Helping renters become homeowners is about mindset — both yours and your clients’. Here’s how to evaluate the renter leads you receive and convert them into homeowners when their lease expires.
Most agents don’t want to be bothered with rental leads, yet they can be a great source for both buyers and future business. The question is: How do you convert renter leads who don’t know they are qualified to buy a home right now?
Zach Scher of Coldwell Banker Smithtown New York has only been in business for four and half years, and has already built a team of 20 agents. When he first started in the business, he had a buyer who opened his eyes to the opportunity with renters.
Early in his career, he had a renter who told him, “If it would help, I can prepay six months of rent.” At $4,500 per month, Scher quickly realized that the renter had $27,000 he could put toward a down payment.
Like many other renters, he mistakenly thought he needed 20 percent down. Scher explained how he could put down as little as 3 percent and have a larger house that he would own. More importantly, he would be paying his mortgage rather than his landlord’s mortgage.
Once he understood the process, his mindset shifted almost immediately. He lost all interest in renting and was eager to move forward with buying a house. Scher said the most important part of this process is changing the buyer’s mindset. Below are six steps Scher follows when he or someone on his team receives a renter lead.
1. What is their financial situation?
According to Scher, only about one out of every 20 renter leads are capable of buying a home right now. Your role is to discover what the renter’s current financial situation is and then help them make the right decision.
2. Shift their mindset to becoming a homeowner when their lease ends
With today’s historic low interest rates, buying is actually cheaper in many areas than renting. What’s blocking many renters from buying is their mistaken belief they have to put 20 percent down. Scher tackles this issue by educating his renters about three things:
- They can purchase a property with as little as 3 percent down.
- How down payment assistance programs can help them buy a more expensive home than they thought they could afford.
- If the circumstances are right, how they can roll their closing costs into their mortgage.
Once they become aware of these three facts, they realize they aren’t stuck renting — and that homeownership is an option.
3. Give them a goal
Scher views every renter as a buyer, even if they’re not ready to transact right now. He gives them the goal of putting aside money while they are renting so they can become a homeowner once their lease ends.
4. What down payment assistance programs are available in your area?
According to Rob Chrane of DownPaymentResource.com (DPR), 84 percent of the properties in the U.S. are eligible for down payment assistance. Last year, the average amount of down payment assistance DPR clients received was $13,000. You can visit the DPR website to learn about the programs in your area.
Scher has been using two different types of down payment assistance programs. The first type comes through his local lenders and provides 3 percent of down payment assistance to the buyer. If the buyer stays a certain period of time (five years in most places in the country), they don’t have to pay the amount back.
The second type of down payment assistance that Scher uses are grants. Grants do not have to be repaid, are available from numerous resources and serve a wide variety of buyer needs.
For example, Greg McDaniel explained how one of his clients received down payment assistance from his local union. McDaniel recommends contacting teacher, firefighter, police and other types of unions to see what they offer.
Scher added that sometimes his buyers and renter clients find out about grant programs before he does. When he learns about a new program in his area, he then shares it with his other clients. DownPaymentResource.com can also show you what types of grants are available in your area.
5. Seller ‘concessions’
When most people think of seller concessions, it’s usually negotiating inspection repairs or having the seller pay closing costs for the buyers. Scher uses a third type where the closing costs are rolled into the mortgage. In order for this to happen, the seller has to agree, and the house has to appraise for the purchase price plus the amount of the closing costs.
6. Locating the right property
Most places in the country continue to be in a red-hot seller’s market. In Scher’s case, there are only two months of inventory available in his local market. Consequently, finding the right property can be a challenge. Here’s what has worked for Scher:
- Watch for properties that have gone under contract but have come back on the market. In many cases, the buyers don’t realize these properties are still available.
- No matter how strong the market is, some properties will sit on the market. Look for well-maintained, but tired properties.
- Because renters are generally coming out of a smaller space, they’re more likely to accept the trade-off of more space and a yard in lieu of having a new kitchen. They’re also more willing to do some work because the home is theirs.
Helping renters become homeowners is about mindset — both yours and your clients’. Evaluate each renter lead you receive and whether they have the potential to be a buyer now or when their lease expires a year from now. It’s a great way to build business now and in the future.
Bernice Ross, President and CEO of BrokerageUP and RealEstateC