This is my column for this week from the Arizona Republic (permanent link).
Workable real estate deals may require even more creativity
I do a lot of work with buy-and-hold rental home investors, more and more of whom are able to come into Phoenix with all-cash offers. Poor me, I know.
But: I’ve been spending a lot of my time, lately, thinking about “triangle-trade” strategies — old-style funding mechanisms that we were happy to forget all about when money was easy.
So picture a buy-and-hold investor with 100% equity who wants the best deal he can get when he sells his former rental home. Why not do a lease-purchase instead of a straight sale? The investor can help his buyers accumulate a down-payment, perhaps working with them to improve their credit score at the same time. The investor gets a higher purchase price, the buyers get a lower monthly payment, everybody wins.
Or how about selling with a contract-for-deed? There are a lot of people out there with great incomes but lousy credit — more every day. If an investor — or ordinary homeowner — is willing to take on the risk of a carrying back a note, the home can sell now, rather than languishing on the market.
Or if the seller isn’t able to carry the whole mortgage, how about carrying back a second loan? If the seller has the equity, and if that will swing the balance with the buyer’s lender, it can make sense.
San Diego Realtor Don Reedy has come up with his own blast from the past: Parents help their kids get into homes by co-signing on the loan and helping with the payments, then share in the equity on resale.
Single people or single parents or childless couples could do the same sort of thing with a larger home: Go in on the home together as tenants-in-common, using their combined income to qualify for the loan, then paying the mortgage and sharing in the equity on a pro-rated basis.
Buyers are not in short supply, nor are homes available for sale. Creativity could make all the difference, going forward, in putting workable deals together.
Technorati Tags: arizona, arizona real estate, investment, phoenix, phoenix real estate, real estate, real estate marketing
jim canion says:
Greg
Contracts for deed are a bad idea and allowing a client to buy under that method of conveyance is very bad advice.
December 20, 2008 — 12:54 pm
Brian Brady says:
“Contracts for deed are a bad idea and allowing a client to buy under that method of conveyance is very bad advice.”
Why?
December 20, 2008 — 1:55 pm
J Boyer Harding NJ says:
I am seeing some of this already. Parents stepping up to the plate to help their kids purchase a single family home when all the kids can really afford was a small condo. This helps the kids avoid $300+ condo fees every month and get into a home which will not be too small for them in 3 or 4 years.
December 20, 2008 — 2:06 pm
Don Reedy says:
Remember, too, that when a parent buys a home, or invests in a home, with his children, that the parent’s contribution sets the plate for a portion of the home to be a pure investment property. That means that the home can be depreciated, all investment tax benefits realized, and all this done while easing the burden of the kids.
Brian Brady and I are working a program to “Keep Our Kids in California, a program that acknowledges that the cost of entry (downpayment) for even homes that have declined sharply may be too much of an impediment for any child alone to bear.
We may be stealing all the other financial underpinnings from our kids, but we can still see to it that they live in a decent home and benefit as did all of us from the long-term gains of that ownership.
December 20, 2008 — 4:25 pm
Greg Swann says:
>> “Contracts for deed are a bad idea and allowing a client to buy under that method of conveyance is very bad advice.”
> Why?
Indeed. Why? In a normal lending market, I’m not in love with either land contracts or lease-purchase contracts, since they seem to me in most cases to serve to exploit the unlimited optimism of lifelong deadbeats. But in the kind of market we may be headed into, various forms of seller financing may be the only way that prudent people will be able to buy a home. Helping people like that get what they want is not bad advice.
December 20, 2008 — 5:15 pm
jim canion says:
Contract for deed is not recorded so the legal title holder can create various liens through his actions’
or inactions all of which will usually have a detrimental effect on the property.When reviewing
the history of phoenix we find that contract for deed was
a popular instrument of conveyance in the 50s and 60s for
tracts south of Casa Grande. This area was sold by developers to investors from the midwest. Many thousand
parcels were sold that the developer defaulted on some
underlying financing wiping out thousands of people.Deed,
note and deed of trust is only protection of your buyer
from such problems.Thats why almost all transactions today use this form of transfer.
December 20, 2008 — 7:27 pm
Greg Swann says:
“He who sells what isn’t his’n must buy it back or go to pris’n.” — Daniel Drew
December 20, 2008 — 7:40 pm
jim canion says:
Greg
A nice quote, but completely useless for todays world. Just because something is not legal unfortunately does
not keep it from happening.Ask Madoff investors. As a realtor a more proactive approach is necessary. Having a seller go to jail is small consolation for a buyer who lost his investment.
Leaving legal title with a seller is asking for trouble and not good representation of a buyer client…
December 20, 2008 — 8:33 pm
Jeff Brown says:
Unsure about AZ, but land contracts an various versions of them can and should be recorded in CA. Recording solves many but not all of the potential problems.
Add a RE attorney as the buyer’s author of the land contract, and it should be as relatively safe as any other arm’s length transaction.
December 21, 2008 — 11:36 am