How to create a Lease Option business

How to create a Lease Option business

In order to create a Lease Option business you must treat it LIKE it is a business.  That means that you must remove emotion from the equation and look at every house with a regard to ROI (Return on investment).

How can you do that?

1)  Create a huge funnel:

  A funnel is a great way to automate your business so that you are continually having properties to look at.  You want to have people contacting you, rather than you contacting them.  (It is much easier to negotiate with someone that has called you, they have already taken the first steps.) Here are a few ways to create a funnel.

You need to find owners that have problems, and are motivated, AND have the circumstances that allow you to lease option their home.  You need to find tenant buyers that can qualify to purchase a home in two years.  The more prospects that you have in your funnel, the more deals you will have.  You must ALWAYS be marketing.  

a)  Business cards:  hand them out to everyone.  You should have a tagline, plus contact information.  If you don't pass out 20 business cards a day, you aren't working at it.  

b)  Internet:  have your own web site.  If you don't know how to create one, go to www.wix.com and make a free web site.

c)  Ads:  Place ads in Craigslist.net, any other community bulletin board, and any other discussion board. Put little ads in apartment complex's laundry rooms, restaurant bulletin boards, and any place that you can put one up for free.  

d)  Fishbowl:  Buy a fishbowl at Wal-mart for $5, and ask business owners if you can put a fishbowl on their counter.  People that are interested in Lease optioning their house, or need a house to lease option, can fill in the entry form, and the winner of the weekly drawing will get a (whatever the business owner sells) at the end of that week.  (If they are a restaurant, the winner gets a free meal, PAID FOR BY YOU).  Always think of how it benefits the other person; most people will operate from a selfish self interest perspective, and you can usually deal with that.

e)  Bird dogs:  Every time that you go to a nice restaurant, ask the waitress if she ever hears anyone that is looking for a house.  If she will call you AND THE PROSPECT DOES BUSINESS WITH YOU, you will give the bird dog $50.  (Give them your card, get their contact information, and follow up with them every few weeks.  It never hurts to send an email telling them another person just got $100 last week, just by keeping their ears open. Waitresses, pastors, basically anyone that gets a lot of people contact is in a position to be a bird dog.  What's in it for them?  $50 in cash if they put you in touch with a person that you do business with.  (Since you only pay the bird dog AFTER you have gotten paid, you have an unlimited advertising budget for this.  When you pay based on production, you have a HUGE budget.)

f)  Social media:  Do you know those people that are constantly using Facebook, Twitter, etc...for a social media billboard?  Yeah, you need to do that too. Be entertaining, be charming, be interesting, but always be closing.

g)  Be a subject matter expert:  If you can write a column for a local paper, using your knowledge...do so.  You might have to pay a little bit of money for the right to write the column, but it elevates your credibility.  If you can arrange to do seminars teaching young couples how to prepare to get into a house, and present this at local churches, universities, or ANYWHERE that will let you speak, you will elevate your credibility, and people will believe what you say.  (So, don't lie.)

h)  Join a real estate investment group.  When we created FRAREI (Front Range Association of Real Estate Investors) in Colorado Springs, we had meetings at our mortgage brokerage offices.  We allowed OTHER MORTGAGE BROKERS to speak, we had subject matter experts, we provided free food and drink, and we provided free space for the meetings.  This allowed us to network with other real estate investors.  If we found a deal that didn't meet our parameters, we would wholesale it to the group.  

i)  EVERY person that you contact is a potential bird dog.  Treat ALL of them with respect, let them know your business model, and ask for their help.  If you can't help them, but might be able to help a friend, if you originally treated them with respect, there is a very good chance that they will give you a referral.  

j)  Follow up.  Every person that you have ever done a deal with, OR talked to should get a card at least four times a year.  (Birthday, anniversary, Christmas, and Fourth of July)  Create a contact list and write down a little paragraph about each contact.  When you follow up, you will see a connection between you and the contact.  If you nudge them, every couple of months, asking if they know anyone that needs help, and offering to give them $50 if they refer someone to you that you can help, you might just start getting more referrals.  

k)  Reward your bird dogs/contacts with an appreciation day.  We had a HUGE appreciation day for our past clients at a putt putt golf place.  We gave them free hot dogs, and golfing for the day.  If you do this correctly, they will think that you are the greatest guy in the world...and you will get more leads.

l)  Make it a contest.  Who can give the most leads in a month?  Grand prize is....

a)  Have a quick filter:

You must get to the point where you know what a property is worth, and can look at it and say "no" in less than a minute.  If it takes more than five minutes to say "no" to a property that obviously doesn't meet your parameters, you have taken too long.  On the other hand, you can take your time on people that might be motivated.  A "yes" might take days to decide on, because you have to talk with the people, and determine their level of motivation.  (Also, if it doesn't meet YOUR criteria, can you get it under contract, and assign it to someone else?  Could you use an extra $5,000?  If so, be aware that someone might just want it.  Having a large database of fellow investors that can use a good deal, and being willing to assign a contract to them, makes every opportunity golden.)

2)  Know the value:

 Go to www.eppraisal.com, www.bofa.com, or zillow.com to get a free property valuation.  You can also go to the neighborhood, drive around, and every house that is for rent, or for sale, you can call up and ask the 5 "How" questions.  (How old, how big, how many bedrooms, how many bathrooms, how much).  It gives you an indication as to the values.  they might be asking for more than the market is showing, but if you get enough indicators...that is the market.  Also ask how long it's been on the market.  If a property has been listed for more than three months, they might be desperate and motivated. There must be a spread between what the property can be purchased for, and what it can be sold for; there must be a spread between your outgoing lease payment, and your incoming lease payment.

3)  Learn how to negotiate: 

 If you have never been to a negotiating class, go to a flea market and negotiate on items.  If you are looking for a seminar on negotiating, contact me at:  master_negotiator75@yahoo.com for more information.

4)  Learn how to write a Lease/Option agreement:

If you don't know how to write a lease/option agreement, find a lawyer that can create one for you, and then just use that as a template.  (A good agreement will have all of the boilerplate that protects you, plus be so simple that all you have to do is fill in the blanks.)  If you need to know the clauses that will save you three months of payments, allow you to walk away from a bad deal, and have the purchase price be the declining mortgage balance, contact me at: master_negotiator75@yahoo.com .

5)  Be willing to walk away from a bad deal:

If you have a large enough funnel, you will get a large number of prospective deals that will fall in your lap.  Not all of them will work.  Your job, more than anything else, is to separate good deals from bad deals.  If it won't work, walk away.  HOWEVER, before you do that, ask yourself if anyone else could use that deal.  If you can, assign the option to someone else, give the listing to a realtor, or direct them to someone that can help.  ALWAYS be looking to help the prospect.  If you can't make money off of it, can someone else?  How can you be the person in the middle, and make a small profit?  If you need coaching in how to make money off of a bad deal, contact me at master_negotiator75@yahoo.com

6)  Listen, and then listen to what they are really saying:

I had a guy that called me on the phone once.  He wanted to sell his house.  I asked him what he thought the house was worth AND what he was asking for it.  The numbers were the same.  I, politely, told him that we were a business, and we couldn't stay in business if we didn't get properties for less than market value, and then sell them for close to market value.  As I was hanging up, I heard the most wonder sound you can hear. He screamed, "WAIIIIIITTTTTT".  As I wiped the drool off of my chin, I asked him, "Yes, how can I help you?"  He was leaving town THE NEXT DAY.  If we didn't buy it, he would lose it.  (He was current on his mortgage, but had to leave).  We got it under contract, transferred title, but didn't record it.  We then sold the house to one of our students for a quick ten thousand.  If I had hung up, I wouldn't have heard his underlying anxiety.  Always ask an open ended question to gather information, and closed ended questions to clarify, and follow up.  Sometimes, asking the same question, again, will elicit a totally different response. 

For more information on how to ask questions contact me at: master_negotiator75@yahoo.com

7)  Setting up the "Machine"

Once you get this started, it takes on a life of its own.  If you just maintain it regularly, you can maintain the momentum without much daily fuss.  It becomes an automaton, that just keeps growing and growing.  The first years are the least profitable, BUT, as the years go on, the lease options start to execute, and you have properties that execute the options with huge profit margins.  You also should (let me rephrase that, you MUST have positive cash flow on each property) so that will start to snowball.  You also will get deals that will fall into your lap, just because you have a large funnel.  If you do this correctly, you should have a massive positive cash flow with no risk to you, and an ongoing method to replenish the lead source.  Once you have done this, you will have created a lease option business with no money out of pocket, no credit requirements, and no risk to you.

If you want more information, please contact me at master_negotiator75@yahoo.com