Getting Paid – A growing problem for everyone! (Except real estate agents and clients making lease options)

“I have a lot of listings for houses for sale. The only problem is that they don’t pay me unless they sell!” (Charlotte real estate agent frustrated and broke)

“FHA Bailout? New Real Estate Fees, Loan Rules to Avoid One” (USA Today headline, 01/20/10)

“The goal of a business is to make money doing what the customer wants, ethically.” (Steve Nelson Professor of Marketing at Grand Canyon University)

The biggest symptom of our current economic problems is that people don’t have money to pay their bills. Think about it. Why is the FHA in trouble? It’s because the homeowners couldn’t pay. Why did the banks need to be rescued? It’s because customers are slow to pay. Why are many companies going under? It’s because their clients are failing businesses (because they didn’t get paid).

In property management, there is a ripple effect of people not getting paid. If tenants lose their jobs and their employers don’t pay them, they can’t pay their rent. If the rent is not paid, then the landlord (and neither is the property manager) is paid. If the owner is not paid, then the bank where the mortgage is held is not paid. Then the bank goes under.

Well, this is not a big reveal. Noah wasn’t famous because he saw that it was raining; he was famous because he built an ark in time that he saved his family (and most of the world’s animal kingdom). Plus point. So how can we make sure that we and our clients get paid?

For realtors who have vacant listings for sale, you can open them up to accept lease-option tenants (also known as rent-to-own and lease-purchase). With the number of homes for sale and the dwindling number of buyers (see USA Today FHA holder above), most listings are vacant for long periods of time. By getting a paying tenant on the property, you can get your clients to pay. They, in turn, can pay the banks. This is good!

This is not essential for some agents, which is confusing to me. Just last week, we were working with a real estate agent who had his client’s vacant home open “for sale” and “for rent.” When we made an offer on behalf of our pre-qualified rent-to-own tenant, the agent said his client would accept a sale or direct lease, but not a rent-to-own. Our client wanted to own a home; It was important to begin the process of generating a down payment and closing costs while building a life in their future home. When asked what the owner’s backup plan was, the agent said the owner would give the house to a property manager if our client didn’t rent it.

Let’s take a look at this backup plan. We are property managers so there is no disrespect here. However, let’s take a look at the costs. Property managers charge fees to place tenants and there are many rental houses on the market; Check out the largest property manager in your city and see how many houses are available for rent! This is not the property manager’s fault; it is simply a function of the market as houses are not sold and put on the rental market. So there will undoubtedly be a few months of maintenance costs on top of property management fees.

In terms of collection, the agent does not receive any money for passing his quote to the property manager and you are costing your client even more money. Agents who are in the habit of designing “lose-lose” deals (clients pay more and he gets paid nothing) don’t usually last long in any business.

What might have happened? The lease option agreement could have been closed and everyone could have received their payment.

1. The client could have had a tenant making their mortgage payment every month.

2. The listing agent could have been paid by requesting half the option fee as compensation. Option fees are typically 1% or more of the purchase price.

3. The buying agent could have collected the other half of the option fee.

The best part of this scenario is that the rent-to-own tenant could have purchased within 1 year. This would have allowed agents to split the 6% sales commission at the time. The client would have been delighted to know that in addition to GETTING A FREE TENANT WITHOUT ADDITIONAL MAINTENANCE COSTS, he would have had a tenant who could buy the house from him within a year. A true win-win-win could have been created.

There are many ways to get paid on lease option agreements, but here’s a good equation:

½ of option fee (provided by tenant) for both parties + 3% listing fee at time of sale = Satisfied customers and agents

Help customers get paid and get paid too! Isn’t this what companies were created for?