I set up all of my single family home rentals on a lease option to purchase basis. Columbus, Ohio is a great market, so typically, a three-day ad is all I need to rent a place. I’ll receive an average of 35 to 40 calls per day while the ad is running. I make it a point to call back each and every person responding to an ad, even if I’ve already rented the advertised home.
When I call these folks back, I let them know the place they’re calling about has been rented, then proceed to screen them on what they’re looking for and try and figure what they can afford. I might ask the following: How many bedrooms? What side of town? What monthly payment can you comfortably afford? When are you looking to move?
I’ll then proceed to tell these prospective renters how a lease option works–all of the advantages to the buyer/renter. Working with local Realtors (who understand real estate investing and buying with little or no money down), I then research homes that I can pick up for little or no money down, that will:
Generate a positive cash flow of at least $100/month
I can flip to the renter for a $10,000+ profit
Put the renter in the home under normal appraised values in the particular neighborhood
It’s a win-win situation for everybody. I average about one of these per month. Here’s last month’s actual closing:
I had an interested party looking for a three-bedroom home and wanted their rent to be no higher than $650 per month. Using a local HUD list, I located a potential home where the numbers looked like they could work. It was a three-bedroom Cape Cod, two baths, one-car attached garage located in a neighborhood where homes appraised in the $75,000-$80,000 range.
HUD was asking $56,000 for the home. I had the prospective tenants drive by the place and let me know what they thought. They loved it. I put a bid in sight unseen at $47,000, and it was accepted. (I really don’t recommend purchasing a place unseen, but I knew rehab work probably wouldn’t total more than $10,000).
Turned out the home just needed painting, new carpeting, and some plumbing work–that’s it. I was able to secure an investor loan of $60,000 (80% of the appraised after fix-up value of $75,000), so no money down and actually, money in my pocket. I set up a twelve-month lease option with the tenants, purchase price to be $71,000. Their deposit was $1,200.
They agreed to paint the home to forego the first month rent which was set at $635. (My first mortgage payment wasn’t due yet.) I paid for new carpet which was $1,600 and the plumbing work at just over $300. I’ve got a great cash flow, they’re happy as larks, and so am I! Win-win for everyone.
There are a LOT of these people out there, and it’s not difficult to find them. Everyone wins!