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WHERE DID ALL THE BUYERS GO?

by Michael E. Hart 

Interest rates are near historic lows, yet it seems nobody's buying.

A recent caller told me "People aren't even coming to look at my house and I don't know what to do. Will you buy it?"  Even when you're offering to sell at a discount, finding a buyer now is tougher than it's been in years.

The main reason is the mortgage markets.

The press coverage regarding the "mortgage market meltdown" has been relentless. And that's part of the problem. People aren't looking because they're afraid they won't qualify for a loan. Even those with "great credit" are anxious about the thought of being turned down for a mortgage.

So where did all the buyers go? They haven't gone anywhere. They're at home waiting for the media to signal the "All Clear"!  

As a private investor who's also in the mortgage business, I'm seeing this from both a buyer and a seller's perspective. People are frustrated on both ends.

The typical buyer who qualified for 90-100% financing just 6 months ago, might only qualify for 80% today. The problem is they don't have a 20% down payment.

So where does this leave them? The majority will opt to stay where they are. Some will look for other ways to buy, such as a "Lease Purchase".

And this is what more and more sellers are turning to as well.

The number of homes available for "Lease Purchase" has increased dramatically over the last few months. Even "builders" are turning to the lease purchase (which was practically unheard of until recently).

"Lease Purchase" however, has been a preferred sales strategy for savvy investors for years. Why? Because it's always been a quick way to put a potential buyer in a property before the next payment is due.

Keep in mind though, it has advantages and disadvantages.  

The biggest "disadvantage" (at least from a seller's point of view) is the low down payment you receive. If you're expecting a big down payment when you offer your house on a lease purchase, you're likely to be disappointed. From my experience, to make things happen quickly, it's reasonable to expect around 2-3% as a down payment.

In some areas you may get more, in others it may be as little as "one month's rent". The key is to not advertise a specific down payment requirement. Instead, ask your callers ... "How much did you have set aside for a down payment"?

After a few phone calls, you'll have an idea of what you might be able to expect.  

Whether or not a lease purchase is an avenue for you to consider really depends on your personal situation and priorities. If getting someone in the house quickly is more important than getting a large down payment, then lease purchase might be a good sales strategy for you to consider.

An important point to remember is that just about every aspect of a lease purchase is negotiable. Down payment, monthly rent, rent credits, maintenance, repairs, sales price ... all negotiable. Does that give you any ideas?

Here are a few "don'ts" to remember:

•    Don't be afraid to negotiate. (If you're married or have children, you spend half your life negotiating already. Settle somewhere between "hardhead" and "wimp" and you'll probably end up with something "reasonable").

•    Don't assume the next call on your ad is going to be the last call you ever get. (Be at least a little optimistic, if nothing else, at least you'll be more fun to hang around with).

•    Don't look at a typical lease purchase agreement and assume "that's the way it has to be". (Typical is not necessarily "good").

•    Don't assume your local part time real estate agent knows how a lease purchase is supposed to work. (I've met a lot of agents who don't know how a mortgage works).

•    Don't assume a contract has to be slanted in favor of the "tenant". (Remember what I said about "typical").

Personally, I like things slanted a little more to my side (hey, it's my house, right?). I want to be reasonable, but I don't want someone taking advantage of me.

My contracts are written so that the tenant is responsible for all general maintenance and minor repairs. That in itself saves a lot of potential problems. If a tenant knows they have to take care of their own problems, there tends to be fewer problems.

As far as getting monthly rent on time, some people just need a little incentive. And that's an easy thing to work into the contract. Just tie "rent credits" into getting paid on time. Money seems to be a great motivator.

And if you're able to do this on your own without the assistance of a real estate agent, you might just save yourself several thousand dollars in commissions.  

My partner and I have used this strategy several times to put buyers in our own houses and in most every instance, we've been able to do it in 30 days or less.

Maybe a lease purchase is something that will work for you too. But be sure to do your homework. It's not a strategy that fits every situation, but it might fit yours.

For more information contact Mike@LocalInvestorNetwork.com

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What Motivates Buyers to Buy?

by Michael E. Hart 

When markets are tough and nothing seems to be selling, what do you do?

Think about what gets a attention in today’s market. It’s a buyer’s market and most are looking for one of two things (if not both). To get a buyers attention today you need to be offering a great PRICE or great TERMS.

PRICE is simple. How low can you go? Drop the price low enough and a buyer will show up. So price is easy. It’s just a number. If it’s low enough, you can actually have buyers trying to outbid one another to buy the property.

But unless you’re selling a house from probate, or a rental house you’ve had for years and just no longer want, chances are price is not something you can afford to be that   flexible on.

TERMS however, that is something completely different. Most people don’t think about offering terms to a buyer. But good terms will get attention. Terms such as owner financing or offering to sell on a lease purchase.

Let’s talk about a lease purchase. What is a lease purchase? It’s a combination of a rental agreement and a purchase agreement. Basically, the buyer agrees to rent for a period of time and then buy the property.     

Selling on a lease purchase is selling with excellent terms. What are the terms? A buyer does not have to immediately qualify for a mortgage. You’re allowing the buyer to lock in a price for purchase, but providing them the luxury of time before having to follow through, qualify for the mortgage and purchase the house.  

You’re essentially giving the “tenant buyer” several months to arrange for financing, improve their credit, save for a down payment, or whatever it is that they need to do in order to be able qualify for a mortgage at a later date.

Allowing them TIME is giving them TERMS. This is exactly what the many of today’s would-be buyers need in order to actually purchase a home today, terms. And they need terms because the guidelines for qualifying have changed as a result of the mortgage market meltdown we’ve been hearing about in the news for the last several months.

Mortgage guidelines will loosen again eventually. But it will require more than “fogging a mirror” to qualify for a mortgage this time around. Steady employment, steady income and higher credit scores are what the lenders are looking for. And deserving buyers will again have their chance at home ownership. In the meantime, a lease purchase may be just what the doctor ordered … for both sellers, and buyers.

For more information contact Mike@LocalInvestorNetwork.com