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Bob Southard,e-Pro Powder Springs,Marietta,Cobb, Realtor

Don't try to descibe a JImmy Buffett concert till you've seen it!

There is nothing quite like going to a Jimmy Buffett concert! Don't try to describe it if you've never seen it! If you have never been here are some photos and video from the concert in Atlanta last Summer. Whether you are a fan or not, I think it is something everybody should do at least once!

There is the concert of course but as you will see from the video, a huge part of the experience discovering "Margaritaville" in the parking lot beforehand!

Fins to the left...!
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How about a lease purchase for a seller?

Lease purchase for sellers?

A few years ago I did a post on lease purchase for buyers.

How about a lease purchase?


I will tell you the gist of it is that in most cases I am opposed to a buyer doing a lease purchase. But what about for home owner sellers? Should you consider putting your home up for lease purchase. The case for a seller to do a lease purchase is much better but with one huge caveat.......

Many of them do not end up selling!

Be aware that there is a good likelihood that if you do a lease purchase it does not mean the home will sell. It could sell and if it is properly structured the chances are better that it will end up in a sale, but there is no guarantee.

So even if it might not end up in a sale a few years down the road why do it?
  • If your home is not selling and you are considering renting it as an alternative then consider adding a lease purchase to the equation.
  • If you are an investor and want higher rent and more upfront cash then consider it.
  • You can get longer lease terms. 24-36 months would be common.
  • Less maintenance. Lease purchase occupants are more likely to treat it like they own it.
  • More cash flow from higher rent
  • More money upfront in the form of Earnest money or other consideration. I recommend the earnest money be non refundable.
  • Lower seller paid closing costs. We don't know what kind of loan the buyer will get 3 years from now. Besides, getting a no closing cost loan is the "biggest no brainer in the history of earth" right?'
  • Higher sales price. Your tenant/buyer is not in a position to negotiate.

If it is all structured properly and the correct expectations are set for both the tenant/buyer and the seller/landlord it can be a good experience that ends in a sale!

  • Set the price realistically. Remember that the buyer will get an appraisal and if the price is too high it wont close.
  • Remember that it it is lease until it actually sells. Abide by landlord tenant law, collect late fees, etc.
  • Don't go crazy with the rent credit. Most lenders won't allow too much credit at the time of the mortgage. However, if the lender balks you can credit some toward purchase and then some toward closing costs.
  • Date of closing, possession, inspection, and many other contract points are all negotiable. It's much easier for a seller to set the terms!



What about owner financing?

What About Owner Financing?


Owner Financing

Can I buy (or sell) a home with owner financing? The question comes up all the time. I have been involved with many owner finance transactions as a buyer, seller, and an agent. It can be a creative solution to selling real estate. It can be a solution, but there are many pitfalls for both the buyer and the seller.

Lets take a look at some of the pros and cons.

  • It is true that a buyer can have limited credit or possibly even bad credit and buy with owner financing. However in almost every case the seller will name the price and terms. Good for the seller and bad for a buyer. It negates the opportunity to take advantage of a strong buyers market.
  • Almost all of the recent owner finance deals that I have seen have an underlying mortgage. This creates 2 risks. 1. It violates the due on sale clause of the underlying mortgage. That means that the bank that has that mortgage could foreclose even if the payments are current. It's not likely but it is a possibility. 2.The bigger risk and much more common is that the seller fails to make the payment on the underlying loan while pocketing the buyers monthly payment. That is much more common that you might imagine. The bank forecloses and the buyer loses everything they have invested.
  • There is a very limited supply of owner finance homes. It gives buyers very few choices. Again, it creates a sellers market where there really shouldn't be one. If you are a buyer, would you rather choose from a few overpriced homes or from every home on the market that is within your price range?
  • Sellers can get a very high rate of return. Since owner finance homes sell for a higher price and interest rate they make good money on the equity as well as an interest rate spread on the underlying loan.
  • Many of the sellers are professional investors. Selling with owner financing is what I consider to be the real estate equivelant of a "buy here,pay here" car lot. If the buyer doesn't pay they have no reservation about foreclosing and reselling the house to another buyer. I am a free market capitalist so I have no issue with the concept. However, buyers need to be well aware of the risks involved. Sellers need to be prepared to foreclose in the case of non payment.
  • Many of the buyers that I have spoken with would actually qualify for a mortgage. Sometimes they qualify right away and sometimes a little work is needed on the credit. Prices aren't going anywhere very fast(well except maybe still going down) so there does not need to be a big hurry to buy today. Take the time to get prequalified and make the needed credit repairs. By purchasing with a conventional mortgage you will be in the drivers seat and can take real advantage of todays market.
FHA, government insured, loans only require 3.5% down payment and they are moderately easy to qualify for. If you have adequate, steady, verifiable income and decent credit you'll probably qualify. If you have little or no credit you may still qualify. If you have bad credit but it has been good for the last couple of years you might still qualify depending on the nature of the negative credit. Would you rather buy with a higher down payment, higher interest rate, and at top price? Or would you like a lower down payment, lower interest rate, and lower price?

Buyers and sellers hire me to represent them and their own best interest. So, I have no problem representing them on an owner finance deal. However, before I do that the first question will be why do you want to do it? Let's see if we can take a few easy steps to make this a conventional transaction which may be more in your best interest!

Are Rental Homes an I.D.E.A.L. Investment? PT.6 Summary


Are Rental Homes an I.D.E.A.L. Investment?

There are a lot of investment options available for us today. Stocks, bonds, mutual funds, gold, silver, annuities, etc can all be a part of a solid retirement plan.

for rent


Some people may claim that I am biased, and maybe that is so. However, I firmly believe that rental homes are an I.D.E.A.L. investment and should be included in every retirement plan. Over the next several post I will discuss why this is so and give you some ideas to help you with your real estate investment planning.

Keep in mind that there are no promised returns. I think the examples that I give are realistic but please consult with your own investment and tax advisers.
*****

As we go through this series I will be using an example of a 3 bedroom 2 bath home with a purchase cost of $100,000. There are two reasons for this. 1. It makes the math simple. 2. That is a home that would be very readily and realistically purchased in this area and market. In other areas the math be be different but the same logic will apply.

Search Cobb Homes priced from $95-105,000

Income
Depreciation - tax advantages
Equity build
Appreciation
Leverage

Summary:

So how does owning a rental home compare to other more traditional investments? Take a look

  • The other investment would need to allow a purchase with 20% or less down payment
  • The 80% remaining would need to be allowed to finance over 15-30 years with no risk of a margin call
  • The 80% would need to amortize and pay off over that time period
  • The investment would need to pay a high enough dividend that it would make the payment of the 80% loan
  • The investment would need to have a ton of tax advantages

Quite simply, that investment does not exist in any form other than rental real estate!

Remember ... Don't wait to buy real estate. Buy real estate and then wait!

Happy investing!





If you missed it Here are the previous installments:

Rental Homes- I.D.E.A.L. Investment? pt1

Are Rental Homes an I.D.E.A.L. Investment? PT.2

Are Rental Homes an I.D.E.A.L. Investment? PT.3


Are Rental Homes an I.D.E.A.L. Investment? PT.4

Are Rental Homes an I.D.E.A.L. Investment? PT.5

Are Rental Homes an I.D.E.A.L. Investment? PT.5

Are Rental Homes an I.D.E.A.L. Investment?

There are a lot of investment options available for us today. Stocks, bonds, mutual funds, gold, silver, annuities, etc can all be a part of a solid retirement plan.

for rent


Some people may claim that I am biased, and maybe that is so. However, I firmly believe that rental homes are an I.D.E.A.L. investment and should be included in every retirement plan. Over the next several post I will discuss why this is so and give you some ideas to help you with your real estate investment planning.

Keep in mind that there are no promised returns. I think the examples that I give are realistic but please consult with your own investment and tax advisers.
*****

As we go through this series I will be using an example of a 3 bedroom 2 bath home with a purchase cost of $100,000. There are two reasons for this. 1. It makes the math simple. 2. That is a home that would be very readily and realistically purchased in this area and market. In other areas the math be be different but the same logic will apply.

Search Cobb Homes priced from $95-105,000



Income
Depreciation - tax advantages
Equity build
Appreciation
Leverage

Part 5:

Real Estate has long term, fixed rate, amortizing, financing readily and commonly available. Other investments do not allow you to finance the purchase. Some people would prefer to pay cash and avoid the risk of having debt on their rental property. That is good and admirable and I would recommend it if you are financially able. However, for some people it is just not an option or they are willing to take the risk of the debt. I would contend that if you are truly investing for the long term and have sufficient cash reserves to make payments during vacancy that the risk is really very minimal.

Even if you are paying cash as your investment strategy, the ready availability of long term financing makes it easy for you to sell the home when the time comes.

If you missed it Here are the previous installments:

Rental Homes- I.D.E.A.L. Investment? pt1

Are Rental Homes an I.D.E.A.L. Investment? PT.2

Are Rental Homes an I.D.E.A.L. Investment? PT.3


Are Rental Homes an I.D.E.A.L. Investment? PT.4