I read a LOT from all of you, plus see what is happening in my own environment, as well as what is in the news & documentaries. I just have had a thought & please don't shoot me for asking....
What does everyone think about trying to merge the part that is the dreaded lease/rental market with your listing opportunities? I guess I have seen a LOT of properties stay on the market, & people are shy for many reasons about making those commitments. I just have felt that may be a way to bring about a win-win for everyone may be to bring back (or dusting off) a very, very old practice of Lease/Purchase. I know it is not the "immediate" commission that everyone is looking for, & I know that it delays the seller having an actual closing to move on with their life. However, if they are receiving income that can help bridge that time that properties are sitting vacant anyway, & may be it would be a way to realize less of a loss.....
would it not make a way to create yet another level....to your volume of business??
I have had this thought many times in my speaking to friends & my other sphere...we discuss what is going on in the economy & even going on with some of them (my friends) & their homes. Many of these people want to make transitions & they can't.
They can't make a purchase because may be they have had to short sell their home, or relocate & aren't sure of the areas yet.
Not all people out there are not able, or are shy about purchasing, nor are they 'all' dead beats. I don't think they are "all" trying to string anyone along....there may be several for sure, but I "know" for the most part there is a HUGE volume of people that are trying to just re-group after this cycle we have experienced..... and are 'still' experiencing. They are trying to see where they will fall....where they will be able to "fit" now...here and now in the "present" world.
I know that years ago... this practice existed because it gave creativity during a troubled time that many haven't referenced too much. (I am dating myself again...) I will say it was at least 30 years ago, as it was my first house at 21 years old. We didn't have much, but we had our income taxes & a little deposit we were able to put down. Well back then the builders were REALLY hurting. I mean it was incredible the interest rates!!! When I tell you these interest rates, some of you may remember...but they were staggering!! The builders rate was 21% on his construction loan & my home loan wound up at 18%...(as a 1st time homebuyer)....now the prices of homes were MUCH less, but those were the rates.
We were not sure how we were going to do it, but we had been married about 4 years & we felt that before we moved forward with our family growth that this was the wisest planning. We wanted to have a home for our child before we decided to conceive. Well we took upon the task of looking & there was a builder who was willing to do a lease purchase on a brand new home for 8 months. He applied all the payments to the down payment & we closed in 8 months. The basics were (& these principals may not be allowed any longer)...but the bank would allow him to escrow the funds for our closing & down payment. He in essence raised the purchase price to cover the 8 months, but only for the amount of our down payment....& the house had to appraise, which it did without any problem for the increased amount. Shortly thereafter our daughter was born.
The guts of the story is to bring up the question, is there a way to turn these properties that are sitting vacant into lease/purchases for the owners that are in transition for some of the reasons above:
- First Time Home Owners
- Relocation or Job Transfer
- Short Sale/Foreclosure on their prior home...(may be one of the spouses lost their jobs, had a medical hardship, or reduction of income) but were not always in trouble. May be they purchased their prior home between 2004-2009?
I found this program link on line & I don't know much about it, but it looks as if the may be trying to "dust off" a program that I personally experienced over 30 years ago?
Okay, so don't shoot me for bringing this up....but there have been a few times I have calculated the math on vacancies & thinking to myself.....well this may have leased for $_______ say it is smaller $900 - $1100...& it sits for 6 months without income....well the owner has already reduced the price whether he realizes it or not??
I saw one listing that had refused to do a lease/purchase & had previously rented for $850. The unit is still empty after 6 months? The agent lowered the price $250 twice.... I am NOT criticizing the agent, as the instructions I am sure are coming from the owner, but this was the math in my head. My head may be wrong...so again, don't shoot me.
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$900 x 6 = $5400, plus the owner even if mortgage free has paid association dues on this property @ approximately $400 per month. $1100 X 6 = $6600, etc.
I am just not sure if they have looked at the vacancy for the properties in the area & the time on the market & thought of this consideration?
I just thought that it may be a way to:
- expand your business market...even if deals close a little later, may be they are more likely to close with you?
- gain a loyalty in helping people make the transitions that are going on today with "both" sellers & buyers?
- get more return if you are showing rentals... if you can find properties that have committed that they would consider a lease/purchase offer?
I think I promised the link I found. http://www.self-help.org/neighborhood-stabilization-program/Self-Help%20Lease%20Purchase%20Programforwebsite.pdf
I know that a lot of counties have stabilization programs going on right now. In Miami-Dade County there is one called the Home Buyer's Club. http://www.miamidade.gov/hfa/home_buyers_club.asp The Home Buyers Club walks buyers through the entire step of the home purchase of a home within Miami-Dade County....but is not a lease/purchase plan. I know there are tons of programs, but this is one you don't see much of & I have just wondered, if it were yet another option that may just need "dusting off"?? Or if the masses just felt it would not work??
I know that interest rates are a lot less than when we were looking at trying to purchase, but the circumstances are a lot different still. You can't buy that type of house for $52,000 anymore, it is more like $200,000 even in this market & people can't afford those interest rates & keep the values from going down even further. I am not sure how many have looked at median & starting salaries for your counties?? Ours is very interesting to see....even "if" you double it for a two income household.
I know that it was a common practice with equipment purchased when we had our business. We did lease purchases with dollar buy outs at the end. I am not sure what the feedback will be with property & this practice? It just came to mind as a possible solution for the frustration I have seen with the market & with more clients wishing to lease & their confusion, or lack of commitment. It also seemed viable for the seller who is hoping for an offer...it may be a more gentile way to have someone take over in this bit wobbly market.
Okay, I hope you don't shoot me for the question....but I wondered how many may have considered this with their listings or when they are considering the ones that are out their leasing?? Have a GREAT Week!!
I would also think it would incorporate some loyalty as well as both parties would feel happy to be able that you "rescued" them during difficult times when they were the most vulnerable??
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19 Comments on Just a thought & please don't shoot me for asking....
Hi, Pam
"Lease Purchase" and "Lease with Option to Buy" are making a comeback in this Economy.
The Parties should use a Real Estate Attorney to draw up the Paperwork. There will usually be 2 separate Documents involved - the Contract for Sale and Purchase, and the Lease/Rental Agreement. Depending upon the State, and the complexity of the Transaction, Real Estate Agents who create Lease Purchase or Lease with Option to Buy agreements may be venturing into "Unauthorized Practice of Law".
My second Caveat is for Sellers - are you used to being a Landlord, with its inherent responsibilities? If not, you should consider using a Property Management company. You should also get Legal Advice from a qualified Attorney.
My third Caveat is for the Buyer - what if you are late on a Rent Payment? Does that blow the entire deal? AND, what if the Price/Value of the house plummets, and you cannot finance it when the Option comes due? Buyer/Tenant should get their own Legal Advice before signing a Contract or Agreement.
Pam - Ok, I'm dating myself here but when hubby #1 and I purchased our first home approx 25yrs ago, we were also paying an astronomical rate of 16% for our mortgage. We were scared out of our minds on how we were going to make the mortgage of approx $1,200 a month, which was almost twice as much as our rent ($700 at the time) on our previous apt. But we did and all was well.
I don't know much about the lease-to-buy option but from what I do know, I see some issues with it, the first being a current sales price and that of future decline of value. While the Los Angeles & Ventura county markets are starting to show some signs of stabilization in certain pocket areas, we are still in a declining market and until that changes, I don't see the lease-to-buy option becoming all that popular because of it's problems in it's overall design. JMHO
I don't know much about the lease / purchase option. And I have been approached by clients to find out information. My question is how would someone be qualified (as in credit worthy)? From what I see so far is the owner taking the risk (my research has been brief however). And my real question would be how do we prevent the bubble from breaking should we get a bubble out of this business? As in renters/buyers not defaulting in great numbers. I would like to see the job market pick up aggressively to have confidence in this type market. Thank you for your post.
First sorry it took a few to get back to you...I had posted then had to go into another project....& in fact I forgot to subscribe, so I didn't get your posts til now. I apologize. I know it may not be a favorite topic, but thought may be one post?? Then I was happy you all were here :)) Thanks!! I will do them one by one as they are longer..
Dear Fred - Yes, I know there are a LOT of complexities in this market....the appraisal down the road being a BIG one I would imagine... However, if they did an appraisal upon the rental & the hopefully it wouldn't change before they closed too severely...then? Well it has been a thought & that is "terrific" advice for those that may be here as well. Thanks so much for the advice as it has been a consideration several times.
Dear Donne - Wow, you remember also??!! Those were some amazing times in Real Estate as well. The builders were really have a terrible time. Isn't it amazing they were paying 21% for a construction loan!!
We didn't know how we were going to do it either, but "where there is a will, there is a way"!! It wasn't that much more than rent really & it did have the tax deduction.
Yes, I think the decline & the appraisal is definitely a concern as mentioned above for sure & here as well...(which is buyers are having a hard time committing & running everyone's gas tanks down)....but it seems the decline further the longer it stays vacant?? Plus if it is a bank property, then sometimes it is not being kept up as it should for the neighborhood needs. A double edge sword so to speak.
Dear Juan - Yes, valid points indeed. Yes, a lot of the responsibility is on the home owner, but if they have to keep it vacant & take a loss with payments because it is vacant or they don't have a buyer for months & put their lives on hold or have circumstances...?? It was just a thought for may be a win-win?
Job loss is a HUGE factor also, but the potential buyers are having to put down deposits, & could be steeper, if that was part of the negotiations. If there is credit concern or search & the only negative history was say with a short sale that would clear up in two years, or it was because of a financial re-grouping because of reduced income, or a valid explanation. I am not of course speaking of a long history of bad credit...then may be that could be a way or "another way" to help the present situation?? A way to get the surplus down a bit? The surplus is also one of the several factors driving the decline,. Most definitely job loss, reduced income(s), illnesses (life events with the stresses)... Many people never had bad credit before the housing situation. It is not meant to create another bubble though. This bubble even if it is a direct sale will be prolonged with the economic changes...but people are living somewhere... So, if they are not owning then they are leasing hopefully. In positivity, I won't even think the alternative.
It is a thought...may be a short term agreement 8 months to a year? Just a thought. We did ours for 8 months & saved $4,000 towards the down payment with the Builder's escrow.
Enough deposit to be serious?? Not too long to drag the seller down. There are no guarantees regardless. In trying to stay positive, I just thought it may be a way to help with the scary part to ease buyers in to the home they wish & enlist the seller in taken more of a loss than he has to? Even if someone buys today & then in two years it declines even more dramatically (which is hopefully not the case, they may wish to do a short sale themselves - or they have a job loss, or emergency...still no guarantees....even if it is just a straight purchase??)
THANK YOU All so much!!
I have had sellers ask me what they should do, sell or rent. We go over their personal situation and see what the best option for them is. Sometimes it makes sense to draw up paperwork to lease. Those leasing may be ones who wish they could be buying but can't just yet. They take good care of the home because they see it as their own and the seller is not out the cash every month for an empty home.
Hi Pam, nobody is going "to shoot" you for some excellent thoughts brought down on virtual paper! I think you are making some very good points and I have seen multiple listings advertised as "rent to own" .. not as much this year it seems as in the past though. The potential problems are, as mentioned above, what happens if the house loses in value, the owner is then upside-down ... what happens to the portion of rent that was set aside, there are definitely a lot of kinks to work out in such a scenario and should def. not be done without legal assistance.
On another note, whenever I have received an inquiry about a rent-to-own possibility it was from people who had terrible credit and could not qualify to buy. It would make me nervous as the owner ... These people had a lot of work to do in order to be in a position to purchase and no real plan to accomplish it and where possibly lacking the discipline as well. I can help them develop a plan but - as much as I want to - couldn't possibly hold their hand for a couple of years or so.
Most attorneys in the Dallas area do not recommend lease purchase arrangements, based on prior experiences.
Dear Dinah - Yes, that is how I would think it would be.....they take care of it as if it were their own.... Thank you for visiting!
Dear Andrea - I know it could be a lot kinks for sure.... :-/ but just a thought, as what "used" to be a lease purchase client may be one for a different reason(s)? I could be wrong about that as well.... I only felt that way because so many don't wish to deal with clients that wish to "lease" & thought well if they were a lease to purchase (not seasonal, etc.) & it raised the benefits...then may be that would be a win/win.
Dear Sharon - I can see that, especially for Dallas Fort Worth. I have had a number of friends transfer there & I am not 100% certain, but I don't believe there was as large a bubble...so there probably is not as much a need as there is in some of the higher vacancy rate areas.... Thanks for visiting also.
Dear Andrea - p.s. I know you would want to hold their hand, as that is the caring person you are!!
Thanks so much!
I look at it this way... I've gotten TONS of calls on one of my listings to do a L/O, and the owner wouldn't have it,, but she hasn't sold yet! Personally, I'd rather wait to get paid, and have that person's recommendations to their friends and family for getting them their home! It'll be money down the road, and makes it a win-win for all involved... jmo!
Pam, Our Sellers need the funds to buy something new. Whether they are down-sizing or moving up, renting isn't an option for them. Maybe outside of Long Island this happens more often.
"Enough deposit to be serious?? Not too long to drag the seller down." I think you make a good point here and I'm glad you brought it up for debate. I also remember the years of 16% interest and you obviously have personal experience with it being successful. As someone mentioned, working with a real estate attorney would be key to avoid the pitfalls. It's true that you don't hear of it much on long island, but I think in certain situations, where funds may not be necessary to purchase something new i.e., seniors moving in with their children, it could work.
Melville Capps
Sorry everyone, I had to travel for the past couple of days.
Dear Christine - Gosh I am sorry to hear that...it is "amazing" & that is what I am speaking of with owners that would rather their home sit vacant than entertain a potential remedy down the line..."plus" have income in the process?? Thanks so much for visiting & taking the time to comment. I hope something gives for you soon!
Dear Larry & Sheila - Yes, I understand & things are pretty high in value obviously up there... Many times when people have to lease they are having to place a substantial security down as well. I think that is where the logic comes in for me. In Florida for example it is not uncommon to have to put first, last & security of equal 1 month down. If leases are $1000-$1500 for an apartment or $1400-$3000 (or higher) for a single family home...& those homes are just sitting. Approximately $3000-$10000 in down payments towards a purchase...when they have to do that to lease what they would like anyway? I did have it work for us many moons ago when interest rates were high & the Real Estate market was in a problematic era then as well....so these times brought back memories & thoughts of possible "solution(s)"? Thanks so much for visiting & taking the time to comment!
Dear Jill - Thanks yes, I guess that is what I was speaking of...each state I am sure has their technicalities...but when this happened for me we were in Atlanta, Georgia. I haven't had a need to since I returned to Florida. I totally agree that a Real Estate Attorney would be necessary & all interests protected. I am not an attorney & I think that the is a recent comment that mentions "land contracts" & I am not sure that it would not be something that would vary depending on the state? Thank you so much for visiting & your time commenting!
Dear Melville - Thank you...I agree, all of these factors that are unknowns, "land contracts" being one that I am not familiar.....& that is where an attorney would absolutely be necessary. The findings may be that it is not possible in areas, especially if the home & the land are separated in the deeds, mortgages, etc. May be if you are able to expand that would be helpful to all those reading?? Thanks so much!! Your comments are great & appreciate you taking the time to visit.
I am dating myself again.
Hey, if you won't go out with yourself, who else will? Don't apologize for it. You're probably great company.
On the topic of lease option purchases, though, I caution buyers to be very careful. For example, I see a lot of those so-called opportunities in Sacramento, and many of them are loaded on the front end by heavily favoring the seller / agents and not the buyer. Lot of ripoffs out there. But done correctly, and with a lawyer's guidance, a lease option sale can be a win-win transaction for both sides.
Dear Elizabeth - Thanks for sharing. I had hope that the post would be such so others could share their experiences & thoughts, both pro & con. It is a shame that there are rip-offs & people taking advantage to scare the market... :(, especially with something that could have hopefully a positive impact for others. I so agree with the legal necessities! Thank you for taking the time to visit & comment and add valued information to the group.