Wednesday, December 3, 2008

Rent To Buy - and How It Can Create Business !

It is always good to see a positive slant on the real estate market, and the San Antonio Board of Realtors has finally done just that. They have issued a report about the increase in local homes being rented and the positive impact on the market. The report claims that “the number of sales of rented homes jumped 8.6 percent in August and September from the same two-month period last year.”. It goes on to say that the number of sales of rented homes jumped more than 8% in August AND September compared with the same two-month period in 2007.

First of all, this is what a realty board SHOULD have been doing all along over the past year or two. Finding the positive statistics and putting them out there. I have already voiced my opinion about member dues going toward stories being published about the comparative drops in home sales and how much that has contributed to the public’s negative perception about the marketplace.

Second, this proves that what I call “true creative financing” is starting to take hold. This report (at least what I saw of it) does not have details about the number of people who executed a “rent to buy” situation went on to purchase, but I have to believe it is a major factor toward this new trend. An empty home is a tougher sell, especially when there is so much inventory out there. Sellers need to see the value of renting or simply doing what they can to have their home for sale occupied if and when they need to vacate.

By the way, that same report shows that the average rental rate for single family homes in the San Antonio region was up nearly 5% for the month of September when compared with one year ago. Some seller/landlords (to coin what should be an often used title!!) realize that many who are renting houses are doing so because they may have enough for a down payment to purchase a home, but do not have the credit.

Even with mortgage rates dropping to their lowest in 4 years this past week, I am seeing the initial crunch of responses from consumers geared more toward refinance rather than purchase. This is certainly good news for mortgage lenders. And my real estate agent clients are going to be reminded about touching base with some of their lender contacts. A candidate to refinance might be ripe to listen to a pitch about a comparable home available at a bargain price. The agent and lender work with the client to rent or sell their current property to, while finding a bargain on an even better comparable property. This is what will kick start the industry back toward where it should and will be. That scenario results in anywhere from one to three commissionable transactions. Compared with zero if the client has no idea they could do this and benefit.

However, I still hear lenders complaining that they can’t refinance some of their clients because the value of the home has dropped to the point that a refi doesn’t make sense. They feel as though the “short sales” going on are knocking them out of the box on refi’s. Taking into account the scenarios such as I have just described opens up additional possibilities of making them happen. Granted, not every possible refinance will be willing to pursue another property and move, but if one out of twenty such possibilities comes to fruition, that is one more commission than would otherwise have been. This is a time of great opportunity.

This reminded me of a story I saw in the early 90’s when I was in the Los Angeles area during the California real estate boom of that period. I was attending an agent and broker meeting as an affiliate member of the (then) San Fernando Valley Board of Realtors when it was already among the top 5 largest membership bases in the entire country. While the market was hot, this was during the period when home prices were inflating in excess of 20% over the course of a single year.

A broker/owner went up before a group of agents to pitch a property and explained that he has the most motivated seller in the area. To the point that he offered an ADDITIONAL $10,000 commission (above and beyond the contracted percentage) to the buyer’s agent who brings him a qualified and eventual purchaser by the end of that day. I remember that to this day because he is the only agent I have seen or heard do that in my 20 years of advertising and marketing for agents and lenders. And I remember the buzz going around the room for the rest of that meeting as agents were making note of that.

Later that month, I asked him if he had been able to make good on that bonus offer. He told me that he wasn’t, but did manage to sell that property just a couple of weeks later. Then he went on to tell me that a couple of the other agents in attendance that day had brought buyers to a couple of his other (lower priced) listings who had not come his way before.

My point here is that agents and lenders do have a choice this minute. I would rather hear about creativity toward making deals than hear complaints about today’s market. You do have a choice.

For consumers participating in this blog, you can heed that advice on your own. If you already know that your home isn't worth what it was a couple of years back and thus would have a challenge to refinance, do your homework about bargains in your area of comparable or better houses. You just might be able to get yourself into a home originally valued at $50,000 to $100,000 more than yours was for the same or perhaps less money each month. If you can find a sharp enough realty agent and lender to work with you on this, you could go for a "rent to buy" as a form of seller financing and try and get a steal on a "better" property in your same area. One that will be worth even more when the market bounces back.

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