Just in Time: A Breakthrough in ‘Rent-to-Own’ for Those Who Can’t Buy Now

Real_Estate_Today_byline      It’s not uncommon for us to get a phone call or drop-in from someone who would like to buy but who might not be in a position do so at this time. They are looking for a rental, and for that we refer them to trusted companies that specialize in rentals. Sometimes the caller or visitor will inquire about rent-to-own, but we explain that it is nearly impossible to find a seller in this market who would consider rent-to-own when they can sell now for top dollar.

I’m happy to announce a breakthrough. Last week our office was presented with a new business model that could fill this gap in the real estate market. The way it works is this: we submit the prospect’s name to a company which, upon approving the person as a tenant, agrees to purchase a house, which that pre-approved tenant can rent.

Once approved, the prospect goes on the company’s website which contains all the MLS listings (sub-ject to company approval) that qualify for this program. The homes can range in price from $100,000 to $550,000. Only townhomes and single family homes qualify for this program — condos do not.

If you’ve looked online for rentals, you are familiar with the limited inventory of rental homes.

The fact that the sellers and listing agents of the qualified MLS listings are offering their homes for sale, not for rent, doesn’t matter. If a prospective tenant finds a for-sale home they’d like to rent, our partner company can offer a lease for that home which states what the rent will be for the next five years, and which also provides a pre-determined purchase price for that home over the same 5-year period.

Let’s say you find a $500,000 home you’d like to rent.  If you click on that listing, you’ll find the following grid of rental and purchase prices:

Rent_to_own_grid As you might expect, these figures are subject to adjustment, since (1) the listed price may not be the final sale price, (2) the home may need renovation work, and (3) there may be other costs associated with purchasing and owning the property. These and other conditions are spelled out in the lease agreement that is signed by the prospective tenant.

At that point, we represent the rent-to-own company in negotiating a purchase of the identified property. To the seller and to us as a buyer’s agent, it’s an ordinary transaction by an investor.   In this case, however, the investor has already identified a qualified tenant for the property.

Although the landlord is bound by the specified rents and purchase prices for five years, the tenant is only locked into a one-year renewable lease and can choose to purchase the home at any time.  They can also choose to not renew the lease and simply walk away.

This flexibility will be particularly attractive, I expect, to people relocating to our area who may be able to buy immediately, but don’t want to lock themselves into purchasing the first home they find. They can rent a home they think they might want to buy, then buy another house after the first 1-year lease period is up.  They can also opt to exercise their option to buy the house for a pre-determined price — an increase over what their landlord paid for it.

Home_Partners_screen_shot  At right is how an MLS listing appears when displayed on the company’s website, showing the listing price on the right and the estimated initial rent on the left.

Although the prospective tenant is not our client — the landlord is — we set up showings for that tenant just like we would for any buyer. When the tenant identifies the home they’re interested in, we tell the company and together we go about buying the property so that tenant can rent it.

If you or someone you know can’t (or doesn’t want to) buy at this time, have them call any Golden Real Estate agent at 303-302-3636 or send an email to info@GoldenRealEstate.com.

 

What Is an ‘Escalation Clause’ and How Should Sellers Respond to One?

In our competitive seller’s market where a listing might attract five, ten or more competing offers, submitted contracts often include something called an “escalation clause.”

An escalation clause is an additional provision worded something like this: “In the event Seller receives a competing contract with a purchase price, net of concessions, in excess of the Purchase Price in this Contract, Buyer agrees to increase the Purchase Price of this Contract to $1,000 in excess of the purchase price of said competing contract, up to a maximum of $______.” I have seen contracts offering as much as $5,000 over a competing contract.

Two things you need to know about this strategy. Most importantly, the seller is completely free to ignore the escalation clause and does not even have to accept the best offer. Secondly, when it’s you submitting the contract with an escalation clause, I recommend not inserting a maximum price. That makes it more likely you’ll receive a call from the seller’s agent telling you what that higher offer is.

 

What Makes for Success in Real Estate? Here’s What Golden Real Estate Does

Real_Estate_Today_bylineLast week I mentioned how Golden Real Estate was honored for coming in third among metro brokerages of our size in the number of transactions completed in 2016.

In this week’s column, I’d like to share my personal strategy for success in real estate, which has evolved into a company-wide strategy serving all agents — and benefiting clients.

Decades ago I adopted what I thought was a quote by Confucius. My sister had it posted on her refrigerator. Thanks to Google, I discovered that it wasn’t a quote by Confucius, but it could have been. “Concentrate on giving, and the getting will take care of itself.”  That philosophy underlies this column and its success in attracting clients for me and our agents. The time most real estate agents spend prospecting, I spend coming up with topics on which I can educate myself and then share that knowledge with my readers.

That’s how journalism works. A reporter is given an assignment, learns all he can about it, and then reduces it to a concise article that summarizes what he learned. That’s what I do every week — learn more than I already know about a given topic, then share what I have learned.

I never run out of topics to write about which educate the public — and thereby myself — regarding some aspect of real estate. Sometimes, I’m able to clarify or contradict statistics or statements which I see in the press or on TV.  For example, is the market cooling down or heating up? Are we in another bubble? As a Realtor, I have access to raw data that allows me to address such topics in a way that general assignment reporters can’t.

Giving back is important. Golden Real Estate is a member of two chambers of commerce (Golden & the West Chamber) and one business association. Rita and I are active members the Rotary Club of Golden, and I’m also a member of the Golden Lions Club. Serving in this way is satisfying in itself, and demonstrates our values.  [We are also big supporters of Habitat for Humanity of Metro Denver (through Jeffco Interfaith Partners, now called West Metro Interfaith Partners) and Family Promise of Greater Denver.  Two of our agents are big-time volunteers with Golden’s Christian Action Guild.  Myself, I’m a long-time member of the Colorado Renewable Energy Society, Golden Solar Tour (now called the Metro Denver Green Home Tour), and the Denver Electric Vehicle Council.]

Another business principle that underlies my practice of real estate is authenticity. Misrepresenting one’s level of success, for example, is not only a violation of the Realtor Code of Ethics, it is not good salesmanship. I consider myself a lifelong learner and don’t “know it all.”

That principle expresses itself in me by being a news and public affairs sponge. I love listening to music as much as the next person, but my car radio is always tuned to the only all-news radio network we have — NPR.   I often hear local real estate stories, since it’s a popular topic these days, but being well informed on other national and world affairs is also important to me.

On the other hand, I have little patience for talk radio, whether conservative or liberal. I’ll listen to analysis and hard news, but I consider opinions a waste of my attention.

In terms of the day-to-day practice of real estate, I know I can’t do it all, so I surround myself with a support team. That team includes, among oTeam picture on bridge 2016thers, a transaction coordinator, a stager, a photographer, a drone pilot, several lenders, inspectors, and a handyman (who works only for our clients). That said, I don’t over-delegate. I like to get my hands dirty. I’ll put signs in the ground and do my own narrated video tours of each listing, including for my broker associates. Our office manager, Kim Taylor, helps with every aspect of listing and selling homes, but I’m happy to show listings, hold open houses, enter listings on the MLS, create websites for each listing, etc. I don’t just have a team, I’m part of the team.

Another factor in my personal success is surely my full-time accessibility. My cell phone (303-525-1851) is never turned off. I was in Puerta Vallarta all last week, which may come as a surprise to those clients and future clients who reached me on my cell phone and made appointments to meet with me this week. (I also submitted last week’s column from Mexico and will be submitting next week’s column from a ship in the middle of the Atlantic Ocean.)

Experience has taught me that “to make money, you need to spend money,” and I never forget that. One example of an expenditure that paid off was our moving truck. I bought our first one at a convention in 2004 and it has been so useful to clients and has built so IMG_1256much goodwill for us among non-profits and community organizations, that I bought a second one last year. In 2008 I also invested in a storage shed for the moving boxes and packing materials that we provide free to clients.

Another “investment” was the purchase of a 10’x20’ chain link enclosure for collecting polystyrene (“Styrofoam”) for recycling. We take at least one truckload per month to a reprocessing facility in Denver, keeping over 200 cubic yards of that material out of landfills every year. Our investment in 20kW of solar panels not only powers our electric cars and our office, it allows us to provide free EV charging to the general public. Both these expenditures send a statement about our values that resonates with our clients and prospective clients.

Back to real estate, we have been early adopters in sometimes expensive ways to improve the quality and exposure of our listings. Years before they were adopted by other brokerages, we invested in drones to take aerial photos and videos of our listings. We also were early adopters of HDR (High Dynamic Range) technology for still photographs of our listings. This produces magazine quality photographs in which every element of a picture, including the view out each window, is perfectly exposed.

By now, you may be thinking I’m a workaholic, but Rita and I do enjoy a personal life, going to the theatre, traveling often, and watching many entertainment programs at home. But when my phone rings (except in a theatre!), I answer it.  I feel my clients deserve that.

Some listing agents put under “broker remarks” (which their sellers don’t see) that “Seller requests no Sunday deadlines.” What they’re really saying is that they don’t work on Sunday.  That’s not us!

Published April 20, 2017, in the Denver Post’s YourHub section and in four Jefferson County weekly newspapers.