Re: L/O and credit risk - Posted by William Bronchick
Posted by William Bronchick on September 25, 2005 at 17:03:39:
Johnny, I’m one of those “gurus” and if you read my course, you’ll see
that I do discuss a lot of what can go wrong and how to protect
yourself from it. My experience personally is right on with the people
who commented below - if the market is hot, you’ll get a lot more
people exercising. Also, screening and picking the right tenant/buyers
is the key. And, the more you get involved as the seller/landlord to
prod the buyers along, the more your exercise rate goes up. In hot
markets, seller/landlords tend to do NOTHING, hoping the tenant won’t
exercise. In soft markets like mine, we make our profit when they
exercise, so we call them every month and ask, “Have you called my
friend the mortgage broker yet?”
I don’t believe the aggressive lending has hurt the lease/option market,
in fact it has made it easier for tenant/buyers to qualify. Remember,
lack of credit or down payment are only 2 reasons why people do rent-
to-own. Case in point - I showed one of my houses today to a very
nice normal guy who just moved to town a week ago and doesn’t want
to do a straight rental. He’s living in a corporate subsidized executive
suite hotel until he finds something.
What IS causing the lack of interest for rent-to-owns is the supply and
demand factor. More landlords are offering rent-to-owns than they
used to. With interest rates down, more 1st time homebuyers are
finding homes, leaving demand for rentals down. When demand for
rentals are down, demand for rent-to-own also is down.
Nonetheless, lease/options are a GREAT way to sell, because you get
the highest price without an agent’s commission. Also, if the tenant is
in the property a year before he exercise, you can benefit from capital
gains tax rates or you can do a 1031 exchange with the proceeds and
pay no tax.
Just remember, every real estate strategy is like a tool in a toolbox.
You can’t fix everything with just a hammer.