Real Estate Investing

The escalating rate of home foreclosures is turning more homeowners into renters, but it’s also turning more renters out of their homes. One aspect of the foreclosures crisis addressed recently by USA Today is renter eviction because the landlord defaulted on the home loan. Many of these unfortunate renters recently went through the foreclosure process themselves, so this is doubly traumatic.

Rental units are at an all-time premium now, because demand is high and so are rental rates. So one can imagine how immensely difficult it must be to have the hard-won rental property yanked out from under foot. About 18 percent of foreclosures started in 2007 involved “non-owner-occupied homes,” USA Today reports, citing a Mortgage Bankers Association study.

Maryland Real Estate Blog points out that renters who have signed a lease-purchase agreement with higher deposits are in an even worse position than the typical renter.

“They are in the unenviable position ‘between a rock and a hard place’ — with a lease in place that requires them to stay and continue making payments to the landlord; unable to move to another property without losing their substantial security deposits.”

Although renters obviously aren’t accustomed to doing background checks on the landlord, some limited form of that may be a necessary thing nowadays. Checking whether the loan on the rental property is in default can save a lot of trouble and heartache down the road.

Just as a lease-purchase has pros and cons for home buyers. Generally speaking, this is a good deal for the property owner. But take a look and decide for yourself.

Pros of lease-purchase include:

-High demand: Especially with the current housing situation, rentals are in high demand. And there are plenty of affluent would-be buyers whose credit is simply in disrepair at the current time. The flexibility and “no bank involvement” that lease options offer is always appealing, but especially right now. So there’s plenty of consumer demand and those consumers have no negotiating power on the monthly cost.

-More profitable: Because tenants are putting extra money above monthly rent toward a downpayment on the house, property owners can come out well ahead profit-wise.

-Quality tenants: Because these tenants are putting extra money each month toward owning the home, they have already developed a sense of pride in ownership. Their sense of attachment to the property will encourage them to take care of it.

The cons of lease-purchase include:

-Price lockdown: The home price is negotiated and put in writing on the front end of the deal, so if anything occurs in the area to cause property value to skyrocket, it’s too late. If the tenants want to follow through and purchase the home at the originally agreed upon price, the property owner has to abide by the terms of the contract.

-Deals fall through: Many lease option renters underestimate their ability to buy a home in a year, two years or five years. They simply will not be able to make it happen. Sometimes, living in the home will uncover features that they don’t like. Maybe the neighbors are too loud, and the tenants decide they will not purchase the home after all.

So you have to sell your home sooner rather than later. Maybe it’s a divorce, job transfer or a looming foreclosure; whatever the circumstance, you need to get out fast. The problem is, so do Betty and John down the street. And Tom and Jill across the street.

The current glut of houses on the market is no secret. Foreclosures are being filed in record numbers and tighter lending policies lead consumers ever more toward renting instead of buying. So what’s a desperate homeowner to do? We’re not going to storm your house and do a total revamp a la HGTV’s Design to Sell, but we can offer a few tips that may help your property rise above the rest.

8. Seller financing – Now more than ever, seller financing is attracting buyers like bees to the hive. Most people are naturally inclined to own property instead of renting, but bad credit can make conventional financing a pipe dream. Life circumstances like divorce or unexpected healthcare costs may have marred the credit of otherwise responsible and deserving people. Seller financing is a popular way of achieving their dream of home ownership. Sellers are typically older people who have paid off their mortgages and want to downsize, but could use extra monthly income. The sellers will typically accept a downpayment of about 20% and a pre-arranged monthly payment thereafter per the agreement, the terms of which should be worked out in the presence of a real estate attorney. Interest is also a factor that an attorney should be consulted on. Credit and background checks on all buyers will help weed out high-risk individuals and protect sellers from dealing with late payments or even default, if the loan is still active.

7. Price reduction – If possible, consider reducing the price. As of August, sales of existing homes in the U.S. were down 13 percent from the year prior and the nationwide average was a 10-month backlog of homes on the market. In 20 metro areas of the United States, home prices were down 4 percent in July when compared to home prices one year earlier, according to USA Today. If you have to reduce your asking price, at least know that you are far from alone in your plight. According to Money Magazine, underpricing by as much as 10 percent is good:

“You might even consider underpricing your home by 5 to 10 percent to create buzz, suggests New York realtor Barbara Corcoran. Often this strategy can lead to multiple bids. And once buyers start competing, their emotions can push the sale price higher than the home’s fair value. She notes, ‘Nothing turns a buyer on like the idea of a bargain.’”

6. Perks, perks, perks – Speaking of bargains, that part of a buyer’s brain is affected by phrases like “carpet allowance” and “complimentary interior design consultation.” These are popular incentives, and closing costs paid by sellers are practically standard these days as well. Tough times call for thinking outside the box.

5. Open houses – Host open houses every weekend, if possible. Advertise these events well, even using lead-in signs with arrows to draw in drive-by traffic.

4. Set the stage – Kitchens sell houses and so do bathrooms. A makeover of these rooms is money well invested. Clear out the clutter, family photographs and any other items that personalize the house. If those open houses are successful, you want buyers to be able to picture themselves in the house, not your clutter. Also consider sprucing up the lawn and flower beds with simple, low-maintenance plants and trees to enhance curb appeal. A potential buyer will not get past the front door if the house is not welcoming from the street. Also keep in mind that yellow houses sell faster, according to USA Today.

3. Use a realtor – More connections, more networking, more know-how.

2. Professional photography – This may be one of the most overlooked aspects of selling a home. Dark or blurry pictures posted on real estate web sites serve practically no good purpose. Make sure the pictures are large, with good lighting and they accurately represent your home.

1. Marketing – Use Internet web sites, newspaper classified ads, local bulletin boards and a “For Sale” sign and brochure box in the front yard. There are numerous ways to create leads. A realtor can do much of this for you, but it never hurts if the seller takes some incentive as well.