Get On The Path
“The rock that is an obstacle in the path of one person becomes a stepping stone in the path for another.” ~Unknown
“Always bear in mind that your own resolution to succeed is more important than any other one thing.” ~Abraham Lincoln
Home sweet home….A recent Wall Street Journal article reported that 23% of the US homeowners owe more on their mortgages than what the homes are worth. The concern is that more and more people are going to walk away from their homes and put more pressure on the real estate market. Many people got caught up in the boom market and were paying significantly more on their house payment than what it would cost to rent because they thought there was no end to the appreciation of houses. If there is no equity in the house and people are paying twice what it would cost them to rent the same house, we will see a lot of people walk away from their homes. Buying a personal residence because you think it is going to go up in value and be a “good investment” is not a good idea…hindsight is 20/20. Buying a home to live should be a quality of life decision.
I’ve been asked the question about buying a home right now to live in. If it’s a good decision, if we are at the bottom of the market and is it the right time to buy? My response is to look at 2 important things:
- Can they afford the payment comfortably on their current income and still save and invest?
- Would they be living in the home for several years?
I don’t have a crystal ball to know if we are at the bottom or not. However, I believe we are not. But if you are buying a house for quality of life reasons, does it matter if it goes down another 10% before things settle out? Is that going to change their enjoyment of the home?
So what about rental properties? I buy investment houses to rent them. If the property generates positive cash flow every month but the value goes down 20%, do I really care? If you buy personal and investment houses on the expectation that the prices will go up then you would care a lot. If you buy for the benefits they generate on a daily and monthly basis, cash flow, tax reductions etc., a change in the value is not as big of a concern. Trust me…I hope they all go up sooner rather than later but that isn’t the main focus.
If you are still in your home but having financial trouble here is one option for you.
Sale-Leaseback
If you currently own your home, have some equity that you can’t access and are simply experiencing some cash flow difficulties, you may consider selling the home to an investor and then leasing it back by paying rent over a 2-3 year time frame. You could pay rent for the next few years, continue living in the home, and then purchase the property back from the investor at a future date. The benefit to you is that you don’t have to move and uproot your family, and you have the option to buy back the home when your financial situation improves. The benefit to the investor is that they are buying a property slightly below market, they already have a built-in tenant, and they have an exit strategy by agreeing upfront to sell you the property back at a profit within a few years.
But what if you have sold your home in a short-sale or you lost your home in foreclosure? There is hope for you to own a home in the near future.
Rent-to-Own
If you’ve already lost your home and are currently renting or living with friends or relatives, you may consider a rent-to-own opportunity. This is where you rent a home with the option of buying it a pre-determined price at some point in the future.
Remember regardless of your situation, it is very important that you work with someone who understands and is knowledgeable on how to structure these types of purchases and transactions. Most real estate professionals do not. If you have any questions regarding any of these ideas or have other thoughts, please let me know.
