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Bernice Ross
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?
Zack Scher of Coldwell Banker in Smithtown, New York has only been in business for 4-and-a-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.
“I had a renter early in my career who told me, ‘If it would help, I can prepay six months of rent.’ The rent was $4,500 per month. I quickly realized he had $27,000 he could put towards a down payment,” he told me. “Like many other renters, he mistakenly thought he needed 20 percent down. I 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 immediately. He lost all interest in renting and was eager to move forward with buying a house.”
Give Them a Goal
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 to make the right decision.
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 three precent 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 facts, they realize they aren’t stuck renting and homeownership is an option.
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.
Find Down Payment Help
According to Rob Chrane of DownPaymentResource.com, 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. Lawrence Yun, chief economist at the National Association of Realtors, says that down payment assistance programs are one of the most important tools to expand opportunities for renters to buy their first home.
MassHousing runs a successful – and growing – down payment assistance program called ONE+Mortgage that offers up to $15,000 for first-time buyers. And officials in the city of Boston have teamed up with four large lenders for the ONE+Boston program that piggy-backs on MHP’s work. Private lenders have their own programs, too, like Bank of America’s, which expanded to Boston in 2019.
There are other sources out there, too.
For example, my fellow real estate expert 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.
Navigate the Hot Market
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, compared to 1.3 in all of Massachusetts. Consequently, finding the right property can be a challenge. Here’s what has worked for him:
- Watch for properties that have gone under contract but have come back on the market. In many cases, buyers don’t realize these properties are still available.
- No matter how strong the market is, some properties will sit. Look for well–maintained, but tired properties.
- Because renters are generally coming out of a smaller space, they’re more likely to accept the tradeoff 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.
- Roll the closing costs into the mortgage via a seller’s concession. But 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.
Helping renters become homeowners is about mindset – both yours and that of 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 is a nationally syndicated columnist, author, trainer and speaker on real estate topics. She can be reached at bernice@realestatecoach.com.
