could fix in 2 years or less and one that I could not. I simply kept the people with situations I could resolve. Knowing this will save you a lot of headaches and you'll avoid law suits down the road by not dealing with tenants who could never obtain financing regardless of what you did.
What was the end result of all this?
I got more money up front. My tenant buyers closed on their lease-options more often than any other investor I've ever seen. I help my tenant buyers rapidly fix their credit. Sellers have their properties so well looked after that they actually refer me to more business. I avoid any lawsuits by dealing only with tenant buyers who can seriously purchase the property if they follow the credit repair program that I dictate. Best of all, I wasted a lot less time showing properties to unqualified people and I accomplished a lot more in a whole lot shorter time frame. Everybody ends up better off. It's the ultimate win-win for everybody involved.
So if you're trying to get that lease-option sold to a tenant buyer, trying to sell that wholesale deal to your end investor or trying to find a 3rd party investor to pay you for your short sale, build artificial competition. Show your properties to large groups of qualified leads and this business will be a whole lot easier for you.
May the force be with you.