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Motivated sellers are out there in every city, every town, every state. Finding them isn’t as difficult as it might seem – if you know which techniques work for attracting the attention of a seller who wants to work with you on a lease option.

I recommend looking for motivated sellers who have nicer homes that require little or no work. This way you spend less time working on the house and less time working to find a good buyer. Also, I like to focus around the median price range and above. In my area, in Michigan, the median price range is currently $120,000 to $170,000 – therefore I have focused on the $100,000 to $200,000 range (so a little below and a little above on each side).   These nicer homes are much easier to resell on lease with options, and generally much more profitable than less expensive homes.  It’s also a lot more fun working on nicer homes for more profit than dumpy homes in rough areas for less profit — especially when you can buy the nice ones for little or no money down.   So how do you find these?

What Makes a Motivated Seller?

There are, of course, different circumstances and situations in the lives of people that motivate them to need to sell their home. This can include job transfer, bankruptcy, foreclosure, upgrading to a bigger home — any number of reasons.  However, the circumstances of the sellers may also be affected by the state of the two vying markets – buyers and sellers – which also affect their motivations.  For real estate investors it is crucial to buy homes from truly motivated sellers — sellers who have an extra urgency, usually financial. You can’t get a good deal from a seller that is not motivated, because if they’re not motivated, they have no reason to negotiate or give on any part of a transaction.

There are different degrees of motivation and different reasons sellers need to sell their homes, but overall there are two basic categories of motivated sellers:

  1. Desperate and Distressed (bad debt) – someone in trouble financially, behind on payments, going in a bad direction, short sale, lost their job, divorced, foreclosure, etc  or
  1. Stressed but not Distressed (good debt) – someone not in trouble financially, not behind on payments, but motivated for other reasons: possibility have two house payments, inherited a home, burned out landlord, job transfers, etc.

Most real estate investors only go after #1 above, but there is also huge profit potential with sellers that fall in #2. All of the lease option sellers should usually fall into #2, though that rule isn’t set in concrete.  In this chapter we will discuss how to find motivated sellers of either type. The final factor likely to affect a seller’s level of motivation is the state of the economy itself.

What You Need to Know About Buyer and Seller Markets

The economy plays a big role in finding motivated sellers in different pockets of the country.  The economy will be discussed in much more detail later in the book when we cover negotiations, but it is important to understand how it affects motivated sellers.   Important definitions are as follows:

Buyer’s Market (weak market): when the real estate market is not moving very quickly.  There tends to be little or no appreciation, or even depreciation.  Sellers tend to be more open-minded to creative ways to sell their homes.  There also tends to be higher unemployment in the surrounding area, and overall not a very good economy.  NOTE: most markets are a buyers market right now in the U.S.

Seller’s Market (strong market):  a real estate market that is moving very quickly.   There tends to be high appreciation. Sellers may be getting multiple offers in one day on their homes, and bidding wars are common. There tends to be a high employment rate in the surrounding area, great retirement/vacation facilities, and an overall good economy.

When the market is very strong, sellers are able to sell their homes more easily, even if they are very distressed. If the market is a buyer’s market, it can be very difficult for a seller to sell their home. The odd part about motivation and finding motivated sellers is that no matter what the economy is, a buyer’s or seller’s market, motivated sellers are always available!  You will just need to look harder or you might find fewer in a really strong seller’s market, and vise versa in a really strong buyer’s market.

Techniques for Finding Motivated Sellers

The kind of motivation you are looking for is not someone just wanting to sell their house but someone who needs to get rid of either their good debt or their bad debt.  These sellers won’t come knocking on my door, however, nor are they ever obvious. You must try several different approaches and determine what works best in your area.  It’s a bit like fishing.  Try a spot and a lure and see if they work. If they don’t work, move to a different spot and try on new lure. Here are some ways that have worked for my students and me over the years:

  1. Craigslist – Craigslist is my favorite way to find sellers.  I like it for 2 reasons:
    • Everyone uses it now
    • It is FREE

I look in Craigslist for the “For Rent” properties.  You can find homeowners in there who have not been able to sell and that is why they have decided to rent their home themselves. You will also find Real Estate agents trying to rent homes for their clients along with property managers (in most states they must also be licensed agents) advertising their homes for lease.  See later in this section what to say to sellers when you do call them.  Talking to Realtors® is a little different and is covered later on in this book.  Check out my bookstore on my site www.wendypatton.com to get your copy today.

 

  1. Bandit signs – Bandit signs are the small signs you see on the street corners or on telephone poles around your city. They are called bandit signs because in many cities they are illegal to post and you can be fined, but investors still put them out and take the risk of the fine over the potential profit of a deal they may bring.  They might say “Cash for Your Home” or “Stop Foreclosure,” etc.  One of the advantages of buying a house on a busy street is to be able to advertise with a bandit sign in your own yard.  Then it may not be illegal.  Check with your city to see what its ordinance states.  An investor I know owns 30 houses in a subdivision. She purposefully bought the one on the busy entrance corner so that she could advertise on the lawn and pull people back into the subdivision to look at the other houses. There are many companies that make these signs and they are not expensive.  This way, if you lose them, someone removes them or they blow away, it does not cost you much.

 

  1. Advertisements in the newspaper – Generally I find my sellers through ads either they have placed in the paper or ads I have placed in the paper to fish them out. There are several ads that you can run that will attract sellers to call you.  Several of my favorite ads are:

Ad #1

Company looking for 3-4 homes in this area for long term lease. Call 123-456-7890.

This ad will draw in the seller that is considering something long term and those that want to rent their home out.  In other words, when a person responds to this ad they are ready to do the most important part of an option – lease and do it for a long period of time.  This type of person does not need any cash out or they would not respond to this ad. The types of people we really want are the ones that have not been able to sell their home so they are considering the four letter word: RENT. There is a script that I use later in this chapter for calling the For Rent ads in the paper.  Use the same script, but only after they call you.

Executive looking in this area for a lease to own – nice home. Call 123-456-7890.

Ad #2

The above ad will draw in the nicer homeowners to call. We are executives in this business, right?  I am, and hopefully you are too, so there is nothing disingenuous in this ad.  However, the seller will naturally assume you are looking to live in the property.  Later, you will need to break the full facts to them slowly. This will be covered when we handle this and other seller’s objections.

Home not selling? We can help!  We buy and lease homes call (123)456-7890.

Ad #3

Ad #3 will bring in those sellers looking to sell and they are starting to get very motivated.  This ad can bring in sellers that are behind on payments or just getting motivated.

Tired of Monthly Payments?  We can help.  Call today – (123)456-7890.

Ad #4

Ad #4 brings in sellers that are behind on payments – foreclosures, but also those that have two house payments.  It brings in sellers with good debt and bad debt.   This is a great ad to bring in lease option sellers.

There are many types of ads you can run.  Experiment with them in your area.  Also use different types of papers. You can try your little local papers or your larger metropolitan area papers depending on your budget and your target market.  Also, I have tried some in the For Rent section and some in the For Sale section depending on the ad.

  1. Tear-off Flyers in local drug stores, convenience stores, party stores – wherever you can get them posted. These tear off flyers can say the same things as the signs and ads. The tear off parts should have your phone number, website if you have one, and a short statement like “We Buy Houses.”
  2. Realtors® – to let them know what type of homes you buy and how you can help them sell their listings. This will be discussed in much more detail when we talk about working with Realtors® in later chapters.  This is one of my favorite ways of finding deals. I currently find 90-95% of my sandwich lease options from Realtors®.
  1. Long-term M.L.S. Listings – If you are not a Realtor®, then you can hire a Realtor® to do a search for you of listings on the market of over 90 days or 120 days. These are sellers that are getting motivated because their homes have not sold.  Also, you can have them run all the expired listings.
  1. Out-of-State Owners – There are services in many cities that allow you to find all out-of-state owners, or owners where tax bills are sent to addresses not at the property (non-owner-occupied). Out of state owners are far away from their property and many times want to get rid of the far away headache and move on with their life.  Also, they may not really know what the current market is anymore.
  1. Vacant Homes are an indication that someone is making a payment on a home that is not being used. Find the owner and write them a letter.  You can write a letter right to the home and hope it gets answered, or find the owner through the post office, township tax records or hire a skip trace service (you know, a “private eye”).  Skip trace services are great ways to find not only sellers that you want to find, but later missing tenants you want to find.  They can be fairly inexpensive per search.  Check around for a good company that gives good prices and reliable service. Also ask for a recommendation for a skip trace service from a Realtor® or a place that does background checks.  You’ll start to hear a few names again and again, and you’ll be able to make an informed choice.
  1. Real Estate Investor Clubs (also known as REIAs) always have other investors with homes that they haven’t sold or want to sell. Network and let others know what you do.  I have bought several very good deals from other investors, either because they had their hands full at the time with their own deals, or they were out of their area.  You should be a member of a local real estate investor club and be regularly attending meetings.  It is one of the best places to network.
  1. Corporate Relocation Departments have inventory of homes that have not sold. If the company does not do a corporate buyout, then the owners would be great candidates for a lease option. They have relocated and need to have someone in that home and making payments.
  1. Your Local Chamber of Commerce can tell you what businesses are leaving, who is coming in, etc. If you have many properties, they might also list you as a rental company and refer incoming people in the area to call you.
  1. Word of Mouth. After you have been in this business and networked over a few years, you will start to get deals brought to you by word of mouth. Someone knows someone that knows that you buy homes. I have bought some of my most profitable homes from word of mouth.

There are many ways to find sellers and get lease option deals, but my favorite ways are:

  • Calling Sellers right from Craigslist or the newspaper
  • Working with Real Estate Agents

Motivated Landlords

Landlords can be great motivated sellers, especially if they are burned out. If the economy is slow, they might have higher vacancies than in a fast or hot market.  In my experience, I have found there are two basic types of burned out landlords:

  1. The one that has watched a lot of late night TV and decided to make their millions in real estate.

Unfortunately, there are many people that buy real estate with no knowledge or experience.  They think they know it all after a high-powered, adrenaline-rushed sales pitch. There are, however, many state and federal laws that regulate this business. This type of landlord will fall for the professional tenants and their stories and experience, and often end up getting burned.

Understanding how to screen tenants and select them is key not only to being a good landlord, but also the business of selling using lease options.  By being a member of a local real estate group, investors will get the education and assistance they need to be successful as an investor.  If you want to find a group in your area you can check the National Real Estate Investors Association website – in the back of the book for a group in your area.

  1. The second type of landlord is not really “burned” like the first type of landlord, but they are retiring and moving on with their life. They don’t need the money from the sale of a home, and in many cases they don’t want it yet.  They usually have huge capital gains to contend with, and may not want to pay those gains yet, or they may want to plan for a 1031 exchange.*   [A 1031 exchange is an IRS section that allows a person to exchange their kind of property to another like kind of property, of equal or greater value, and therefore defer (not avoid) the capital gains on the first property.  For instance if a seller has a home that they bought 10 years ago for $80,000 and it is now worth $140,000 and they have depreciated the property from $80,000 down to $40,000 then there is a $100,000 gain they need to realize ($140,000 value less the depreciated value of $40,000 = $100,000 of gain).  This would be a long-term capital gain, but many sellers still don’t want to pay on this amount.  By optioning their home to you, they might be able to better plan for a 1031 tax deferred exchange. There are sellers that will sell to you on an option to avoid the taxes now but like the benefits of renting their homes.  They like the cash flow and with this solution they can still benefit from cash flow and avoid the other issues of being a landlord that they don’t like or won’t have time for now.

When I purchase a home from a landlord, one of the benefits to him or her is that I will usually assume the maintenance completely on the home, or ask them to assume only the first $500.   I also will take on the advertising, vacancies, and showings, etc.  You can be very creative when structuring a deal with an owner of a home. The benefits for a landlord include but don’t have to be limited to:

  1. Maintenance – sellers don’t have to deal with issues and calls. Even if they pay a portion of the costs, I will handle the work.

 

  1. Showings – sellers never have to show the home again. I will do the showings, take the calls and discuss the home with all tenant prospects.

 

  1. On Time Rent – they don’t have to worry about the tenant paying each month. Their rent check comes from me regardless of whether or not the tenant has paid me on time.   My check is good and on time each month.

 

  1. Advertising – they don’t have to advertise the home anymore. I will pay for all the adverting and handle all of the calls.

 

  1. Vacancies – they don’t have to worry about vacancies anymore. I will pay whether the home is vacant or not.  [You can negotiate this also if the seller is willing – e.g. you have one month free rent in each X (any number you choose) months of the lease if you don’t have it occupied (all contracts with landlords are negotiable, but you should only negotiate with them to pay rent in a slower market, a buyer’s market)].
  1. Insurance – they have extra liability protection when they lease option to me. I carry a $1,000,000 liability policy on properties that I don’t own and am only optioning.   This liability policy is really to protect me, however, if something really bad were to happen on this property, this insurance would be utilized in a defense, which would also protect the owner of the home.

These benefits alone will allow a landlord to feel comfortable with selling, but also allow them to take less in rent then they usually receive.  Talk about these benefits to help them see the advantage in leasing the home to you with an option.  They now have less headaches, overhead, fees and expenses, so they can lease it for less.  With a lower payment to the seller, you can also rent it to someone and increase your cash flow. It is hard to determine the exact amount to reduce their normal rent because there are many factors, but normally several hundred per month or more is reasonable.

How to Evaluate Seller Ads in the Newspaper

Besides placing your own ads in the newspaper to attract sellers, you can also answer their ads.    In lease options I find that most sellers need or want their cash out.  The best way to find a seller for a lease option is not the FSBO section of the newspaper, but the For Rent section of the newspaper.  What you will want to do is to turn the landlord into a seller.

Your first step is to build rapport.

Call the ads in the paper that are in the For Rent section, not the For Sale section. The reason I don’t call the “For Sale” section is that 90% or more of those sellers must get their cash out and a large portion of the other 10% won’t consider something creative.  It is not because they don’t want to consider something creative, it is just that they would prefer to cash out and be done with the property.  Also, trying something unique will scare most sellers.  Call the ads that are for rent, because the #1 and #2 objections for selling on an option have been resolved: 1) they are renting, and 2) these owners do not need to sell or to cash out of the home and they are willing to lease the home.

Wendy’s Tip
One trick to finding motivated sellers is to take the current real estate section of your newspaper and file it in your cabinet for a month. After a month, start calling those sellers. If their home is still available, then they are getting more motivated. The longer their home sits on the market, the more motivated they become.

How to Navigate Successful First Contact with Sellers

The most effective way to contact sellers is by calling them. Immediately tell them your name to start building rapport, and try to keep your voice sincere or soft.  Be sure to ask questions appropriate to the area you are calling. What is important to that part of the country?  Basement? Pool? Fenced yard? A certain type of landscaping?  Updated kitchen or bathroom?

When you begin to regularly respond to seller ads, consider setting up another phone line, perhaps toll free or even a voicemail box just for that particular house or ad.  Personally, I prefer for callers to reach a live person, so if they call my office they get someone live.  You can always use your cell phone. Even if after hours, they will get a referral to another number where they can get a live person.  However, if this is not feasible for you, be sure to check messages frequently and return calls promptly.

The following is a script you can use to call an owner of a rental home. The words in bold are what is said to the owner. Don’t waste the seller’s time asking questions that are answered in the ad or from their description above but do ask questions applicable to your area of the country  (e.g. Is it in a flood area? Does it have central air? Has it ever had termites?  Has it ever been in a fire? How old is the roof?).  Ask whatever might be of interest to you and to find out more about the home.

Script for Calling the For Rent Ads

Hi, my name is ________. I was calling about your home for rent.  

Giving your name sounds warmer and will help put the owner at ease with you.  It is a great way to build rapport.

Can you tell me if it is still available?  

If yes, continue.

When is it available?

Can you tell me a little about the home?  

Let them answer some information about the home…or expand some questions off the ad.  You are building rapport with the owner. Talk and let them talk.  People warm up when they are the ones talking.  Listen and sound interested.

When was the home built? 

This question gives you insight to any decorating or maintenance problems you might be running into.  It will tell you if it might need to be updated. If the house is older, ask the next question; if not, skip it.

Have the kitchen and bath(s) been updated since it was built? 

If it was built in the 70s, I might ask if the baths or kitchens are yellow/green/brown or if they have been updated since it was built.

Does it have a garage or basement?

Is the yard fenced? 

This may prompt them to ask the question on whether or not you have pets.  At this point they still think you are the one that will be living there.  I don’t change that direction of thought until enough rapport and trust have been developed.  They may ask questions as to how many will be living in the home.  These are questions I don’t want to lie about, but don’t want to be totally direct on either.  If you say, “I don’t know, I am going to rent it to someone else,” you can be sure they will not show you the home.  That would kill the trust and rapport immediately.   It is hard to say how to handle those questions exactly. Each time these questions come up, you will be answering them differently based on the owner. Here are some ways you could consider handling their questions to you:

  1. Answer them as if you really were going to live there. The answers

would be of you and your family (if any).

  1. Try to change the subject or slightly avoid the question.
  2. Try to answer to your best guess of who might be renting from you later.
  3. Just come out with it: “Actually, I am working with a few local families to help them find a nice home in a nice neighborhood, is your home a nice home in a nice neighborhood?”   – this works very well and now you have disclosed you are an investor without saying “I am a real estate investor”.

I am not recommending deliberate deception although it may sound like that. I am very honest and straightforward with my sellers but I need to build rapport—not scare them off.  I later reveal how this will work after they meet me or when I feel that they are open to discussion about the entire situation.  Because everything will eventually be in writing, they will know that you are not occupying the residence before they sign the documents.

If the home sounds like something you would like to own then pop the question.  If it doesn’t just be polite and say you will call back later if you are interested. Thank you very much.

Wow, this home sounds really nice, would you considering selling it? 

If they say no, then say, “Thanks, but I am really looking for something I can buy.” Leave them your name and number to contact you later if they change their mind about selling.

Do you know how much you would want for the home? 

Start to feel out the owner for the type of terms they would consider but be careful not to make any verbal offers. This isn’t the time for negotiation. This is still just the time for gathering information. You need to construct your offer when you are not on the spot.

When could I come and look at the home to see if I would be interested in it?

If the home is available for viewing, make arrangements to go as soon as possible.  This shows the seller that you have more than casual interest in the property.  Set a time with the seller and keep it. If you must change your schedule, be sure to let the seller know and make alternate arrangements for as close to the original date as possible.  This will also show the seller that you are interested enough to be courteous.

Script for Calling Realtors®

This script is for rent-to-own buyers to call the listing agents of properties they are interested in to determine if the seller might consider rent-to-own or to see if the real estate agent has any other listings where the seller would consider rent-to-own.

“Hi Sally, my name is ___________ and I was calling about the home you have listed at _________ (the address). Is it still available?”

 

After they say “Yes, it is.” I would say,

“Can you tell me more about the home? How much is it and how large it is?”

Listen to see if it is something you would be interested in. If so follow up with

“I noticed it has been listed awhile…”

Wait and see what they say without saying anything else. They might say, “Yes…” then I would go on to the next question. Or they might start to talk more – which is what I am hoping they will do. I want them to start to talk and tell me more. Maybe they will tell me why it has been listed a long time or what the status is. You would be amazed at what others will tell you when you zip it and listen. The next question is,

Well, I wondered if they would be open to something creative?”

Again, I leave it at that and say nothing more. Sometimes they will runaway with a long explanation of what the seller will or will not do, sometimes they say, “Like what?”

“Well, something like a rent-to-own or a lease option with your commission paid in full. I am a rent-to-own buyer looking for a home in that area. Would your seller be open to something like that?”

Don’t say anything until they respond. You’ll get one of five responses.

  1. “Yes, they have mentioned that to me.”

 

If you get a positive response the next question to ask is:

“Great, do you know what kind of terms they are looking for or are they looking for an offer?”

If they are looking for terms that work for you or they are looking for an offer make an appointment with Sally to look at the home. Note: Sally will try to become your Realtor®. This might not be bad if Sally is creative and willing to read this book along with you, but otherwise don’t sign anything to commit you to Sally except for this home. If Sally is really good, you might want her to be your agent. If the terms are not within your scope then ask the following:

“Do you have any other listings where your seller might have said to you, ‘Sally, if you don’t sell my home soon I might have to rent it’? Sally (remember use their real name J), can you think of any of your listings like this that might work for me?”

Sally may also respond to the rent-to-own question like this:

  1. “No, they need to sell now and wouldn’t be interested in that.”

 

If this is the case jump right to the question where you ask if she has any other listings that might work. You will need to know your price range and what you can afford as she will probably ask you about this (we covered this in chapter 3).

  1. “I’m not sure I would have to check with them.”

 

If this is the response encourage the agent to talk with her clients. Reminder her that you are looking for a rent-to-own home in that area and her commission would be paid in full.

 

  1. “What are you talking about?”

 

Not every agent knows what rent-to-own is, you may have to give them a brief explanation.

 

  1. “Why do you need a rent-to-own?”

 

Most likely it’s because you can’t get a mortgage right now or because you don’t want to get a mortgage right now. Your best answer is to simply tell her that a mortgage won’t work for you now but you do want to get into a home now and ask her if that home or another listing of hers might be a candidate for rent-to-own. Keep your answer brief and then ask her the question to keep her talking.

 

I will challenge you to call 10 for rent ads today and follow this script.  If you get some leads and need help, consider my coaching and courses.  For more information on coaching, you can email me at info@wendypatton.com. You have now called sellers, had sellers call you, and perhaps you’ve accumulated some leads to pursue.  Now it’s time to go look at the homes, continue to build rapport with the sellers, and gather more details on the homes. In the next chapter, you will learn more about which tool/technique to use for each motivated seller you have found.