PA Deals, LLC is a residential real estate investment firm located in Harrisburg, PA. Visit http://padeals.com or call 717-901-7763

1. Making BIG Money,
in August 2009, Using the
Rent to Own Technique
Written by:
Zack Wiest
PA Deals, LLC
www.padeals.com
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2. 1] What is the Rent to Own or Lease Option Technique?
The rent to own technique and the lease option technique are one in the same. There is
absolutely no difference in the two, except the name. When using this technique you are
simply leasing your property to an interested party and giving them the option to
purchase the property from you sometime during the lease period. We call this interested
party a tenant/buyer because they are a tenant today and hopefully a buyer down the
road. Don’t confuse option with obligation. When using this technique your tenant/buyer
has no obligation to buy, but they do have the option of buying, if they so desire. The
reverse is true for you however. Should your tenant / buyer decide to exercise their option
to buy you must sell the property to them. We call this a unilateral contract and you, as
the landlord / seller are obligated to perform in the form of honoring your tenant / buyers
option.
2] Why and When You Will Use the Rent to Own Strategy
In most cases you will use the Rent to Own strategy as an alternative to either renting
your property or retailing your property. Some of the reasons you would use the rent to
own technique are:
A] Property may be located in an area that does not completely lend itself to an
outright sale. Possibly an area where 50% of people are tenants and other 50% are
owners. When you have the Rent to Own technique as part of your real estate
arsenal you now have the ability to buy in tenant occupied areas and still realize
the same profits you would in owner occupied areas. Having this broad of a
market to buy in greatly increases your chances of buying at greatly reduced
prices on a more consistent basis.
B] Property was listed for retail sale but for whatever reason is not selling.
C] Mortgage market has tightened up lending criteria making it more difficult for
low to moderate income buyers to qualify for a mortgage
D] To avoid the expense of current income tax bracket creep.
E] To simply diversify your real estate strategy / portfolio. It’s all about
“Multiple Streams of Income”
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3. in this business. The more streams the better. A perfect mix is accomplished by
utilizing the Buy Fix and Sell technique, Buy and Hold technique and the Rent to
Own technique at different times throughout the course of the year.
Your individual financial situation will determine which strategies you give the
most focus, BUT, no matter what your situation, you MUST diversify by using all
three.
F] To maximize your profits. When using the rent to own strategy you can usually
command a premium sale price.
3] Who is Your Target Market When Using This Strategy?
Your target market when selling properties on a rent to own agreement are hard working,
honest people who for one reason or another have credit issues that are preventing them
from obtaining a mortgage to buy a house the conventional way. Due to their credit issues
they are willing to pay a premium to you in order to at least have a fighting chance of
realizing their dream of homeownership. Another reason they are willing to pay a
premium is the condition of the homes you will be offering on these creative terms. In
most cases you will be offering creative terms [rent to own] on newly renovated homes.
When screening a prospective tenant/buyer for one of your properties, you want to look
for the following criteria:
A] Steady Employment – They will need a steady job that pays a decent salary in
order to eventually qualify for a mortgage to buy your property. They should be at
their job for at least a year, and / or at least in the same profession for a year or
more.
B] Debt to Income Ratio - Their debt to income ratio, using their new monthly
house payment should not exceed 50%. To figure out debt to income ratio add up
all of their monthly payments that appear on their credit report and divide that
number by their gross monthly income.
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4. Example:
Monthly Expenses on Credit Report - $1,600
Gross Monthly Income - $3,000
$1,600 / $3,000 = .53 or 53% Debt to Income Ratio
This person would not qualify.
C] Active Checking Account – The ONLY way to collect monthly payments from
your tenant/buyer is by check, whether it be a personal check, bank check,
certified check - GET A CHECK, period!
DO NOT EVER ACCEPT CASH PAYMENTS
You can’t track cash and the name of the game when renting to own properties is
creating a documented paper trail.
Collecting rents by check allows you to create a paper trail of on time rental
payments which will come in handy when it comes time to get a mortgage for
them. Having 24 months of on time rent payments, verified with cancelled checks
goes a long way with a lender and may be the sole reason your tenant/buyer is
approved for a mortgage to buy your home.
D] Cash Reserves – You want to make sure they have enough money to satisfy
your non refundable option deposit requirements. In addition to them being
responsible for paying the non refundable option deposit they must have adequate
money for any rent or pro rated rent that will be due, any utility deposits required
and general moving expenses.
In most case your tenant / buyer will be giving most, if not all of their savings to
you.
E] Credit History – All prospective tenant/buyers will have credit issues, that’s
why they are renting to own and not buying. It is your job to find the ones that
have a chance of eventually cleaning up their credit and obtaining a mortgage to
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5. buy your house. We suggest you not consider anyone who owes more than
$10,000 in collections. Why? Well for the most part all collections will have to be
paid off prior to them obtaining a mortgage. Knowing this, you want to make sure
that it is realistic they be able to accomplish this. Also, we do not suggest
approving people who have collection accounts with past landlords or
management companies. If they didn’t pay their last landlord, what makes you
any different? We also do not like to see more than $1,500 in back child support.
If they don’t care enough about their own flesh and blood, they surely won’t care
about you!
We find out what our prospective tenant / buyers credit history is by pulling a
credit report. To open an account which allows you to pull credit reports you may
contact:
Merchants Credit Bureau at 706-823-6246.
There are three major credit reporting agencies. They are:
Transunion
Experian
Equifax
Each one is similar to each other but some gather more or less information in
certain geographic areas than others. In Central Pennsylvania you only really need
to be concerned with Transunion. When your tenant buyer goes to obtain a
mortgage their lender will pull what is called a tri-merge. A tri-merge is a merged
credit report consisting of data found on all three credit reports. Each report will
have a different credit score. The lender will use the “middle” score as the credit
score they will lend on.
The most important factors of anyone’s credit report are:
Credit Score
Credit scores range from 300 – 850 with 850 being the highest.
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6. Current On Time Accounts
These are active / open accounts that have been paid on time each
month since opened.
Current Late Accounts
These are active / open accounts that have had late payments. Late
pays are tracked with 30, 60, 90, 120 day plus from the due date.
Collection Accounts
Collection accounts have been charges off by the original creditor
and usually sent to a third part collection agency.
Public Records
These will include Bankruptcy Filing, Civil Judgments and
Divorce Actions
When working with tenant / buyers who have credit challenges there may be
situations where you can assist them with repairing their credit. There are many
companies that specialize in the business of credit repair. I recommend using:
www.ovationlaw.com
or call them at 1-866-639-3426
They are highly advanced and have a very thorough web based system for
handling credit repair. The cost is minimal, with a small up front fee of $75 and
then a few monthly payments of between $35 - $55, depending on what level of
service you chose.
F] Good Rental History – A good rental history goes along way. If they
performed well with their past landlord chances are they’ll perform equally as
well with you. The trick is getting through the real from the fake and being able to
determine which ones are really good tenants and which ones are not. Believe it
or not prospective tenant / buyers are smart and will create fake previous
landlords. Plus even if they give the landlords real information they could be such
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7. a bad tenant that the landlord will lie to you just to get the bad tenant out of their
property. We’ll get into this in just a few minutes.
You can check past eviction filings at:
www.evictionrecords.com
5] Benefits of Selling Your Properties Using the Rent to Own Technique
Non Refundable Option Deposits –
This deposit is the fee you charge to give your tenant/buyer the option of
purchasing the property from you at a later date for a pre-determined price. The
deposit should be priced at between 2-5% of the final sale price. This deposit
should only be credited to your buyer if they decide to exercise their option to buy
the property from you.
Premium Rent –
When using this technique you will also have the ability to charge a slightly
higher than market rent, but don’t get carried away with this. In most cases when
investors charge a higher than market rent, they use the mark up as a “rent credit”
given to their tenant/buyer. For instance an investor who is looking for $650 a
month may charge $750 a month on a rent to own property but give the
tenant/buyer $100 a month rent credit towards the purchase price. We DO OT
suggest doing this in Pennsylvania as it has caused many situations where the
courts, should an eviction take place, view this rent credit as the tenant/buyer
having “equitable interest” in the property and therefore creating a foreclosure
situation and not an eviction. You want to avoid this at all costs so do not ever
give a rent credit to your tenant/buyers. That said, when offering your property on
a rent to own arrangement you can usually get away with charging up to 5%
higher than what current market rent is.
How do you determine what true market rent is? Simple. It is the average of what
all other property owners are getting for comparable properties. You can very
easily find out what market rents are in a given area by watching the classifieds
for a few weeks and then calling the owners of those properties to find out
specifics. Take the average of say, 10 properties, similar to yours and within close
proximity and that’s what market rent is!
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8. Premium Sale Price –
The philosophy behind this is exactly the same as the “Buy Here, Pay Here” car
lots. If you have cash, drive away today for $10,000, but hey, we can finance it
for you for $292 every two weeks no matter what your credit. The person who
opted for the financing paid $14,000 for the same car you and I with our own
financing or cash could have bought for $10,000, and renting to own properties is
exactly the same.
Flexible terms = premium price.
Remember you are positioning your property to sell in 24 months or so and it is
reasonable to expect your tenant / buyer to pay you what the house will be worth
at that time, taking into consideration appreciation that may occur during the
option period.
Tenants Mentality –
In most cases the people you will lease to on a rent to own agreement have more
of an owners mentality as opposed to a short term, “in and out in a year” tenant
mentality. Also, they gave you a large non refundable down payment on the house
therefore making it more important to them that they pay on time and maintain the
property because they have more to lose than just a security deposit.
Tenant Improvements –
We have had several tenant/buyers over the years finish basements, repaint,
replace furnaces, install new kitchens and baths and even add marble flooring in
their homes that they are renting to own from us.
Ability to Do It All Over Again If It Doesn’t Work the 1st Time! -
If, for whatever reason your first tenant / buyer does not exercise thewir option to
buy you as the owner have the ability to do it all over again, but At this time for a
higher price all around.
6] Downsides of Using the Rent to Own Technique
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9. Percentage of Closed Deals –
It is important to know up front that only a portion of the people you put into a
rent to own agreement will actually buy the property from you. In our experience
about 50% of tenant/buyers actually end up purchasing the property they are in.
Your closing percentage can be increased with proper screening up front. Also,
your relationship and rapport with your tenant goes a long way.
Late Payments –
Late payments are always an issue you need to take into consideration. Plan for
them to happen and be prepared to deal with it. Don’t wait until it happens to try
to figure out what to do. Set rules and guidelines and create a system to manage
your rent to owns and stick to them no matter what.
Evictions –
Where you have late payments you will have evictions. Once again, set up a
system for your rent to own properties and work your system on every one of
them.
Damaged Houses –
When and if you deal with an eviction you run the risk of the tenant/buyer
damaging your home. If this happens have a repair plan in place and act quickly.
Once the property is repaired you can immediately set it up on a rent to own
arrangement with another tenant/buyer but this time for a larger non refundable
option deposit, a higher monthly rent and a higher sale price.
7] Setting Yourself up to Succeed
If you are going to be successful in this business you must treat it as a real business.
Before you even think about buying your first property you must take care of some
fundamentals issues.
Business Basics:
Business Cards
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10. You will want the following information on your card:
Company Name
Your Name / Title
Phone Number
Fax Number
Website Address
E-mail Address
Business Address
Logo [if any]
You can design and print business cards at:
www.vistaprint.com
Post Office Box
The last thing you want to do is to have an angry tenant / buyer show up at
your house at 9:30 at night complaining about a leaky roof and if they
have your home address that is exactly what most will do. Never ever ever
give your tenant / buyers your home address. Instead set up a P.O Box
address at your local Post Office. They are very inexpensive and take 5
minutes to set up.
Once you have your P.O Box set up use it for all of your business dealing.
Dedicated Cell Phone Number
Just as you do not want to give your tenant / buyers your home address
you also don’t want to give them your home phone number or even your
personal cell phone number. If you do, you will regret it, as they will use
and abuse it like you wouldn’t believe!
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11. As cheap as cell phone numbers are, get an extra one. It’s simple and easy
and you don’t even need to buy another cell phone.
Call your cell phone provider and tell them you want to set up a second
line on your existing cell phone. Get the cheapest plan they offer since you
will only be using this phone number for real estate related business. You
can always increase your plan later. Tell them you need to set this number
up so that when it rings, the ring is different from your personal cell phone
number, allowing you to determine if the call is business or personal. Once
this is set up use this new phone number for EVERYTHING real estate
related.
Lockboxes
You will need 1 lockbox for every property you buy. Using a lockbox
prevents you from having to be at the property every time someone needs
access. You can purchase lockboxes at Lowes or online at:
www.victorystore.com
for between $20 - $35 each.
Signs
You will need Rent to Own signs. We suggest you keep them simple.
Your signs should read:
Rent to Own
Easy to Qualify
555-5555
Ext. 5555
Colors really don’t matter just make sure they are easy to see. For instance
yellow and black stands out very well. The size of your sign should be at
least 24 inches high by 36 inches wide. You can order these sign from Fast
Signs or any local sign maker. Expect to pay around $20 - $25 per sign
for a 2 color Coroplast [corrugated plastic] sign that is 24 x 36 inches.
Info Boxes
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12. These are those clear boxes that hold Info Sheets on your properties. For
the cost, we suggest you buy one for every one of your properties. You
can use MS Publisher to create a nice, colorful and informative flyer to
place in these boxes. You can purchase them from
www.victorystore.com
for about $15 each.
Fax Machine
You can not operate a business in today’s world without a fax machine.
You can pick one up for under $150. Go buy one NOW!
Computer / MS Office Software
If you don’t have a computer with MS Office, get one, period. And if you
don’t know how to use MS Word and MS Excel take a class on it.
Digital Camera
In today’s day and age you must be using a digital camera. We suggest:
Canon Power Shot Series
Price - $150 - $250
Digital Video Camera – The Flip
With the release of websites such as YouTube you can not afford to be left
out of the online video revolution. Online videos are becoming more and
more popular and I suggest you not overlook this cutting edge form of self
and property promotion.
You may be saying to yourself “Video is hard and complicated” and I
would’ve have agreed with you a year ago. With the release of new
technology however ANYBODY, including you, can shoot, edit and
produce decent quality movies showcasing all of your properties.
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13. We suggest purchasing The Flip. It is by far the easiest video camera to
use and only costs about $150. The Flip is perfect for shooting videos that
will use to post online.
Team of Professionals
Anyone who has been successful did not do so by themselves. ALL
successful; people have a team around them. It is suggested that before
you buy another property that you should assemble your team. You will
need to make contact with and build relationships with the following
people:
Accountant
Real Estate Attorney
Handyman
A handyman is who you will use for small repairs such as
leaky toilets.
Specialty Contractors
Electrician
Plumber
Roofer
Carpet / Vinyl / Tile Installer
General Contractor
You will use a general contractor for larger projects. When
a tenant moves out and has caused damage you will want to
use a general contractor.
Mortgage Broker
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14. Positive Supporters / Friends
Systemize / Automate / Delegate
If you look at any business that even has a modicum of success you will notice
one common trait and that common trait is the creation and implementation of
SYSTEMS. Systems provide a blueprint in which to operate from. If you are to be
even slightly successful in this business you must be implementing systems as
often as possible. Below are some ways we suggest you systemize and automate
your business.
Recommended Reading
4 Hour Workweek by Timothy Ferris
The E-Myth by Michael Gerber
Mapping Out the ‘Life of a Deal” Exercise
Mapping out a step by step process for everything you do is the first step
to creating systems. When performing this task you must detail
EVERYTHING. I use www.bubbl.us to create charts that allow me to
view the life of a deal.
Voice Mail System
In addition to your second cell phone line it is almost mandatory in
today’s day and age to set up a voice mail system with multiple
extensions. Years ago these types of systems were so expensive that most
investors couldn’t afford them, but in today’s world they are very cost
effective and have the ability to systemize your business. I suggest using:
www.phonepeople.com
If you go with their “Standard Package” you will get everything you need
and more for $30 a month. This service comes in handy when advertising
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15. a rent to own property because instead of directing your callers to your
phone where you have to answer, you can direct them to a 24 / 7 recorded
message about your property. This message will tell your callers all about
the property, therefore relieving you of this duty. Once they listen to all of
the details about your property you can then direct them to call you if they
are interested in learning more.
Your recording should include the following information and in this order:
-Address
-City, State
-Bedrooms
-Baths
-Description of property including what rooms, nice features about
property, whether it was rehabbed or not and if so what was done
etc etc. This is your chance to really sell the house.
-Monthly Rent
-Security Deposit / Option Deposit
-Date Available
-If you are interested in filling out an application for this home
please call my assistant at 555-5555. You can also visit my website
at www.yoursite.com Thanks for calling and have a great day.
Website
If you are in business as a real estate investor GET A WEBSITE, period! I
don’t care if you are only doing one house per year, GET A WEBSITE.
A website will act as a 24 / 7 sales person for you and you can not run
even the smallest real estate business without a website.
To get a website that does everything and more log onto:
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16. www.realestatesites.com
go to Pricing and purchase the following package:
Agent Website Pro IDX $299 Setup & $59/Month*
Service Includes:
Complete Agent Website Pro Package
IDX Property Search
Property organizer for your clients
Automatic email updates for your clients
Advanced lead capture functionality
Lead management system
Learn More
Check Availability
No Contracts.
Virtual Assistant
Virtual Assistants or VA’s are becoming more and more popular.
Essentially a Virtual Assistant is someone who handles tasks for you on an
“as needed” basis. This allows you to only spend money when you need
something done as opposed to paying a part time or full time employee.
Every week whether you have work for them or not. We recommend:
www.teamdoubleclick.com
Live Call Center
In addition or in sometimes in place of a Virtual Assistant can be a Live
Call Center. We use:
PAT Live
www.patlive.com
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17. 1-800-775-7790
PAT Live specializes in providing phone services to real estate investors.
The cost is about $1.25 per minute.
Property Management Software
Even if your long term strategy is to sub out all of your property
management duties it is still wise to give it a shot yourself first. How do
you expect to tell someone else to do it or know if they are doing a good
job if you don’t know what to look for. We suggest you purchase Rent
Right Property Management Software at
www.rent-right.com
The cost to manage up to 25 units is $249 and they offer a free 30 day
trial. I use this software to manage all of my rental units and rent to own
properties.
On Line Auto Posters
In a few minutes we are going to discuss many forms of marketing,
including online posting sites. This task can be extremely time consuming
so we suggest purchasing and using Auto Posters. The Auto Poster we
suggest and use is CL AutoPoster which can be bought at:
www.adsoncraigs.com
They also sell all kind of other cool stuff such as My Space and Yahoo
Account Creator, BackPage.com Auto Posters, G-Mail creators and more.
8] Get to Know Your Area’s Eviction Process
On the following pages is the process for all residential evictions that take
place in Pennsylvania.
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18. Guidelines for Pennsylvania Residential Eviction
on-Payment of Rent
Please note: This information and forms are applicable for residential evictions only
TYPICAL LA DLORD A D TE A T COMPLAI TS
The likely reasons a landlord may file a complaint in the Landlord/Tenant Section of
the Pennsylvania Court, Special Civil Part, include:
Failure to pay rent.
Continued disorderly conduct.
Willful destruction or damage to property.
Habitual lateness in paying rent.
Violation of rules and regulations, after written notice to comply, as outlined in a lease
or other document.
Tenant's conviction for a drug offense.
OTICE
Before filing most complaints, a landlord must give a tenant written notice to correct a
lease violation. A landlord may only proceed to file an eviction lawsuit if a tenant fails to
correct the violation within the statutory notice period.
In Pennsylvania a landlord or a tenant that is a corporation must be represented by an
attorney in all matters filed in the court. No landlord or tenant may be represented by
anyone other than a lawyer.
THE PROPER EVICTION PROCEDURE
The Landlord-Tenant Law of 1951 points out the only method for a landlord to evict a
tenant. The Landlord-Tenant Law does not apply to people who are buying a home or
who live in a hotel or rooming house.
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19. 1. The Eviction otice - The landlord must give the tenant written notice of the
reason for the eviction and the date that the landlord wants the tenant to leave.
NOTE: A written lease may provide for giving up the right to receive this eviction
notice. The eviction notice must be personally delivered to the tenant or posted on
the dwelling. An eviction notice, sent by mail is probably not enforceable. A
written lease may state how many days notice must be given by the landlord
before the landlord can evict. It the lease does not state how much notice is
required, the general rule is as follows: If the term has ended, or it the landlord
claims the tenant has breached the lease, the landlord must give the tenant thirty
(30) days notice if the lease is for less than one year (this is usually month-to-
month), and ninety (90) days notice if the lease is one year or more. If the tenant
is behind in the rent and has an oral lease with the landlord, the landlord needs to
give only fifteen (15) days notice between April 1st and September 1st, but thirty
(30) days notice between September 1st and April 1st. It the tenant is not out of
the property by the end of the eviction notice, the landlord must follow the
procedure through the District Justice's office as set forth in paragraphs 2, 3 and 4
below.
2. Complaint - The form pictured below is a Landlord-Tenant Complaint. The
landlord files the complaint with the appropriate District Justice's office, and the
landlord receives a yellow copy of the Complaint. The pink copy of the
Complaint will be served on the tenant by the Constable, who may hand the
tenant the Complaint or tape the Complaint to the door of the property. The tenant
will also get an orange copy of the same Complaint through the mail. The
Complaint says that a hearing will be held at the District Justice's office on a
particular day and time. The tenant should tell the District Justice if the tenant
intends to come to the hearing and present his/her side of the case. The Complaint
always requests possession of the property and may ask for back rent or damages
as well. If the landlord is also suing for back rent or damages, see Suits for
Money. If the tenant has a claim to file against the landlord, this claim, called a
"counterclaim", may be filed before the hearing. Both Complaints will then be
heard at the same time.
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20. 3. The Hearing - At the hearing, both the landlord and the tenant will be put under
oath to tell the truth. Either may have a lawyer to present his/her case. The
landlord will then take the stand and present his/her case. When the landlord is
finished testifying, the tenant can cross-examine the landlord -- in other words,
ask the landlord any questions the tenant may wish to ask about the case. When
the landlord is finished presenting his/her case, the tenant takes the stand and
presents the tenant's side of the case. Again the landlord has the right to question
the tenant after the tenant has presented his/her case. Both the landlord and tenant
have the right to bring any papers, pictures, or other evidence which is important
to prove their case. Either one can also bring any witnesses they may have.
The District Justice will decide whether or not the landlord is entitled to a
judgment for possession of the property. If the landlord wins his/her case, he/she
will get a judgment for possession and the tenant must move out. If the tenant
wins, the tenant may stay. The District Justice may also decide whether or not
either the landlord or the tenant owes the other any money. (See Suits for Money).
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21. If either the landlord or the tenant does not agree with the decision the District
Justice reaches at the hearing, an appeal can be taken to the County Court House
within thirty (30) days after the District Justice makes his decision. Either the
tenant or the landlord will need a lawyer's help in filing this appeal. If either the
landlord or the tenant does not attend the hearing he/she will receive notice from
the District Justice which says what the District Justice's decision was and on
what date the decision was entered.
4. Order for Possession - If the landlord wins a judgment for possession, which
means the tenant must move, the landlord can then enforce the judgment. This
means that no sooner than fifteen (15) days after the District Justice makes his
decision and enters the judgment for possession, the landlord can have the
constable give the tenant an "Order for Possession". This Order for Possession is a
notice telling the tenant that unless the tenant is out of the property by a date set
on the notice (no sooner than fifteen (15) days after the date the tenant receives
the notice) the Constable or Sheriff can forcibly set the tenant and his/her
belongings out of the house or apartment. This is a total of at least thirty (30) days
after the judgment for possession was entered.
If the Constable has to forcibly evict the tenant, and the tenant has not arranged
for a place for his/her furniture and belongings, the Sheriff or Constable can store
the furniture and belongings at a storage company at the tenant's expense. A
tenant must pay any storage bill before getting his/her furniture and belongings
back. If the tenant does not pay the storage bill or make arrangements regarding
the furniture and belongings, they may be sold by the storage company to pay the
storage bill.
Landlord-Tenant Complaint (AOPC 310A) Filing Instructions
You need to have a copy of the Landlord Tenant Complaint for the Plaintiff, two copies
for each defendant and a copy with an original signature for the District Justice office.
You may photocopy the completed complaint to produce the needed number of copies,
including a copy for the defendant's attorney. You will be charged filing costs and service
costs when the complaint is filed at the District Court. No changes may be made to this
form either in content or format.
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22. Get to Know Your District Justice
It is wise to get information on who handles evictions in the
area in which your property is located.
9] Having and Using the Proper Paperwork
Below is a list of the most important documents you will need to
successfully implement the rent to own strategy:
-Rent to Own Applications
-Residential Leases
-Rent to Own Addendums to use with the Residential Lease
-3 Day Pay or Quit Notices
-Late Fee Notices
-Move In Checklist
-Pet Addendum
-Renters Insurance Addendum
-Script to Use When Calling Former Landlords [with trick
questions]
-Employment Verification Forms
-End of Lease Notice
-Mortgage Applications – 1003
10] Property Selection
The right property will attract the right tenant / buyer and that is exactly what we
are after. When searching for properties that will work best for the rent to own
strategy you want to take into consideration a few factors. They are:
Location –
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23. The nicer the area the better. Good areas will attract good tenant /
buyers.
Price Point –
Understanding who your tenant / buyer will be goes along way in
determining what the right price point will be. You want to make
sure that once your property is ready to be rented that you can
price it at an affordable price for the area.
Here in Central Pennsylvania we feel good price points to be at on
average are:
Sale Price - $70,000 - $150,000
Monthly Payment - $650 – 1,200
Non Refundable Option Deposits - $1,000 - $3,500
Overall Appeal – Just because most tenant / buyers have poor credit
doesn’t mean they will accept or want poor houses. Overall appeal is
crucial to your success as an investor. You want to make sure the property
has a good flow to it, has adequate space and enough bedrooms for your
target buyer.
11] The Rehab Process
The renovation process on a rent to own is just like any other renovation. The
standards are slightly different than that of a rental or retail rehab so I have
included all three for your review.
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24. Rent to Own Quality Standards
-Interior Painting = 3-tone. Walls = Beige (flat). Ceilings = Ceiling White
(flat). Trim = Bright White (semi-gloss).
-Paint quality = 15 year (includes primer)
-Walls/Ceilings patched to repair visible cracks (openings).
-First Floor Walls/Ceilings patched to repair holes/dents.
-Drop ceilings OK. Tiled ceilings OK. All ceilings painted.
-Carpet is to be Berber Grade, Dark in Color with 4oz padding.
-Kitchen and Bath = 15-year sheet vinyl (light in color scheme).
-Cabinets = Stock Lowes/Home Depot brand quality or similar.
-Dishwasher and Microwave/Vent in Kitchen (Contractor grade).
-Appliance package = New (Contractor grade).
-Windows and Doors Operable (Painted).
-Mini-blinds on all windows (basic contractor grade).
-Mechanical Systems to code and operable.
-Light fixtures contractor grade.
-All switch/receptacle plate covers new.
-Ceiling Fans in Living Room and ALL Bedrooms.
-Plumbing Fixtures and Valves = Mid-level contractor Grade (low-end
mobile or modular grade is unacceptable)
-Tubs=New or resurfaced with new surround (caulked/sealed).
-Bath Accessories New (TP holder, towel bar, etc.).
-Bath vent installed (ductless OK).
-New medicine cabinet/mirror in Bathroom.
-Shower curtain rods in place and operable.
-All exterior paint to be 15-year quality minimum.
-All wood surfaces to be scraped, caulked/sealed, and painted.
-All city letter items to be addressed to minimum standards.
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25. Rental Quality Standards
-Interior Painting = 2-tone. Walls and ceilings = Basic White (flat). Trim
= Bright White (semi-gloss).
-Paint quality = 15 year (includes primer)
-Walls/Ceilings patched to repair visible cracks (openings).
-Drop ceilings OK. Tiled ceilings OK. All ceilings painted.
-Carpet is to be Contractor/Commercial grade, dark in color with 4oz
padding.
-Kitchen and Bath = 10-year sheet vinyl (light in color scheme).
-Cabinets = New entry level or painted.
-Windows and Doors Operable (Painted).
-Mini-blinds on all windows (basic contractor grade).
-Mechanical Systems to code and operable.
-Light fixtures = contractor grade.
-Ceiling Fans in Living Room and Master Bedroom.
-Plumbing Fixtures and Valves = Mid-level contractor Grade (low-end
mobile or modular grade is unacceptable.
-Tubs=New or resurfaced with new surround (caulked/sealed).
-Shower curtain rods in place and operable.
-Appliance package=Used/Refurbished with warranty.
-All exterior paint to be 15-year quality minimum.
-All city letter items to be addressed to minimum standards.
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26. Retail Quality Standards
-Interior Painting = 3-tone. Walls = Beige (flat). Ceilings = Ceiling White
(flat). Trim = Bright White (semi-gloss).
-Paint quality = 20 year (includes primer)
-Walls/Ceilings patched to repair holes/dents (all floors).
-Drop ceilings OK. Tiled ceilings OK. All ceilings painted.
-Carpet is to be Contractor neutral plush grade, light in color with 6oz
padding.
-Kitchen and Bath = Ceramic tile (per customer allowance).
-Cabinets = Stock Lowes/Home Depot brand quality or similar.
-Dishwasher and Microwave/Vent in Kitchen (per customer allowance).
-Appliance package = New (per customer allowance).
-New Windows at street side.
-Secondary Windows and doors made operable.
-Mini-blinds on all windows (basic contractor grade).
-Mechanical Systems to code and in good-excellent working order.
-Homes with ARV of $150K or greater to have Central HVAC.
-Light fixtures = New (per customer allowance).
-All switch/receptacle plate covers new.
-All switches and receptacles new (or shot-spray painted white).
-Ceiling Fans in Living Room and ALL Bedrooms.
-Plumbing Fixtures and Valves = Mid-level Builder Grade (per customer
allowance).
-Tubs = New soaking-tub or jet-tub.
-Bath Accessories New (TP holder, towel bar, etc.).
-Bath vent installed (ductless OK).
-New medicine cabinet/mirror in Bathroom.
-Shower curtain rods in place and operable.
-All exterior paint to be 20-year quality minimum.
-All wood surfaces to be scraped, caulked/sealed, and painted.
-All city letter items to be addressed to minimum standards.
26

27. The biggest differences from rent to own to retail or from rental to rent to own
are:
Paint type
Carpet type
Flooring type in kitchens and baths
Appliances
Cabinet quality
Bathroom tub / Tub Surround
On the following pages I have included the new PA Deals Rehab Pricing Sheet.
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28. 2009 - 2010 PA Deals Rehab Pricing
Miscellaneous Items
Standard Window Replacement - $300 per window
Interior Door Replacement - $150 per door
Ceiling Fan inc Installation - $150 per fan
Light Fixture inc Installation - $75 per light
Trash Out –
Small Job - $750
Medium Job - $1500
Large Job - $3,000
Drywall inc Install - $40 per 4 x 8 sheet
Flooring
Carpet / Padding inc. Install - $1.60 sq foot
Ceramic Tile inc. Install - $5.00 sq foot
Vinyl inc. Install - $3.00 sq foot
Refinish Hardwood - $4.00 sq foot
New Hardwood inc Install - $6.50 sq foot
Kitchen and Bath
Complete Kitchen Remodel / Standard Size –
Rental - $3,500
Rent to Own - $4,500
Retail - $5,500
Complete Bathroom Remodel / Standard Size –
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29. Rental - $2,500
Rent to Own - $3,500
Retail - $5,000
Painting / Patching –
2 Tone - $1.25 sq foot
3 Tone - $1.75 sq foot
HVAC
Boiler Replacement – $4,000
Forced Air inc Duct Work –
2 story – $4,000
3 story – $5,500
Central Air not inc Duct Work– $3,000
Basement
New plumbing for standard home - $2,500
Upgrade Electric to 100 Amp - $3,500
Replace Hot Water Heater - $500
New Main Water Line - $4,000
Exterior Items
Replace Roof [varies] - $3,000 - $6,000
New Gutters / Downspouts - $1,000
Landscaping [varies] - $500 - $2,500
Appliances inc Install –
Refrigerator –
29

30. Rental - $350
Rent to Own - $450
Retail - $750
Range –
Rental - $300
Rent to Own - $400
Retail - $550
Microwave – $350
Dishwasher - $450
Contractor Profit - 10% - 15% of total rehab budget
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31. 12] Preparing Your Rent to Own Property for Showing / Occupancy
Before an ad goes in you want to make sure that your property is prepped for what
I call “Maximum Showing Potential”. In order to accomplish maximum showing
potential you must follow this process:
A] Is the rehab complete?
Do toilets operate properly?
Do all faucets work properly.
Do all drains work properly?
Do all windows open and shut?
Are mini-blinds on all windows?
Do all heating / cooling systems work properly?
Are appliances installed and working?
Do all lights / ceiling fans work?
Do all receptacles / switches work?
Are all repairs done and does the home look great?
B] Has the house been professionally cleaned and smell great? Yes,
definitely use air fresheners to liven up your home.
C] Has the house been staged? Staging to include most of the following
items:
Kitchen:
Displayed plate set - $25
Soap dispenser - $10
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32. Paper towel holder with paper towels - $10
Flower in window - $15
Bottle of cheap champagne with champagne glasses - $20
Dish towels - $5
Small kitchen table with two chairs [if it is an eat-in
kitchen] - $?????
Bathroom:
Shower curtain - $15
Matching cup - $5
Matching soap dish - $5
Matching towels - $15
Matching floor rug - $15
Vase with flowers - $20
Toilet paper on the holder - $.50
General:
Paintings - $50
Flowers - $30
Silk trees - $50
Clean area rugs - $75
Mirrors [These are important. They give the illusion that
the house is bigger than it actually is] - $150 for at least 3
of them
Furnishings that compliment the house [not stuff you
stuffed in your basement 14 years ago however] - $????
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33. Exterior:
Front and rear door mats - $25
Patio set if there is a backyard or courtyard - $75
Tiki lamps [great for a courtyard] - $2.00 - $10 each
Fire pit [once again great for a courtyard] - $65 or less
Hanging plants - $15 each
General landscaping - $????
All of the items mentioned can be purchased from a WalMart, TJ Maxx,
Marshalls or any other cost effective store of your choice.
Setting the Terms and Price
Setting the terms and price for your rent to own properties is simple.
Terms – We are suggesting you set up all of your rent to own homes up on an 18
month option term with a 6 month fee based extension.
Non refundable option deposit - The deposit should be set at between 2% - 5% of
the sale price. Example – If you are offering a property for $100,000 on a rent to
own agreement you would want to collect between $2,000 - $5,000 upfront as a
non refundable option deposit. It is also important to mention that the worse your
tenant/buyers credit and stability – the higher the deposit should be.
Monthly rent – In states where the equitable interest situation is not an issue I can
justify increasing the monthly rent and giving a rent credit to your tenant/buyer. In
Pennsylvania it is an issue and therefore I suggest setting your monthly rent at
close to market rates as possible and not offering any rent credit at all. The easiest
way I have found to price out the monthly rent of rent to own properties is by
taking your sale price, subtracting the option deposit them amortizing the balance
over 30 years at between 7% - 10% depending on current interest rates. To figure
out what a monthly payment will be log onto:
www.mortgageloan.com/calculator/
33

34. Sale price – Your sale price should be set at top market value if not slightly
higher, due to expected appreciation that may occur during your tenant/buyers
option period. Price is usually never an issue with tenant/buyers. For the most part
the terms are what they are looking for and most concerned about and offering
your property on a rent town agreement is enough of an enticement.
13] Advertising / Marketing
Finding tenant/buyers for your property can be accomplished by utilizing well
thought out marketing. It is not acceptable to simply place an ad and wait for the
calls to pour in, that’s not going to happen. In today’s slowing market you must
go above and beyond. Before you spend one dime on advertising you must
address three specific areas. They are:
Market – Who is your target market?
You must get really specific with this. The more specific the better.
Some questions to ask yourself are:
How old is my target market?
How much money do they make?
How many kids do they have?
Message – What will you say?
Your message will depend on your target market and make sure
they match.
Media – How will you deliver your message to them?
Next you will find the methods we suggest using when looking for prospective
tenant / buyers.
A] Yard Signs - $25
Placing a sign on your property that reads-
Rent to Own
34

35. Easy to Qualify
555-5555
Ext 1011
B] Classified Ads - $25
Classified Ads are a great way to let prospective tenant / buyers
know you have a house available. . Ads should be placed under
Homes For Rent, not Homes for Sale. It is important to realize that
you will more than likely not be the only one running a rent to own
ad. In order to make your ad stand out, use a killer headline. Some
killer headline examples are:
Newly Rehabbed Rent Own Home!
Nicest Home in the Area, Rent to Own!
Rent to Own, Super Easy to Qualify!
BAD Credit OK!
Get creative with this and try to come up with headlines that make
your ad stand out from all the others. The following is an example
of an ad we ran for one of our clients. We had a great response and
think we found a perfect tenant / buyer for him.
Midtown Magnificence!
RE T TO OW , Bad Credit OK!
3 bed, 1.5 bath, vaulted ceiling
ceramic tile, jacuzzi, too much
to list. Extremely rare opportunity.
Call now. 717-901-7763 Ext.1
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36. C] Online Posting Sites – FREE
Nowadays there are literally thousands of free online posting sites.
Below are the most effective and the ones we suggest you post all
of your properties to:
www.craigslist.com
www.backpage.com
www.postlets.com
www.kijiji.com
When using online posting sites there are some general rules that
you need to follow.
- Headlines are crucial. Write headlines that make your
ad’s stand out. Make BOLD statements such as:
BEST Rent to Own in Harrisburg!
Nicest Rent to Own Property EVER
Offered!
Attention Rent to Own Buyers. Do NOT
Miss Out on This!
- Pictures are MANDATORY. Don’t think for half a
second about advertising a property online without
pictures, it just doesn’t work.
- Never use ALL CAPS.
- Include the following information on every property
you post:
-Type of Home
36

37. -Beds / Baths
-Square Feet
-Type of Heat
-Location
-Information on the Neighborhood
-Special features
-Contact Info
-Exterior and Interior Pictures
-Monthly Rent
-Option Deposit
-Sale Price
- Save your ads and use the Copy and Paste function.
D] Your own website. - $50 per month
E] You Tube – FREE
F] Flyers. See next page for an example. – FREE
37

38. Was that your landlord I saw out last night
spending your rent money?
Stop making your landlord rich and start
investing in YOUR FUTURE as a home owner
with our Rent to Own Program. 555-5555
RE T TO OW HOMES
COMPLETELY RE OVATED ARE
AVAILABLE OW!
Easy to Qualify
Low Down Payments
555-5555
CALL OW!
38

39. 14] Application to Occupancy –
The more applications you get the better your chances are of finding a good
tenant / buyer. I propose you use the following system for getting applications.
A] Direct all prospects to your Recorded Message.
B] Once a prospect has called you confirm they are interested in the
property.
C] If they say they are interested then invite them to an upcoming open
house you will hold. It is suggested you hold 2 open houses per week until
the property is leased. Hold one on a weekday from 6pm-7:30pm and one
on a weekend, Sunday from 1pm – 4pm. This gives your prospects
options. You will want to have applications on hand as well as clipboards.
When holding an Open House make to sure to do the following before
your prospects arrive:
Turn on all lights
Turn on all ceiling fans – lowest setting
Use air fresheners to make the home smell fresh. We recommend
Glade Plug Ins
Open all mini-blinds and let the sun it.
In winter make sure the home is warm.
In the summer make sure the home is cool.
When holding an Open House greet your guests at the door and tell them
to give themselves a tour. Never walk the property with them. Once they
are through walking the property give them an application and tell them
that you have other people interested so if they like the house they must
fill out an application as soon as possible. Review their application before
they leave and make sure it is completely filled out. Advise them that you
will review their application and get back to them within 3 days if they are
approved. Yes, you read that right you will ONLY call the people back
39

40. who you approved. To call everyone back who filled out an application,
while polite, is just too time consuming.
It is important however that you contact anyone who almost qualified and
tell them that if they do “this or that” that you can approve them either for
this house or another one you’ll have in the near future.
Reviewing Applications / Approving Prospective Tenant / Buyers -
Follow this process when approving / rejecting applicants.
1] Review application. If application is approved move on.
2] Pull credit report. If credit report is approved move on.
3] Contact the applicants previous landlord. Use the script provided to you
in this course. In the real estate world we call this verification a VOR,
short for verification of rental.
4] Contact the applicants employer. Use the employment verification form
included in this course. In the real estate world we call this a VOE, short
for verification of employment.
5] Make a decision based on all of your available data.
6] If approved:
Contact applicant and notify them that they are approved and that
they have 24 hours to bring in the deposit.
If denied, make notes as to why you denied them in case they call and ask.
Keep their file for 30 days and then shred it! Identity theft is becoming big
business so make sure you keep their file safe and when the 30 days is up,
shred it, no exceptions.
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41. Move In Day –
On the move in date you must perform the following tasks.
Collect the balance of the option deposit if it’s not already paid. And what
are we not going to accept? Did you get it? Cash! You are not going to
accept cash.
Collect any and all rent due. In most case you will prorate it unless they
are moving in on the 1st of the month. To pro rate you will take the amount
of monthly rent divided by the number of days in that month. This
calculation will give you the price per day. Once you have the price per
day figured out simply multiply it by the number of days left in the month
and that’s how much they owe.
Example
Monthly rent = $700
31 Days in the month
$700 / 31 = $22.59 per day
They are moving in on the 10th of the month.
They owe for 21 days.
21 x’s $22.59 = $496.98 pro rated rent
Confirm with all applicable utility providers that utilizes have been switched into
the tenant / buyers name
Have pictures taken of the house in its current condition and get each one signed
by your tenant / buyer along with a supporting document that states that this is the
condition the property was in when they moved in.
Have lease signed by all parties and make copies. Keep the original!
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42. Have the Addendum signed by all parties and make copies. Keep the original.
Make a set of keys for your tenant / buyer.
15] Management –
Once your tenant/buyer is in place it is now time to manage your property and your
tenant/buyer. We suggest having a contact with a maintenance man who can help you out
with emergency situations. You also want to create a system for managing all of your rent
to own properties. Below is a system that has worked well for us in the past.
1] Rent is due on the 1st of the month
2] Three day grace period is given so on the 4th the rent is late.
3] The evening of the 4th you will draft a customized “Late Rent Letter”.
4] The morning of the 5th you will drop the letter off at your tenant/buyers
residence and place the letter either on the front door or in the mailbox in an
envelope concealing the contents of the letter. As an alternative to placing the
letter at the tenant / buyers residence you can always put a copy in the mail.
5] Now you wait until the 8th. If you have not heard from your tenant/buyer you
need to draft a “3 Day Pay or Quit Notice” and place it on the front door. Make
sure you retain a copy for your records and maybe even take a picture of it on the
front door for later use. Also it helps to have a witness sign this notice proving
you delivered it.
6] If you have not worked out an arrangement with your tenant/buyer by the 11th
of the month you will want to immediately file for eviction with the proper
District Justice. Take a copy of the lease, 3 Day Pay or Quit Notice and your
checkbook with you. Note – Make sure you know which District Justice handles
evictions for the area your rent to own property is located.
42

43. 7] Once you have filed for eviction the District Justice office will notify you and
your tenant/buyer to when the court date is scheduled. From here you simply wait
for court unless your tenant/buyer pays prior to then. Your tenant/buyer must pay
the monthly rent, late fee and court costs in order to cure their default.
It is also helpful to use some form of property management software to keep track of
everything. We suggest:
Rent Right Property Management Software
It is very user friendly and easy to learn. You can find out more about their products at:
www.rent-right.com
or call 800-RENT-065
Your success or lack of will absolutely depend on use of your system. Without a system
to manage your rent to own properties you can really make a mess of them. Create a
system, implement it and follow it everyday with every property. Your life will be so
much easier, we promise.
Closing the Deal – The whole purpose of setting your properties up on a rent to own
agreement is to eventually sell your property for top dollar. In order to do this you must
have contacts with creative mortgage lenders. However, having contacts is just not good
enough. You need to basically hold your tenants hand throughout the entire process.
Below are the steps.
1] Set up dates to personally contact your tenant / buyer to discuss how they are
making out. The times to contact your tenant / buyer are:
6 months from move in
If they have not done so already this is the time where you’ll want
to suggest they begin to work with a credit repair company such as
Ovation Law
11 months from move in
43

44. Time is running out call.
15 months from move in
Urgent they act.
18 months from move in
Time is up. Are they going to pay the $500 to extend for 6 months?
2] Tenant/buyer notifies you they wish to exercise their option to buy.
3] Send your tenant / buyer to your mortgage broker to get pre-approved.
4] Once your tenant / buyer is pre-approved draft a Sales Contract between the
two of you using the information outlined on the Addendum.
Well, that brings us to the end of this manual. I hope you’ve enjoyed reading it as much
as I’ve enjoyed writing it. If you are not yet a client of PA Deals I encourage you to
consider becoming one. Log onto www.padeals.com to begin the journey.
Take care and I sincerely wish you the best of luck in all you do.
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45. Written by -
Zack Wiest
Founder / CEO PA Deals, LLC
PA Deals, LLC
Your #1 Source for Wholesale Priced Investment Properties.
Phone - 717-901-7763
E-mail - sales@padeals.com
Website - www.padeals.com
Copyright 2007, 2008, 2009
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