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Thursday, July 06, 2006

Reader Email: Sale/Lease Own Home?

Here's an email I received from a reader:

I actually like my home a lot, can afford it and don't want to move. But I also don't want to ride 30% down if I don't have to. I've come upon the idea of trying to get a "sale/lease agreement" on my home. Are you aware of anyone else doing this or attempting to do it?

Basically, I want to sell my house as an "investment" to a buyer while simultaneously signing a 36-48 month lease with him to continue living in that house. That way, he's guaranteed a renter from day one, I get to stay in my house while taking my money off the table.

Any help would be appreciated.
I don't hide the fact that I have zero training in real estate matters, so as an individual I'm not really qualified to help. But I know that some of you readers out there are well-versed in real estate and can offer some insight.

So what's your take on this idea? Great plan or fatally flawed?

12 comments:

meshugy said...

Here's the latest from Thurston County:

Home sales hit slower pace

Home sales were up 8 percent over last year through the first six months of the year, but the pace of sales was slower than last year. Sales for the same period last year were up 15 percent compared with 2004.

June sales were about the same as last year, with 459 sold this year compared to 461 last year. June sales could finish up about five percent as additional closed sales get recorded, said Jerry Wilkins, manager of the listing service.

The median price of a home in June was up 11 percent over last year at $250,000, but that increase was not nearly as high as the 27 percent appreciation in median home price recorded earlier this year.

S-Crow said...

This is not legal advice but an opinion only.

The reader asks if it is feasible to rent back the house he just sold to a buyer. The short answer is certainly.

There are scores of landlords that would love to sign a 3-4 yr lease. Unfortunately, you have to keep in mind that your buyer must have a substantial down payment in order to either break even or cash flow the property. Making a hundred bucks cash flow is hardly an investment after considering maintenance, insurance, inflation etc...

The pickle is that the new owner must have a good chunck of change to place down to get his mortgage exposure (payments)close to market rental rates. Today, because rental rates vs. mortgage payments are not even close in many cases (ie. a mortgage being $2300/mo. but property could only rent for about $1350/mo.) it would be difficult for your buyer to rent to you at such a loss, unless they had that downpayment. Professional investors do, while inexperienced speculators do not.

Your lifestyle and perhaps employment situation should be the driver of your decision to sell, and of course, whether you have an existing ARM that will adjust UP in the next year or so.

Wish you well,

Tim
"S-Crow"

Anonymous said...

Part of the equation is understanding what will happen to rent prices. I have heard that we can expect rents to go up, but haven't found any good statistics that track rental prices over time in Seattle to see the trend.

For example, what is the median monthly rental price for a detached 3 bed/1.5 bath home in a decent Seattle neighborhood right now (my guess is around $1,800 - sound right?) What do we expect that to look like in 5 years? In 10?

S-Crow said...

Meshugy-

The first paragraph seems to contradict itself. How can home sales be up 8 percent and yet the pace of sales was slower than last year. Did I misunderstand or is their other data omitted?

Can anyone put a filter on information you receive via the media and REIC?
----------------------------

Questions for the readers of this blog:

Does it make sense to have the median price continue to skyrocket with raising interest rates? What can cause the median price to go up in a market that is clearly changing? Either the top or bottom sales figures are being influenced: for example,lower price ranges are lagging in sales while upper price ranges (more affluent folks) are locking in rates.

If anyone cares to notice, there were virtually NO price reductions last year in asking prices. Now it is common. Is that an earmark of a changing market?

There were virtually NO builder incentives, but now we see generous commission splits being offered to the selling agent. Why?

Mortgage brokers are paying for appraisals and other incentives, whereas months ago, it was virtually non-existent. Why?

Recently, we've closed two out of three pre-foreclosure transactions sent our way and ironically all were prior customers (one actually went to auction because the lender refused to short-sale.....right now.) Why? Half the answer: all had 100% loans, NINA's or no Documentation deals (no income no asset verifications). The other half answer: let your imaginations run. One of the clients didn't make a payment from DAY ONE when we closed their purchase about a year ago. One of the other clients is in the business! How would you like taking advice from that character about buying/selling real estate.

We deal with very good agents too, so don't send me hate mail.

The market is the market. If the market is a sellers market, call it like it is. If it's a buyers market, then it's a buyers market. I'm worn out by both bulls and bears that take it to the extreme.

"Bubble" is an adopted figure of speech to describe a fundamentally flawed spike in asset classes than cannot continue it's upward run forever. For real estate, many markets across the country meet this definition, including micro-markets in Puget Sound area. Eleua would probably say, Ballard. :)

One pissed off e-mail person asked me to prove "we are in a bubble." So I got pissed off too, and said, "SIMPLE!" Take away the ARM's and 100% deals and see who can qualify with less than 5% down or nothing down and 600 FICO scores. What would happen to the market? It would be different than today for sure. In April we closed a home sale to a borrower who just inched by a lender's "one year" rule for being out of a prior foreclosure! A prior foreclosure borrower got a loan just one year later!

Forgive the long post. I hate them as much as you.

meshugy said...

The first paragraph seems to contradict itself. How can home sales be up 8 percent and yet the pace of sales was slower than last year. Did I misunderstand or is their other data omitted?

That is a little weird...what they mean is a slower rate of growth. 15% last year and 8% this year.

What I don't get is how they came up with 8% growth if "June sales were about the same as last year, with 459 sold this year compared to 461 last year."

Anonymous said...

s-crow I spoke with another escrow officer this weekend, and her advice kind of surprised me.

She basically said the best thing for me to do, since i have excellent credit is to get a neg-am loan with 100% financing and rely on a good market analyst to tell me when to sell before the market tops out.

According to her, the office she works in is processing loads of loans from investors that keep coming back and using their HELOCS to buy additional properties as the current ones appreciate.

Apparently the volume of repeat customers doing this continues to increase, and she's convinced there's quite a bit more coming before we see any weakness.

meshugy said...

Here are the June #s for King County:

Breakouts - KING COUNTY SECTORS - Northwest Multiple Listing Service JUNE 2006

All the spurious reports we saw about prices dropping proved to be false. YOY prices are up in Seattle 11.56% and up in King County 15.34%

Median Prices are:

Seattle: 415K
King County: 387K

S- Crow said...

Anon 10:50am:

Ask her for the names of all the investors using HELOC's (which by the way have been THE impetus for many of our recent refinance refugees to get out of and close the accounts) to finance more purchases. Maybe you'll find a couple of them a resource as a financially stressed homeowner in the future.

The HELOC's we have closed over the last couple years have adjusted up quite a bit. For example, those with HELOC's being used as piggy-backed 2nd's to avoid mortgage insurance are now paying like $600/mo vs. $350 mo. when they first had the loan. When the median wage earner has only a couple months worth of savings (according to WSJournal), that HELOC tied to the prime rate is quite a payment shock.

ARM's are still king in transactions closed in our office, BUT, they are fixed now and extended out far, say 10 yrs. So, that can help to reduce risk to a degree. We'll see what the lenders have in store over the next year to keep the party going.

Eleua said...

s-crow,

You provide the best information about the state of the housing market. Please continue to bring your observations, as I find them exremely informative.

You have ring-side seats for the coming carnage, whereas I'm up on the 300 level, way down the third-base line.

You spoke of the borrower that just barely cleared the 1yr mark for foreclosure. That is in line with a conversation I had with a financial advisor where he was saying he was putting people into 0-down, neg-am loans. His advice was for them to hand in the keys and walk away, should the market turn against them.

Just think, this guy has a license by the state and spews this rot.

He said it was no big deal, as people get loans all the time, even with foreclosures in their recent past.

At first, I was skeptical, but now it seems he might have been telling the truth - nauseating as it may be.

meshugy said...

The Median price for a single family home in King County is up YOY 15.99% and now stands at $434,950

In May it was $427,950

7k gain in one month!

Eleua said...

7k gain in one month!

...and how much did incomes go up in the same period?

It's called economic dislocation. Look at how it has been reconciled throughout history, take two Maalox and call me in the morning.

Dr. E

seattle price drop said...

S crow-

thanks for posting here.

BTW, your posts are NEVER "too long" and ALWAYS appreciated.