Is It Possible To Get Realtors to Bring You Lease Options?

There are two common questions that I get on a regular basis involving Realtors and investors: Should I become a Realtor? How can I work with Realtors?

How should you work with Realtors?

Many investors think that real estate agents don't have the best deals or they have all been picked over by the time they actually hit the market. I believe that some of the sweetest deals are sitting on the market. We automatically think that Realtors or their clients will snatch up the best deals before they hit the market.

It is true that some of the best deals do get snatched up before they hit the market, but there are many other deals left behind that no one sees. The reason that no one sees them is because they are looking for "traditional" or “retail” homes, not "lease option" homes.

The retail market is about 90% of the inventory available in any given area. The lease option market takes up a portion of the remaining 10% of the market.

I look to work with Realtors who understand the concept of lease options and can help their sellers understand lease options. This understanding can take time. Your job is to assist Realtors to understand lease options.

Getting Realtors to understand what I do is key !

First, I have a letter that I send to a listing agent explaining the concept; second, I have a presentation that I do for local real estate offices; and third I network and continually tell Realtors what I do.

I hear investors tell me all the time that Realtors just don't understand or don’t want to understand what they do. I can only say that patience and persistence pays off.

Realtors aren't trained in unique selling techniques, they are trained in the "Retail Sales Marketing" which is 90% of what is out there. As investors, our job is to continue to help those around us understand what we do, so they know when and when not to call us.

The type of home I am looking for through a Realtor is one that the seller:

Doesn't need their equity out

Doesn't have any equity in their home

Is a Pre-Foreclosure

Job Relocation

When a Realtor hears a seller say, if my home doesn't sell soon, I might have to rent it," then the Realtor should think of you immediately.

All you need is two to four good listing Realtors. They work directly with the sellers and know which sellers are in trouble, which ones can rent, and which homes are vacant. Once a Realtor knows what you do and has a seller that can accept your terms - presto! You are the proud new owner of a lease option.

Realtors are just like everyone else and need to make a consistent living. One of the most important things for anyone is that they get paid for what they do. When I am taking on an option, I am asking the seller to wait two or three years to get cashed out. I don't want to make the Realtor wait that long.

If I do, they won't even tell the seller about what I can offer. Why should they? It might not do them any good. They are doing all the work now to get the deal done and want to get paid for it. So I give them the listing agent portion of the commission up front.

This is my option fee and is applied to the purchase price when I get my mortgage or when I sell the home. The agent is therefore paid on what they do just as if they sold it conventionally to another buyer. When you sell the home you will be asking for 2% to 5% down from your tenant/buyer. Therefore, you are still minimal or zero down/out-of-pocket.

If you aren't a licensed agent/broker and entitled to half of the commission, then let the Realtor “Double Dip"; appeal to the greed factor! Remember, half of something, is better than nothing.

They can get the listing agent portion down up front from you and the selling agent portion when the home closes in two or three years. They will wait for the second half if the first half is paid up front. The second half would just be a bonus that most agents wouldn't expect anyway.

My recommendation is to get licensed!

Investors tend to be adamant one way or the other about being a licensed Realtor. I am on the side of being licensed. Being licensed has been one of the best tools that I have as an investor. Being licensed allows you access to your database of "comps" or comparables via the MLS system. This is the data you need to buy and sell real estate, not to mention it’s a great resource for expired listings – which can be a gold mine.

If you have a great Realtor, and you don't want to be licensed, fine. But I still think it is better to be licensed than not. Some investors say it gives you more liability to be licensed. I have two answers to that:

1. What are you doing to create liability?

2. Don't you think a judge is going to know you are an "expert" anyway when they find that you do real estate investments?

Some investors say that sellers won't sell to you if you are licensed. I find the opposite is true. Most sellers are happy that I am licensed and "know what I am doing." However, you will decide on each deal which hat you will be wearing : investor, Realtor or both.

Be well,

James Gage

Observations for the Coming Year

All booms eventually go bust.

We all remember the stock market crash of 2000, and most of us remember the real estate crash after the implementation of the 1986 Tax Reform Act.

Unfortunately, despite our understanding of booms and inevitable busts, it's always near the top of a boom that "dumb money" buys in. Currently, this has set the scene for a potential market bust of which few people are aware.

Supermarket Inspiration

About a year ago, I wrote a Yahoo! Finance column warning readers that the real estate boom was over. How did I forecast the end of the boom? I got my hot tip from the cashier at my local supermarket, along with other economic factors.

While she was tallying the cost of my apples, broccoli, and steaks, she handed me her new real estate agent's card and invited me to call her for my next real estate investment. Moments later, I was home writing that column. As I have always said, "When dumb money chases smart money, the party's over." Needless to say, many real estate agents and investors wrote me nasty notes.

Most economists are forecasting a strong economy, but economists worry me more than newly minted real estate agents. Most seem to be happy that inflation is in check; when I hear that inflation is in check, I begin to think about deflation, and as most of us know, deflation is much, much, worse than inflation.

The Truth

In the simplest terms, inflation occurs when there' too much money in the system. On the flip side, deflation occurs when there are too few dollars in circulation. When that happens, prices start to fall. For example, in inflationary times, prices of houses go up. In deflationary times, prices of houses come down. If prices of houses begin to drop too fast right now, it could be 1986 all over again.

I wrote a column in 2005 about how I love debt and my credit cards. The trouble is that most people do. In the past you could qualify for a loan to buy a house simply if you're alive and breathing.

The strong economy we've been experiencing for years has thus been built on dumb money -- in addition to smart money -- borrowing more and more. Even the U.S. government has had field day borrowing money to do such things as fight a war and attempt to rebuild Iraq and Afghanistan rather than rebuild our country. And the inconvenient truth about debt is that it has to be paid back.

Warning

For the next two years, I'm cautioning people to watch their ratios between good debt and bad debt, and keep liquid reserves such as cash, gold, or silver and become a leveraged real estate investor through short term strategies.

Good debt is debt that makes you rich. An example of good debt is the debt on the apartment houses I own. That debt is good only as long as there are tenants to pay my mortgages. If tenants stop paying their rent, my good debt turns into bad debt.

Most people don't have good debt -- all they have is bad debt. Bad debt is debt that makes you poorer. Forms of bad debt are car payments, credit card balances, or other consumer loans.

On our home, my wife, Sharyn, and I keep a 25 percent debt-to-equity ratio. In other words, our debt is 25 percent of the home's value. Unfortunately, many people have an 80 percent or higher debt-to-equity ratio. That means the debt on their home is 80 percent and their equity is only 20 percent.

To protect ourselves, we have cash reserves to cover the expenses of our investments. Unfortunately, the dumb-money crowd has no reserve funds for their properties and or investments.

Where Deflation Does Its Damage

In a deflationary market, the value of your home can drop. If the value drops, the bank may call in your loan. Even if you've never missed a payment, and even if you're ahead on the payment schedule, the bank can call in your loan if they feel the value of the property is lower than the loan amount.

For example, say you buy a house for $100,000 and put 20 percent down and borrow $80,000. If the market deflates and the value of your home drops to $70,000 (because everyone else is selling their homes to get out of debt), the lender may ask you to pay the $80,000 you owe immediately.

If such deflation happens, cash will become king. There will be half-price sales on BMWs, expensive restaurants will close, and people will be out of work. And anybody who caters to people with dumb money will be in trouble. As I said before, deflation is much worse than inflation.

Smart Money, Bad Times

The good news is that during deflationary times, smart money reenters the market, so crashes are great for smart people with smart money. Instead of listening to the optimistic economists, then, you should eliminate bad debt and improve your debt-to-equity ratios on good debt.

Most important, study; if you want to be smart, you need to learn. I'll discuss what you should study in the second part of this column. For now, be aware that if deflation comes and there's a recession, it won't have much effect on the poor. Instead, it'll punish middle-class people who think they're rich because their houses and stocks have gone up in value.

Finally, don’t forget the impact of our weakening dollar; some forecast that a gallon of milk will be at $5.00 by summer due to the weak buying power of our dollar.

The moral of the story is that those who prepare and know how to invest will make it through the tsunamis ahead and make a whole lot of money, which can be used in part to educate others.

Have a happy, healthy and prosperous New Year.

James Gage

Real Estate: Negotiating

You may be saying to yourself that the part on mentoring on my previous blog posting is very self serving, because I happen to specialize in One-on-One Mentoring - let me address that for a moment.

I have always said that creative real estate isn't rocket science, you could figure it out on your own, but how many failures are you willing to accept before success?

There is an old saying that "time is money", and nothing could be a greater truth. There is a learning curve to everything in life, especially in real estate, but after that is accomplished it comes down to knowing how to negotiate, Negotiating is a "million dollar skill" few have grasped it fully. I have seen numerous investors leave far too much money on the table, or negotiate a deal that leaves them 1 vacancy from financial disaster. The moral of the story is this- find a mentor to take all your deals to the next level for maximum leverage and profit.

I would like to end this entry by giving you 3 negotiating tips!

1. Never need a deal that bad that you are willing to compromise your invest plan! So many investors will do a deal just for the sake of doing one; they pull the trigger with the shot gun blast mentality, hoping to hit the perfect deal.
2. Be Prepared: Know what you’re talking about. Do your comps, fix up estimates, estimate down side potential, know the players, know what you going to do with the property ( know your exit, before you go in the entrance ) – this is essential before you start negotiating.
3. Never loose control of the negotiations. If you find yourself loosing control, excuse yourself for a bathroom break, if you’re on a phone negotiation put them on hold with the excuse that you need to find vital documents that will impact the subject matter. Of course, this is just a stall tactic for you to gather your thoughts and get back in control.

Hope this helps and till next time – be well.

James Gage

Why Real Estate Investors Don't Use Lease Options

I have been using lease options effectively for over 20 years and found there is little competition from my fellow investors. Why you ask? I believe it's a 2 fold reason.
First, with all the cable programs on flipping homes for huge profits ( which I question ), most investors are caught up in the moment. No, I don't doubt there is money to be made in flips, but along with it comes great risk. In fact, in my early days of investing I did a few myself for a nice profit, but at the end of the day the frustration and possible down side exposure was not worth it for me.

Which brings me to reason 2. Most investors do not have the proper information to do a successful lease option and mitigate their exposure, A.K.A. cross your t (s), and dot your I (s). Some believe all you have to do is read a book or listen to an audio presentation and your off to the races. Nothing could be further from the truth. What you need to perform a successful lease option or any other real estate transaction for that matter is : 1. Specialized Contracts ( never use generic contracts), 2. Iron Clad Disclosures (prevent regret and litigation ), 3. Someone who will take you by the hand and walk you through the first couple of deals to insure maximum profit and leverage!

Imagine a strategy that allows all the benefits of ownership without owning the property - what else could one ask for? Please explore lease options as a tool for your real estate investing arsenal. Until next time, may all your deals be profitable.

Tip of The Week : Short Sales

Short Sales are the buzz in most real estate arenas today, but do you know how to profit from them?
One of the most important components of any successful short sale is what should you initial offer be or counter offer. Did you know most short sales fail and no counter offer is offered by the bank or mortgage company because the initial offer was much to low!
So what do you do? Do you just pick a number out of the air and pray that things work out, and that your offer is accepted? Why no! If you have been a reader of my tips and newsletter over the years, than you know I have a formula I use to make my initial offer or counter offer, if the bank has prepared a price ahead of your offer based on their BPO (Brokers Price Opinion).

Here is the formula that I have been using over the past 4 months which has served me very well and increased my equity position:

Here it is...

Step 1: I take the estimated or actual BPO amount or the value of the house, based on the comps then multiply that number by 65%.

Example:

$175,000 (Estimated BPO value) X 65% = $113,750

Step 2: I then take the number I got and multiply it by 92%

Example:

$113,750 X 92% = $104,650 INTIAL or COUNTER OFFER

Hope this helps.

PS: Don't forget our Holiday sale of 35% off of all our products. Just visit our website below, click on "Products" and enter promo code 777 at the check out form - Happy Shopping.

http://www.jgage.com

Be well,

James Gage

Gage Consulting Group Holiday Sale

The whole team at Gage Consulting firmly believes one of
the best gifts you can give your loved ones, acquaintances
or even yourself, is the gift of education.
We are delighted at the stories we receive daily by email,
fax, letter and phone, telling us of successes clients
have had with the products we make available.

In keeping with our Holiday Specials tradition, this year
we are offering incentives on all of our educational
items, including our unique One-on-One Mentoring program.
As our Holiday Specials this year, we are offering 2
great deals. First, take a whopping 35% off any of
our Home Study Courses, CDs, DVDs or Package deals.
Secondly, we are offering a $1,000.00 discount on our
3 month,6 month or 1 year mentoring programs, which
includes all our valuable resources, contracts, manuals
and software!

These specials are available until the end of the year.
Please note that on our on-line order form, the standard
prices will show, but until December 31, 2007,the
discounts will automatically apply by entering:
Coupon Code 777 and you will be charged the lesser
amounts.
So, you have until the end of the year to make use of
these deep discounts - order today !

On behalf of myself and Gage Consulting Group have a
Happy, Safe and Prosperous Holiday Season.

If you have any questions please do not hesitate to call
me at 508-595-9567.

To your success,

James A. Gage
www.jgage.com

Is The President Helping The Sub Prime Industry?

Hello All:

Yesterday President Bush unveiled a plan to control the hemorrhaging in the sub prime loan industry, but truth be told it's just another example of smoke and mirrors! There are so many hoops for people to jump through that at the end of the day only 15% of the loans will be rescued, and that will only postpone the inevitable for 5 years down the road.

So the moral of story is that the melt down will continue with a second push of defaults scheduled for 5 years from now. How can we rebound and find a bottom to this market if we have scheduled another down turn 5 years into the future? I have posted the article below for your review.

Be well,

James Gage
PS: Now is a great time to start investing, if you are a leveraged investor - find out how by requesting our FREE newsletter.

No Quick Fix for Subprime Mortgages

By JEANNINE AVERSA,

AP

Posted: 2007-12-07 12:23:14

WASHINGTON (AP) - Be ready to wait if you want to get information from a toll-free hot line about freezing the interest rate on your subprime mortgage.

Minutes after President Bush outlined a plan to help strapped homeowners, callers were told to have patience until a counselor could answer their questions and "devote as much time to you as necessary."

But, once they do get through, homeowners may not find the answers they sought.

One caller to the hot line (1-888-995-HOPE) was told there would be "lots of hoops to jump through" to obtain the five-year freeze. The rate hold goes to the heart of the relief effort for people with subprime mortgages, which are loans offered to borrowers with tarnished credit or low incomes.

Even President Bush acknowledged the plan is "no perfect solution." Treasury Secretary Henry Paulson said it was not a "silver bullet."

Only a fraction of the homeowners who face huge jumps in their mortgage payments appear likely to be helped by the plan, negotiated by the Bush administration, to freeze the low introductory rates on their subprime loans for five years. After that, they could be in the same position again.

Homeowners dialing up their mortgage company to get their current rate frozen could be disappointed. The White House plan does not force mortgage companies to give eligible homeowners a break. It is voluntary.

The White House on Friday defended the system and its eligibility requirements.

"I wouldn't call them `hoops,"' White House deputy press secretary Tony Fratto said. "I think we are trying to make sure, as we outlined yesterday, that we're getting at the right population that can best be served by this program."

Bush promoted the initiative Friday for the second day in a row, using his weekly radio address to call it "an example of the government bringing together members of the private sector to voluntarily address a national challenge - without taxpayer subsidies or government mandates." The president taped his address for Saturday airing, and the White House released the transcript on Friday.

In first announcing the initiative on Thursday, Bush said 1.2 million people could be eligible for relief. Aid includes the rate freeze and helping people refinance into more affordable mortgages. The Center for Responsible Lending, a group that promotes homeownership and works to curb predatory lending, estimates that just 145,000 families will qualify for the rate freeze. The criteria are too strict, it says.

The White House plan is aimed at stemming foreclosures, which have shot up to record highs as the housing market has gone from boom to bust.

Subprime borrowers have been hardest hit by the meltdown. Initially low interest rates that reset to much higher rates have clobbered those borrowers. Nearly 2 million adjustable-rate subprime mortgages will reset from introductory rates of around 7 percent to 8 percent to much higher rates this year and next. That raises the specter of even more people being forced out of their homes because they cannot keep up with their monthly payments.

Rising home foreclosures are a headache for politicians and a danger for the economy.

Bush tried to shift blame for the crisis to the Democratic-led Congress.

"The Congress has not sent me a single bill to help homeowners," Bush said.

One measure would give the Federal Housing Administration more flexibility; a second would change the tax laws temporarily to help people who have a portion of their mortgage forgiven by banks.

Sen. Charles Schumer, D-N.Y., complained the criteria for Bush's mortgage freeze are too narrow to help most distressed homeowners and worried that legal challenges by investors might stall the effort.

"While we certainly all hope this will be a shot in the arm for the housing slump, it is hardly a panacea," Schumer said. "There are too many families who may be left out, too much left up to the voluntary willingness of the private sector and too little disclosure and transparency to ensure families who do qualify are being helped."

Under the plan outlined Thursday, the rate freeze offer would be available only to people who have not missed any mortgage payments at their introductory interest rate. It also only would apply to loans taken out between 2005 and this past July 31 and scheduled to rise to higher rates in Jan. 1, 2008, and July 31, 2010. To make sure speculators don't get the break, the rate freeze offer applies only to people living in their homes.

The idea behind the administration-negotiated plan is that the five-year freeze will buy time for the housing sales and prices to start rising again. Such a rebound would enable homeowners to refinance their current adjustable rate mortgages into fixed-rate loans with more affordable monthly payments. But some people who want to buy homes and have been priced out of the market are upset that there's no help in sight for them.

Of the nearly 3 million subprime adjustable-rate loans surveyed by the Mortgage Bankers Association in the third quarter, a record, 18.81 percent of them were past due. A record, 4.72 percent of the loans entered into the foreclosure process during that period.

Meanwhile, there still is the possibility that investors, who were counting on bigger returns from the higher rate resets, will balk at extending the duration of the lower rate.

George Miller, executive director of the American Securitization Forum, whose members include investors, ratings agencies and other financial players, backed the White House's effort and developed streamlined procedures for lenders to follow when sorting through borrowers' requests for relief. He was hopeful lawsuits could be avoided, but he struck a note of caution.

"Certainly, there is no complete insulation from legal exposure," Miller said.