The world is changing. We've gone from a strong seller's market
into more normal times. It isn't exactly a buyer's market where
the buyer can dictate both price and terms, but it is a market in
which selling a house can take between 6 months and a year, and in
which houses must be offered in pristine condition and sometimes
staged in order to attract discriminating buyers. Many people
confronting higher payments on higher priced houses are opting to
rent and to defer buying until prices come down and loans are
easier to get. This is creating a strong landlord's market in
which tenants have to jump through more credit and reference hoops
in order to rent a house of a size, quality, and location that they
might otherwise have bought. There are some lessons to be learned
here:
First of all, landlords should be considering trading in their
smaller, older, cheaper houses for better houses that will attract
more affluent tenants; those who can pay as much as $2000 per
month rent. I've found that people who can and will pay this much
rent are much easier to deal with than those in lower priced
rentals, and take much better care of the premises. Admittedly,
the percentage of yield is less, but when the ease of management
and reduced costs of turnover and maintenance are factored in, the
net can come surprisingly close to that of a lower priced rental.
In some instances, a builder who is confronted with high payments
on unsold inventory will take an older house in trade, then re-sell
it immediately to the person who traded it in. This helps him
because he has not only gotten off his expensive loan payments, but
also found additional income in the form of monthly payments. The
buyer is able to keep his old high-cashflow house while picking up
an upscale rental with a high equity to expand his holdings. Of
course all the math must be compatible with a profitable deal for
both parties, but the builder will be a lot more motivated than the
buyer in this situation.
Another way to trade up is to sell a less expensive house, then
enter into a delayed exchange and use the cash to buy from the same
distressed builder at a bargain price. But, how do you sell the
cheaper house in a slow market? You sell it to your tenants.
Quite often, there are numerous schemes whereby first time
homeowners (those who haven't owned a house in the prior two years)
can buy a house. In other cases, Federal, State, and local subsidy
programs can be tapped for down payments. In still other
instances, there are charitable organizations that fund down
payments. Even when there are no zero down loans available to a
buyer, he can still receive gifts for the down payment. Although
the 80/10/10 loans are drying up, some lenders will still allow a
buyer to borrow the down payment on a second mortgage loan so long
as the combined first and second loan payments aren't too high.
I've carried back a second mortgage that called for no payments at
all for five years and had the loan approved by the lender.
A buyer can always sell something he owns to raise the funds. Some
of the things I've bought to facilitate a deal are cars, trucks,
RVs, boats, furnishings, TVs, tools, and even horses. After
closing, I've sold these back to the new home owner on easy terms,
or to someone else who wanted them. Once, I even sold the loan
officer an RV I'd bought to facilitate a loan. Last but not least,
the prospective buyer can sell an Option on the house he's buying.
That not only puts money into his hands for the loan, but also
gives the seller a chance to participate in any future appreciation.
