Buyer’s Market or a Down Real Estate Market
What happens in an unstable market or a buyer’s market like we have today? You, the Seller, have a home that is just one of many that buyers can choose. How do you increase the number of potential buyers in this type of market? Maybe, you should try to attract those buyers whom the bank won’t pre-qualify. Am I suggesting that you seek out people with poor credit? Not at all!
What if I told you that there are people with the necessary cash and where-with-all to buy your home and they will never miss a payment? You won’t be disappointed with accepting an offer from this “non-pre-qualified” buyer. They do exist, but they can’t get financed by a conventional bank loan. Why?
Because, they own a small business or they are self- employed or they work for sales commissions. Banks are uncomfortable with this type of borrower. This is especially true since the ‘sub-prime’ loan debacle. I’ll ask you the most important question: Do you want to sell your home and move on with your life?
Sell to a Buyer with a Rent To Own, Option Contract
Many of these unqualified buyers are more than economically capable of purchasing and owning your home. And, if you use “Your Hidden Bank”, you can open up a new list of potential purchasers for your real estate. You can replace your property’s value with income per month. Rent is “income” to the owner of the property. Rent is cash flow which pays for the home you wish to sell.
You can use that rental income stream to help you qualify for a conventional loan from a bank. Especially, if you construct the rent in the lease to cover the carrying charges of the rental property. Bankers like profitable tax returns and if you have a job and good credit, they will consider the rental as an asset.
But, you’ve heard the ‘war stories’ about landlords and clogged toilets and phone calls during the night and the damaged properties and a thousand other bad stories. However, with a twist or two, the tenants will maintain your property and look forward to improving and buying your rental property with their rent. This changes the game from landlord to seller and from tenant to buyer. Rent to Own Buyers will respect your “soon to be theirs” property.
‘Rent to Own’ For First Time Home Buyers and Non-Prequalified Buyers
If you are currently renting an apartment or a house, you may be able to purchase a home, even the home you are in. The rent you are paying has probably gone up and will continue as your lease demands: 1%- 5% or more. Why pay the increase and own nothing but rent receipts? Some people have learned to use their monthly rent as an investment for the future; they offer to buy the house on a ‘Rent to Own’ basis. You should change from property renters to buyers
If you own a business or are self employed or work for commissions, there are ways to purchase your first home or a sell your current home and purchase a new one. This is a method to accomplish your goal without bank help or with a Realtor. Realtors will not be anxious to get involved with a Creatively Financed transaction because they fear losing a commission and rental based commissions are much lower. However, these agents would not work with a non-prequalified buyer, either. This Do IT Yourself, but it seems more complex than it really is. See the example below and put yourself on the buyer side of the agreement.All you need is time and education.
You can combine a mix of Rent to Own and a Private Mortgage to accomplish your dream. See an actual example of linking these methods.
How to Establish the Monthly Rental
Let’s assume you are selling a $150,000 home and you are carrying $100,000 mortgage. The monthly payments @ 4% for 30 years is $477 per month and the taxes are $170 per month.Then, the minimum rental with insurance, $60 + $477+$170= $707. You may want to add $100 to cover unexpected costs with a total rent of $807. The renters buy an “option” to purchase your house for $2,000 upfront.
The contract will specify the $150,000 purchase price and the rental of $807 per month. If this sounds high for rent, keep in mind that this tenant is the now the “buyer”. You can justify this higher rent if you agree to credit part of the monthly rent toward the price of the home. For instance, you can credit $100 per month against rent for each month’s on time payment. What? You want me to give money back?
Absolutely ! Why Not Incent Them to Make the Payments?
When your buyers, a couple, find out that they are buying equity in the house from the first month of the lease, the wife will have a tendency to want to pay the rent on time. If you are married, you can bear me out on this fact. Besides, it’s only paper money that you are refunding.
What is paper money? Over a 24 month lease you will refund $2,400, but your mortgage balance will decline by about $3,600, a net profit gain of $1,200. And, remember, you didn’t pay that debt. Your tenant/buyers paid your mortgage and they also paid your insurance premiums and real estate taxes. And, you get to claim mortgage interest, insurance and RE taxes on your income tax return as deductions from any other income. Oh, you also can legally claim all the other expenses involved in maintaining the property.
What’s not to like? You are getting an income stream that pays your bills, a tax credit and the tenants want to buy your property.
In 24 months the renters present an excellent payment and credit record to the bank against the purchase price. If you are creative, you can also give credit for any Sweat Equity (home improvements) that your tenants complete and local zoning codes will permit.These improvements may even make the house more attractive to the bank appraiser and help the decision to fund the purchase. By the end of the lease your tenants are in position to “buy and close” on the property.
Rent to Own Example- What Does the Seller Receive?
This is an example of an Lease Option with Rent to Own; the tenants want a 24 month lease with the intent of buying the home. The Seller offers an agreement which includes a monthly credit ($100 per month) from rent and a credit renovation (sweat equity) allowance ($1,500) for the term of the lease. The Seller wants $2,000 up front as an Option Fee.
For the Option Fee the Seller agrees to give his tenants the “first right of refusal” to purchase the property at the agreed upon price of $150,000. This is a legally binding contract to protect the price from a rising market. But, what if the market falls? The Buyers now “control” the property; The Seller has a contract to sell the home. Both parties are on equal footing: Willing Seller and Interested Buyers. It the match very Real Estate deal is made off.
After the lease runs its course the Seller and Buyer take the contract to an attorney ( split the fees) to set up a closing date.The attorney becomes the “legal” transactor, conducts a Title Search and prepares the HUD Statement, constructs the proper Deed and conducts the Closing Transaction with all parties present. Both parties sign the documents, the Lawyer files the Deed or Deed of Trust with the County and ownership goes to the Buyer and the Seller gets the funds from a bank or a Private Note.
Purchase Price $150,000
Rent Credit $2,400
Option Payment $2,000
Sweat Equity $1,500
Mortgage Payoff $ 96,400
Seller Gets $47,700
Legal Fees $1,000
Net $46,700 Cash at Closing before taxes
A simple purchase would have netted:
Purchase Price $150,000
Realtor Fee $7,500
Bank Loan & Down $142,500
Mortgage Payoff $100,000
Legal Fees/ Bank Fees $2,000*
$40,500 Cash at Closing before taxes
*Bank fees will be more expensive
Compare the First to the Second Method
You, the Seller, had revenues of $19,368 and “net profit”, after all credits and fees, of $6,200 better than selling to a traditional pre-qualified buyer through a realtor.
Tenants/ Non-Prequalifed Buyers, Get the Home They Want
Renters, who want to be owners, have the opportunity to invest their money and time into a property they will own. Your on time rent payments will count toward your credit rating and property improvements will make the house more valuable to real estate appraisers. You only have to propose the deal to the seller; if he refuses, move on.
Business Owners and the Self Employed or if you are a salesperson, this is one creative way to purchase your first home or sell and purchase a newer home without bank help or a Realtor. These creative methods are as legal and binding as those contracts constructed by Realtors and bank attorneys. They are protected by the law in all 50 States.
Why Write this Article? Using the Hidden Bank is a Win! Win!
The way to do this type of property purchase is very simple and it only takes education for both parties. The Seller turns a liability into a cash generating asset; the Buyer gets ownership instead of a bunch of rent receipts.This may sound scary to most people; but we’ve done it for years. Educate yourselves; contact us and we can help you through the learning curve and your transaction.
Remember, the banks are not lending to many buyers and that affects the ability of Sellers and Buyers. These are old and proven ways of selling and buying real estate which still work. High Schools and Universities don’t teach about them because they don’t understand the process. Many finance people are not aware of these method. I know; I’ve asked Wall Street types about Private Financing and Hidden Bank and other sources of funding Real Estate purchases and their response is telling; usually it’s a blank stare.
Break with tradition; open you mind and consider a new financial path to Real Estate transactions.