Joys & Trials of a Rent to Own Investor

[Doug Pretorius (ON) 9]

So many things have been going on lately in my business that I think need to be shared, to inspire, to warn, to teach and (hopefully) to learn from my own mistakes and have you guys point out where I can make improvements! I figure I'll start up this thread as a blog of sorts.

 

Where to start...OK let's rewind back to the last couple of weeks of June 2010. I had no properties and virtually no t/b list to speak of after one of my many long hiatuses. I wasn't especially looking forward to getting back into cold calling FSBOs so I started emailing ads instead. Some to FSBOs some to Realtors, and a few to FRBOs even though I've yet to do a deal with a landlord. When I say I started emailing ads I better put that into perspective, the major free classified site for my area is kijiji, it easily accounts for 95% of all classified ads for everything from bed frames to houses. Craigslist, oodle, olx, isell etc. bring up the rear 5% although I've found that ads on some of these sites are NEVER removed and will continue to generate hits to my website long after they've been placed (as in months if not years afterward).

 

Even though kijiji has a de facto monopoly on the local classifieds I've noticed that there are only about 5 new FSBO houses listed each day. Even with the sifting required to dig up the FSBOs out of the myriad realtor ads it still only takes me maybe 15 minutes to email these ads each morning. Sometimes I'll check back in the afternoon or evening and hit a couple more ads if they happen to be up. Either way as you can see I'm not exactly putting a whole lot of effort into my marketing efforts. But hey, at least I've been consistent

 

By the way I'm using a 2-email approach. The first simply asks if they would consider renting, the second explains who I am and what I propose with 2 major benefits of doing business with me wrapped up in 2 short paragraphs. The benefits are: 1. T/Bs who take great care of the property because they want to buy it. and 2. No commissions since I'm not an agent. The beautiful thing about this approach is that by the time I actually speak to the seller on the phone they've pretty much already made up their mind that they want to do a rent to own, they have just a few specific questions, and then they're ready to set up an appointment and get things signed off.

 

The last 7 weeks or so at a glance...

1. ~250 emails sent.

2. I haven't tracked the response rate but it's VERY high, somewhere around 80% I'd guess.

3. Positive responses to the first email are considerably lower than cold calling, roughly 1 in 15 (compared to about 1 in 5)

4. Likewise positive responses to the second email are quite low at about 50% (that means that half of the people willing to rent to an individual are NOT willing to rent through a company)

5. After a bit of back and forth on the terms we whittle the numbers down to...

6. 4 appointments

7. 1 of those turned out not to be as motivated as I thought

8. 1 very motivated and signed

9. 1 very motivated but waiting for their listing contract to expire

10. And 1 set for tonight (I'll report back on that one)

[MichaelC 160]

Doug, your post could have just as readily been written by me, with a few exceptions.

I have always preferred the two email approach to cold calling. And like you, the response rate to my first, very general email is strong. (I can't quote a percentage because I'm not that sophisticated ). That first response is followed up with my second, more specific email. Of course, the response to that is much lower than the first. But that's the point. I want to avoid speaking to any homeowner who isn't motivated enough to be worth the time to do so.

Long ago I took the approach that the homeowner isn't doing me any favors by talking with me. I'm helping them.

In my area, Kijiji is a bit player in comparison to Craig's List and Backpage. My emails go out on a as-time-permits basis. A dozen here, a dozen there. At week's end I can easily have contacted 100 or more homeowners and not even feel like I've done so. Painless approach.

That second email will result in the homeowner picking up the phone and calling, or emailing me and asking me to call them. We talk and go from there. Some lead to deals immediately. Others want or need to wait. Some aren't interested.

Bottom line: this isn't rocket science. Persistence leads to several deals a month and keeps me off the unemployment rolls. Although with the current administration allowing up to two and a half years of benefits, I'm beginning to rethink my whole plan.

[Doug Pretorius (ON) 9]

Well! What seemed like a slam dunk sign up took a weird turn just as we were getting to the end of the contract to sign. The seller suddenly took exception to the fact that I would be signing as the buyer. First time that's ever happened Oh well, win some lose some. Meanwhile movement on the home I signed up 10 days ago continues to be slow but is showing some slight improvement. Offering 100% rent credit did precisely squat to entice prospects

 

Oh, and I also got an email from a seller who didn't want to rent awhile back. She still doesn't want to rent but now she's asking me to find a buyer. While not exactly my forte I guess there's no harm in getting an option on it and see what happens.

[MichaelC 160]

The seller suddenly took exception to the fact that I would be signing as the buyer.

I don't understand. What did he think you were meeting with him for?

[Doug Pretorius (ON) 9]

I don't understand. What did he think you were meeting with him for?

I'd love to speculate but honestly I've completely given up trying to understand anyone's reasonings and motivations. I'm nearly at peace with the fact that nothing I say or do makes any difference to the outcome of meetings with buyers and sellers. They either sign or they don't and why they do or do not is totally beyond me. Fortunately, just showing up is all that's really required to put a deal together. Or so I've come to believe...

 

Is that just me? I'm a product of my marketplace.

[MichaelC 160]

. . .Is that just me? I'm a product of my marketplace.

You Canadians are an odd lot.

[speedingpenguin 19]

Doug and Michael

 

So you guys prefer emailing sellers to calling them on the phone? I would think that sellers would take a phone call more seriously and it would be more likely that the seller would consider your offer talking to them on the phone as opposed to just bouncing emails back and fourth.

Or has your experience been that potential agreements fall apart further along in the process over the phone anyway so it's better to weed out anyone but the highly motivated right away?

 

I've been emailing FSBO's from Craigslist and calling FSBO signs, I've been getting mostly "More info?" (and then "Not interested at this time") and "No we just want to sell" responses from emails, and out of the last dozen or so phone calls 3 lines were disconnected, a few I left messages, talked to a couple and one person said they'd consider renting, and when I met him at the property he said he'd consider renting if the house didn't sell in a few months. Oh well. I know it's a numbers game but should I be calling whenever I can and emailing the ones that don't list a number? What would be the most effective use of my time?

[Doug Pretorius (ON) 9]

Chris, do whatever you're comfortable with. I've always found calling to be effective I just never liked doing it

[MichaelC 160]

Chris, I definitely prefer emails to calling. Much more time efficient and much less aggravating. In the time it would take me to make one phone call and explain what I do, I can easily have sent out two dozen or so emails. Quick and painless. If the homeowner doesn't reply to my first email, they aren't interested and no time is wasted. If they do reply in a positive fashion then I reply with a second email which goes into greater detail. Now they have a good idea about who I am and what I'm looking to do. If they reply to this one, then I have someone who is motivated enough to at least warrant a conversation. Not a guarantee of anything, but again, a time and aggravation saver. And if the deal doesn't fly it's usually because of the numbers. For example, the homeowner may be upside down, or they have an unrealistic view of their property's value.

 

I've been emailing FSBO's from Craigslist and calling FSBO signs, I've been getting mostly "More info?" (and then "Not interested at this time") and "No we just want to sell" responses from emails,

Exactly. No need to have a conversation with these folks. Just move on.

 

. . .one person said they'd consider renting, and when I met him at the property he said he'd consider renting if the house didn't sell in a few months.

Colossal waste of time, Chris. The only reason you should be looking at a house is to see if it fits your needs, not vice versa. You should already have an OK from the homeowner that they agree to the concept of a CA and the numbers you have already presented are acceptable. You're not a Realtor. No point in looking at granite countertops and pretty landscaping. Doesn't put a dime in your pocket to do so.

[Doug Pretorius (ON) 9]

Man...the market has been brutal! Loads of prospects, none of whom can afford to rent to own a cardboard box Don't get me wrong I'm used to getting lots of dreamers but usually there are a few diamonds in with all the mud. Not this time though. And I'm offering some GREAT terms. Below market rent, 100% rent credit, and the rent is less than it would cost to buy the house as well. Still nothing.

 

MC, I know you like to say that a house doesn't sell because either no one knows about it or the terms aren't right for the market. Well these are the best terms I've ever offered on a rent to own. And I've had no shortage of interest...roughly 400 visits to my site with 15 or so replies for this specific house. That's not the most I've ever had, but it's not the least either.

[MichaelC 160]

I hear ya, Doug. There are always exceptions to every "rule". This house may be one of them. A friend of mine out Seattle way has four CA's he working on simultaneously. Aggressive marketing has resulted in a few lukewarm inquiries, but no deals. In my area, I'm all but insisting that the homeowner be open to a straight rental as well as the Rent To Own. They seem to understand that in this economic environment it's easier to find a tenant rather than a t/b. While it's not what I'm looking to do, my thinking is a percentage of something is better than 100% of nothing. Meaning, I'll take the half month's rent I charge, or the month's rent, or whatever it is we agree to, and move on. Do some volume and then along the way a fat one pops up. Had a $14K option payment come my way recently. Keep working the plan.

In the words of the great former Prez Clinton, "Ah feel your pain, America, (uh, Canada)".

[<Steve> 82]

Doug it's a tough economy/market out there. Everyone is holding on to what cash they have, if they have any, and are extremely picky. All businesses are working double time to make the $$. I see many of those from the past wave of foreclosures and bankruptcies are out in the market.

 

If I have 6 properties available 2 of the six will be active and the other 4 I need to stand on my head to move them. With the active properties I still need to do 10 to 15 showings to get a good qualified potential tenant/buyer. I am also screening much harder to place qualified t/bs. I am finding that referrals from past deals have been extremely helpful in getting more deals. Everyone knows someone else who needs help.

 

I think MC is right it is about volume.

[Doug Pretorius (ON) 9]

Yeah, my area has traditionally been in a kind of 'warp bubble' compared to much of the rest of Canada. Sales were booming in May and June, lawyers couldn't keep up with the demand for closings, second-hand stores were turning away perfectly resalable items because they had no room for more. But July posted a 27% decline in sales year-over-year. And August has been the worst I've ever seen for rent to own.

 

I think you're right about volume too, MC. Get as much inventory under contract as possible with as many options as possible (sale, rent, rent to own) and play it like the big listing agents...a numbers game.