Jay sells a lot of houses through rent-to-own buyers.
What is a rent-to-own buyer?
Typically a rent-to-own buyer is someone who does not have a credit score to qualify for a mortgage. But they can afford a monthly payment and are able to pay the deposit or in legal terms, the option fee. Some may also call it a non-refundable option deposit.
Watch this video and learn how Jay Conner used this strategy in sealing this deal.
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Jay Conner has been investing in Real Estate for over 15 years. He typically makes 2 deals a month. He has bought and sold over 400 homes.
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Chaffee-Thanh Nguyen started investing in Real Estate a decade ago. He dramatically changes and impacts the lives of thousands of people around the world as an Executive Success and Event coach with the likes of Powerteam International and Marshall Sylver’s Mind Power Inc. Chaffee also teaches at his own events.
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Jay Conner (00:00):
So we sell a lot of homes on rent-to-own, same thing as lease purchase. So, let's talk about these two different exit strategies. And quite frankly, I haven't decided which way I'm going to go. It doesn't matter really. I mean, it's, both of them are wins, but let's just lay out the numbers. So, I'll sell it on a rent-to-own. Now, let me describe what rent-to-own means. Lease purchase is the same thing. So a rent-to-own buyer typically does not have the credits score to qualify for a mortgage. But, they can afford a monthly payment and they got to have a deposit or a actual legal term is called an Option Fee. We also call it a Non-Refundable Lease Option Deposit. So the reason a rent-to-own buyer will buy from you. So if I sell it to on rent-to-own, I'm selling it as is.
Jay Conner (01:03):
It's also called in this case, work for equity, right? But, we're selling it as is. So in other words, if I sell a rent-to-own, I'm not going to put $15,000 rehab in this house, because guess what? They're going to paint the walls themselves, all it needs is lipstick, this and that. Right? So I'm gonna sell it at same price of 180,000, but let me just get you in the mind of the rent-to-own buyer, okay. The rent-to-own buyer right now, there's 82% of Americans that cannot go to the local bank or a mortgage company and get a mortgage. Only 18% of the people can. So there's a lot of those people in the 82% category that don't qualify for a mortgage that would love to own a home. So when we sell it on rent-to-own, we're giving them the opportunity to look forward to having that home's deed transferred into their name when they are ready for a mortgage.
Jay Conner (02:10):
Typically I'm not going to accept less than 5,000 or $10,000. In this case, 5% to 10%, typically not, or less than 5% of the rent-to-own selling price. The difference between selling it in the Multiple Listing Service and selling it on rent-to-own is, if I sell it on rent-to-own, I'll make more money, but I got to wait to get my money. I make a little bit less money and get my money today. So, Scott let's run the numbers here. I'm going to sell it for the same price. You say, wait a minute, Jay, why would a rent-to-own buyer pay the same price today as a Multiple Listing Buyer, that's ready for a mortgage? And here's why, number one, their primary motivation is not price. Number two, and this is very, very important. Don't miss this folks.
Jay Conner (03:06):
If I set, I always set the price typically at about 10% or so, 5 to 10% above what the home is worth today. So the home is not worth $180,000 today in its current condition, it's worth $180,000 if I put 15,000 in it, right? So the home is worth right now, let's say as is $165,000, but I'm not going to sell it to the rent-to-own buyer for what it's worth today. And here's why, besides their primary motivation not being price, if I'm going to give them one year or two years to get ready for a mortgage. Well, my land is just in the past year. Prices had gone up 20% in this area.
Scott Paton (03:56):
Wow!
Jay Conner (03:57):
If I set the price at today's as is value of 165,000, and it goes up 20%, which would be about $13,000 within a year or two, I just threw $13,000 out the window, right?
Scott Paton (04:13):
Yeah.
Jay Conner (04:13):
So, that's why I'm setting the price at 5% to 10% above what it's worth today,
Scott Paton (04:21):
So, in a way they're not buying the house today or closing next week, they're actually buying the house in a year or two years down the road.
Jay Conner (04:32):
Correct. Now the beautiful thing about our rent-to-own buyer relationship to me, the real estate investor that is selling, we don't have a traditional landlord tenant relationship, right? What I mean by that is the first 30 days when they move in, I'm responsible for all the repairs of anything that's not working as it's intended. I want all the major components to be working. I don't want anything leaking, right? I just want them to be responsible for the TLC, the tender, loving care, the lipstick, et cetera. So after 30 days, the rent-to-own buyer is responsible for all the repairs. So they have got the mindset of being a homeowner. Another great advantage is, I don't care if they got pets. They got pets? They can move in. So the rent-to-own buyers got the mindset of, I am a owner. I just don't have the title or the deed transferred into my name yet.
Jay Conner (05:32):
And this is a pathway to where I can actually be a homeowner. Whereas otherwise I'd be renting, you know, maybe the rest of my life. So, this rent to own exit strategy is just a beautiful win-win for everybody. So Scott, back to the numbers, I'm going to set the price still at $180,000, selling price, same thing as selling today. But guess what? I'm not going to put $15,000 in rehab. I'm not going to do anything. Hey, this house one, room's got purple walls, another room's got orange walls. You say, Jay, how can you sell a house with purple walls and orange walls? Rent-to-own buyer. They're going to paint it the color they want. Anyway,
Scott Paton (06:21):
That would normally be a mistake that a lot of people make too, is that, let's say you go and you paint everything. And then the next, the rent-to-own buyer comes in and they don't like the colors and they wanted, they're going to repaint it. So,
Jay Conner (06:34):
They're going to repaint it anyway.
Scott Paton (06:35):
Because you're not talking to people that are poor necessarily, they're just people that can't afford a mortgage. And I think that's a huge distinction because a year ago, if you could get a mortgage, if there was a hundred people who a year ago could get a mortgage, 30% of them cannot today. Even if nothing has changed in their finances, the banks have just changed the rules and the criteria. And you had a great stat about like 82% or whatever it was. Can't afford it anyway, it's gone up because the banks have sort of tightened the screws a little bit. And so we have a lot of people who have no problem making the down payment. They have no problem paying the rent. They have a problem with the bank, just like you had the problem with the bank a long time ago, and this is a solution for their problem.
Jay Conner (07:21):
Exactly. So the profit here, let's run the numbers here on the rent-to-own. So the profit is 180,000 still when they're ready for a mortgage, of all I've got in it is 99. So the profit in the future on this exit strategy is $81,000 versus 66,000 today. But I got to wait, but there's one thing on this profit that we haven't calculated, Scott.
Scott Paton (07:50):
Yeah.
Jay Conner (07:50):
We count. Selling on a rent-to-own. I got a positive cash flow. So this subject to mortgage, the monthly mortgage payment is right around 700 a month, the rent-to-own buyer's going to be paying 1200 a month. So I'm going to get a $500 a month, positive cash flow. If I sell it on rent-to-own, I've got that 5 or 10% Non-Refundable Lease Option Deposit. Now when they get ready for a mortgage, if they get ready for a mortgage, okay, I'm going to apply that five or 10,000 or whatever it is.
Jay Conner (08:26):
Non-Refundable Lease Option Deposit to their purchase price. But guess what? Let's say, they don't get ready for a mortgage. Let's say they move out. Guess what? I still own the house. They don't get their Non-Refundable Lease Option Deposit back. And I get to sell the house again. Now I will tell you, my mindset and my outlook with having a servant's heart is the way I look at this world and people. I want these people to get a mortgage, actually, I'm going to help them. I'm going to refer them to my credit repair company, help them get there. But if they decide otherwise the responsibility is on them as to whether they stay or they move out. So again, multiple exit strategies. That's another thing, Scott. We didn't bring out. And I see we're about running out of time. So I probably need to wrap up.
Jay Conner (09:17):
But one thing we didn't bring out is, let's come back over to the rehab. How am I going to fund the rehab? If I decide to rehab $15,000 and put it in the Multiple Listing Service? Well, here's how I'm going to fund it. Private money. I'm not going to get that $15,000 out of my pocket, right? I'm going to use private money so I can get a small, you know, I can borrow 20,000, 25,000 whatever dollars from a private lender and give them a promissory note and a mortgage in second position underneath the first mortgage. So now first mortgage payment that I'm agreeing to pay, now I can just borrow, shoot. If I borrowed $25,000, use 15,000 of it to rehab it. I stick the other $10,000 in my pocket. So if I borrowed 25, I bought it for 99, call it a 125. When I sell it for 80, I still got a $55,000 positive cash flow. And I put $10,000 in the bank. Ain't it a great business?
Scott Paton (10:31):
It is. That's amazing.
Jay Conner (10:35):
So again, fix it up, sell it now, $66,000 profit. Of course that's less realtor fees. See, when you sell on rent-to-own there are no realtor fees, that's another benefit to selling on rent-to-own. You're going to save 5 or 6% because you found the buyer, rent-to-own buyer gets ready for a mortgage, 5% savings at least. That's going to save you $9,000 in realtor fees. If you sell on rent-to-own, again, you want more money. You want nice money now or you want even a bunch more money later. You get to choose
Scott Paton (11:17):
So you can have a nice little check at the beginning. Then you can have a nice little check every month, come in and then you'll get a nice size check when they decide to, well, when the bank says, they're going to be able to afford a mortgage, but what would happen if they're okay? So they've got a good job, but let's say it's a family. Both of them are working. They got a good job. Everything is fine. They're having a bit of trouble with their credit. And they decided to go for say two or three years instead of the one year. Is that an issue?
Jay Conner (11:50):
Yeah. So that's an excellent question. Most of the time, my rent-to-own buyers, the rental agreement is for one year, 12 months, right? So I'm giving them 12 months to get ready for a mortgage. If they use the credit repair company that we refer them to, then they can, they will probably be ready for a mortgage, but I want to work with people, right? So from a legal standpoint, if they're not ready for that mortgage in one year, on that term I could kick them out. I mean, I could, you know, they lose their Non-Refundable Lease Option Deposit. I go sell it again. But you know what? I don't do that. I want to work with people if they've been making their payments on time and they're making progress and I've got a nice cash flow coming in, why in the world would, I want to kick them out? I want to keep working with them, right? To help them move towards the mortgage. So, and answer the question. If they're not ready for a mortgage within the term of the agreement, what do I do? I extend their rental period. If they have kept their end of the bargain.
Scott Paton (13:00):
Now the other side of it is, they're motivated to fix their credit because you just said that there was $700 is what the mortgage is now, and they're paying 1200. So if I've got any financial savvy at all, I know that I could be saving that. Let's say $400. Maybe it's a little bit more expensive mortgage than the people that are there now. So, you know, I can be looking at saying, I'm giving away $400 that I could be putting in my pocket $5,000 a year. And so I'm motivated to be able to switch over to this as soon as possible.
Jay Conner (13:35):
Yeah. And interest rates today in the two's that $1,200 a month rental payment would come down and help their cashflow per month when they are ready for a mortgage, that's for sure.
Scott Paton (13:50):
Nice, awesome. So, that's a pretty nice deal that you've got going there and you're helping two groups of people. Obviously the people there want to leave and another family is going to want a nice place in North Carolina.
Jay Conner (14:05):
Yeah. I mean, it's a, win-win all around. I mean, these people, the sellers. They want out of dodge. They want to get back, they've lived down in this town in Georgia. They want to get back to this town in Georgia. They don't like where they are, here. They want to get, they got family down there in Georgia and that's a win for them. I mean, we're able to make it happen fast. I mean, you know, we're closing in within two weeks that never happens through traditional. And guess what? Another advantage of buying subject to, or using private money? There's no appraisal involved. There's time entanglements that, I mean, the beautiful thing about either buying subject to, or, and, or using private money is we get to set the rules. The banks don't set the rules, we set the rules.
Jay Conner (14:52):
So yeah, I mean, this is just a great example of the deals that we do every month, month in and month out.
Scott Paton (15:00):
So, let me just quickly go through a summary for everybody. So you purchase the place for 99,000. You bought it subject to the existing note. The after repaired value is 180. The rehab is going to be around $15,000, by private money. So all in your cost is 114,000, which if you just put it on MLS and you sold, it would be a profit of 66,000 less lawyer fees, realtor fees, that sort of thing. However, we have two exit strategies and the second one is sell on rent-to-own. So you still going to sell it at the same price. And it's going to be around $1,200 a month on rent to own. And the Non-Refundable Lease Option of between 5 and $10,000, which means that probably in the neighborhood of $81,000 profit, you're helping somebody who doesn't, can't get a mortgage right now, but they're going to be able to have that feeling of home ownership and move towards it and fix their repair.
Scott Paton (16:03):
And it gives you a monthly positive cashflow of $500. So you're going to get some money right away, a nice chunk, 5, 10 grand. You're going to be at this cash flow going through for the next year or so. And then at the end of it, they're going to get a mortgage and you're going to get the rest of the money.
Jay Conner (16:19):
That's it.
Scott Paton (16:20):
Sounds like a great deal.
Jay Conner (16:25):
It is, Scott. Scott, I'm so glad you joined me here. Folks again, Scott Paton, The Executive Producer of Real Estate Investing with Jay Conner. And I tell you what, it's a lot more fun to talk with somebody and be a talking head. I'll tell you that.
Scott Paton (16:39):
It sure is. So Jay, if somebody wanted to learn more about what it is that you do, how can they, what steps should they take?
Jay Conner (16:47):
Oh, well it's real easy folks. Get right on over to www.JayConner.com/Book And I go through all the steps, easy steps on exactly how you can get as much private money as I do to fund your deals. Thank you so much for joining and look, I really appreciate the reviews. If, you know, subscribe on YouTube, be sure and subscribe and ring that bell. So you don't miss out on any of the future trainings that we do right here. Be sure to like share, subscribe and join us again. I'm Jay Conner, The Private Money Authority wishing you all the best and here is to taking your business to the next level. We'll see you on the next, Real Estate Investing with Jay Conner.
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