FREQUENTLY ASKED QUESTIONS (shortened to be concise)
Q) What would you suggest if we have an applicant that we have a good gut feeling for, but on paper their credit really is quite bad? - D.S.
Well we cannot really dig into this applicant without viewing all the particulars that you are able to see. But in the past when we have had an applicant that we felt had turned the corner credit-wise, had a good job, and recent tenancy history was good, we compensated for bad credit by requiring an extra month or even two months of security deposit. Since we stressed that we were writing this up as additional “security deposit” rather than option money, applicants were generally quite agreeable to this modification (afterall, most applicants that understand their need for a lease/purchase recognize that they are in a position with limited options…and hence they are eager to be approved for our deal) - Andy
Q) What happens if we want to sell a home before a lease/purchaser is ready to buy? - M.C.
Much of our success is due simply to the fact that “WE DON’T CARE WHEN A LEASE/PURCHASER BUYS”. In other words, we have put ourselves in a position whereby we can be flexible (and are not in a position where we need to “cash out”). However, understanding that there are no assurances when you are offering someone “an option to buy without restrictions”, you can try giving a lease/purchaser an incentive to close (e.g. “purchase before end of 2006 and landlord contributes an additional $2000 towards your closing costs or down payment). There is a risk though that the applicant may sense some desperation, and question your motives for this incentive. -Andy
Q) What if we do not want to give an applicant 3 years at a locked in sales price? Do you think this would be ok if we locked in for a shorter period of time or had the purchase price increase by a pre-set percentage, such as 5% per year? - J.B.
There is nothing technically “wrong” with eliminating the locked in sales price or shortening the locked in period. You may very well still attract a good lease/purchaser. However, a big element of our success has been that our terms are compelling to the applicant. Hence, we have short marketing periods and can often choose from among a number of qualified applicants instead of waiting desperately for weeks or months. Also, once an applicant has been approved, the attractive terms generally results in fewer problems…which allows us to purchase more properties. So, we think we make MORE money by having a larger and easier to manage portfolio due in large part to our compelling terms. Anything to make these terms less attractive, might impact our overall quality of lease/purchaser…resulting in too many unproductive and unprofitable tenant issues. -Andy
Q) How did you break in with banks and REO agents? - C.M.
Great question, but the answer takes hours. We cover this in detail in our “Action Program”. In fact, we have a bonus product dedicated to this subject (once you are in, these contacts can be incredibly lucrative) -Andy
Q) Do you ever flip properties? - C.B.
Sure, we would estimate that roughly 15 - 20% of those replying to our ads were outright purchasers, and we have flipped about 5% of our homes. However, there certainly will be some variation to our percentages from market to market. -Andy
Q) Are you worried about “the bubble”? - J.M.
NO! We are in real estate for the long-run, and fluctuations in value are unavoidable with any investment. There are a number of aspects to our program that shield us from the effect of a sudden devaluation. The top safeguards include:
- all of our homes are purchased at MINIMUM 10% investor discount. So we have a built-in cushion
- Profits with many models are tied entirely or mainly to anticipated property appreciation. We have six different profit sources to our model, and the diversification that comes with varied profit sources minimizes the effect of devaluation on our total earnings.
Q) Your terms seem too good to be true. Why are the percentages of lease/purchasers that buy so low (25 – 33% estimate) - E.L.
Many reasons. The leading causes are divorce, job transfer, family-unit outgrows the home, and sadly many applicants are unable to correct their credit problems. -Andy
Q) What do you like most about your model? - R.S.
How many hours do you have available for us to answer that? Seriously though, at the top of the list of course has to be the wonderful return we have made, relative to the small amounts of time, money, and energy we have spent on our “side business”. (As corny as this sounds), A close second is when we get a special “thank you” from one of our lease/purchasers as they head to the closing table. The last lease/purchaser to close was in our home six years, and we could have kicked them out a couple of times when they hit some bumps along the way. Overall, we saw them coming out of it (and they did), so we worked with them. When they finally were able to close six years after signing their original agreement with us, they sent us a real warm and touching letter thanking us and crediting us for helping their family get on firm financial footing (this was not pure charity, as this home ranks among our most profitable lease/purchases). -Andy
QUESTIONS AND ANSWERS (full versions)
Q) I have just bought and am moving into a new home and would like to lease/purchase my former home. My mortgage, taxes, etc. are very low and I have great equity. However, the ratio of rent to home value is much different than what you recommend (value $400,000, fair rent $1695). Would your program still work for this type of situation? I hate to "dump" my current home due to a slow market and a flood of brand-new homes in the area that are too much competition, although I sure could use the equity to refinance. Thank you very much. - M.K.
the 1% of FMV for your base rent is a "rule of thumb". Every community is different, and an investor will need to adjust upwards or downwards based on the reality of his or her market. The good news is the rental market is getting stronger. Do a rental market analysis of your community to determine the fair market rent...and go from there.
I can't recall but did you purchase our Action Program online or at a live event? If so, there is some good instruction about determining the appropriate fair market rent. -Andy
Q) Hi Andy, Hope things are well with you. I'm going into my first weekend with the LEASE-PURCHASE ad in The Sun-Times and The Star newspapers. I'm running the ad with the new voicemail number on it from November 10-19th, affording me 2 Sundays for which to schedule appointments.
PARK FOREST LEASE-PURCHASE
3 br, 2 ba ranch, move-in ready,
incredible terms, applied rent
$134,900 $1,345/mo (312) 683-5183
And these are the terms I came up with for the flyer, based on your program:
$150 applied rent goes toward down payment each month
$134,900 purchase price with up to 3 ∏ years to close
$1,345 security deposit (toward down payment)
$1,350 option money (toward down payment)
Quick question for you:
According to comps, properties in this area are selling anywhere from $124k -$138k. We established the FMV of this property at $134,900 (I'm probably a couple of thousand $ higher). Do you have your properties actually appraised before you establish the purchase price or do you estimate according to comps for the area and the features of the home? -S.I.
good to hear from u. I was wondering how u were doing. We never get properties appraised once fixed up. Unnecessary expense. FMV established w/research before we even purchase.
Love your ad and terms. Two comments:
* Do u also have a sign out front. We have had good success with signs that display our VM #.
* Re/the rent you are asking for. Our 1% of the FMV for rent is a "rule of thumb". All markets are different, and an investor must do an analysis of the going rental rates to establish the Fair Market Rent for his/her target community. For example, here in Atlanta presently the rental market is $200 - $500 below the 1% rule of thumb. We still make plenty of $$$, but always have to adjust this key variable to the realities of the market where your investment property lies. - Andy