Bloomberg reports this morning that the Phoenix Valley showed the biggest year-over-year increase, with prices rising 8.6% in the 12 months to April (2012). All and all, the Phoenix Valley showed the biggest monthly increase, with prices rising 2.5% from March. The composites index are as follows: 1 month - 2.47% 3 months - 6% 1year - 8.62% Combined with the lowest rates of interest for mortgage loans, there has never been a better time to buy real estate.
Ever thought of buying a house where the seller/owner is providing you with your financing? Also know as seller carry back and/seller financing, this sort of opportunity carries many advantages for both you as the buyer and yes, you as the seller, and a "win-win" for all the parties.
Yet, it's the key to one of the most elusive results in real estate.
Owner financing is much more conventional than given credit for. Much is to be said about owner financing, so I will skim over the general idea. I will not get into the technical mechanics of the process in this blog, but rather my intention is to make you aware of this opportunity.
Let me start with the advantages to you as a Buyer.
Perhaps you do don't have a stellar credit record for absolutely any reason - that sure would apply to anyone who short-sold their home in the last two years or if you have foreclosure on your record.
Or perhaps you find that the current home mortgage lending system too onerous, unavailable, or costly though the usual mechanics, means and methods of fees, points and related expenses.
However, you may or may not have a down payment (you should) and you absolutely have good qualifying employment income and cash flow. You can go about paying a mortgage the same way you are currently paying rent, perhaps for even a lesser amount for an even better home. The more cash down you have, the better off you will be.
Well, a seller/owner may be able and happy to qualify you for owner financing where effectively the seller- owner becomes the bank and finances you for the purchase of their home - your new home.
Owner financing takes various forms in terms of rate of interest, down payment, fees (if any), and time-duration of the loan. However, it is generally easier, faster and much less complicated to get into an owner financing deal for your new home than dealing with a lending institution.
So you as the buyer, get into your property and use it, get a marketable finance rate, tax benefits and don't have to qualify for the standard mortgage lending institution process.
And depending on the type of owner financing, you may create the option to "play" the market (wait and see if the market goes up, down, or flat) and have more favorable custom- designed terms and conditions that traditional lenders cannot do.
For the Seller.
You are between the principles of a hard asset and cash flow asset management. You own your home and it's paid for (I will not discuss WRAPS at the moment). You want to sell it. In a regular sales scenario, you wait for a buyer qualified the traditional way from a mortgage lending institution as it is a contingency in the sale. And yet, you cannot be assured it will close on time, if any, and to can go sideways on you at the very last moment.
So you provide the financing to your buyer. Here's the kicker. You can generate cash flow greater than earned on a deposit at the bank since owner financing usually carries a higher rate of interest (return) than an investment account. Like a steady 5 to 6% cash flow without a further investment than your own equity. And in most cases, the buyer makes a down payment just like a regular sale.
And! You have a due-on-sale clause in your contract, in case of eventual default by the buyer (new owner). In other words, you get your house back. Keep the down payment and the monthly payments, just like the bank. And, sell it again.
Seller/owner financing can take on different forms such as lease to equity, lease option, lease purchase, and land sales contract.
Should you have an interest in this subject and would like more details either as a seller or a buyer, I would encourage you to call or email me.
Many areas and subdivisions in Scottsdale have houses on
lease land. You'll recognize those areas in McCormick Ranch, Santo Tomas, the
various Briarwood(s), Casa Del Monte, Hilton Village, among others, and various
patio home developments by the Phoenician and Scottsdale Fashion Square.
So how does a house on lease land work? Well, the answer
is like this: you own the house but not the land on which the property occupies
-- you lease the land.
The typical land lease in Scottsdale is 99 years, and
sometimes you find the 30 year leases. To keep it short as the formula can
actually be more complex, the home owner on a land lease usually pays one share of the total number of
houses in the development. So for a 200 home development, you would pay one two
hundredth of the total lease cost, a sublease of the main lease. Or sometimes,
a fraction of the sales price of the home.
So why buy a house on a land lease? Because you get more
house for the dollar in the total purchase -- you don't buy the land. The land
part of the property, you lease. So consider the purchase of a $500,000
residence built on a $150,000 lot. You may be able to buy an equivalent home
for $350,000 on leased land. So the lease payment for the land, let's say about
$350/month is $4,200/year.
But if you would have purchased the land at $150,000,
mortgage it 30 years on a fixed conventional loan at 4%, your monthly payment
is $716.12/month. It would have cost you over $300,000.
So let's take it to another level. The difference of
$366.12 invested at 4% for 30 years is a nest egg of about a whopping $255,000.
See what I mean?
But let's take a look at a cash purchase rather than a
mortgage loan. The amount tied up in land is $150,000. The same applies here.
Rather than paying a mortgage loan on it, you would have it invested and
deriving an investment income.
So perhaps this helps you understand why companies and
individuals choose the land lease option. It may not be the vehicle option for
you, but consider all the options before making a decision. It's a good way to
get more home for your money.
The other way to look at a land lease is to compare it to
the high priced HOAs in Gainey Ranch at $500/month, Sandpiper $525/month, 3rd
Ave Lofts at $800/month, and The Waterfront at $1,000/month. HOA fees usually
increase every year or so, whereas land lease fees are fixed for very long
So if this is of interest to you, please let me know, land lease properties are on sale right now.