Rent is better than buy and rental option is better than both

I want to move into a new property -- but don't want to buy it "up front." I want to rent it with an option to buy. I have decided that it would be too difficult to find such a property through the usual channels of realtors who think only of "sales commissions."

In the market which we are within or approaching, there will be many frustrated owners, angry with realtors who do not sell their property at a price which would have been easy some months earlier.

Housing affordability in October sank to its lowest levels since 1991, according to the National Association of Realtors' Affordability Index, a widely followed measure of the average household's ability to buy a home at current interest rates. In some areas, including New York City, Los Angeles, San Diego, San Francisco and Miami, housing affordability has dropped to levels not seen since the early to mid-1980s, according to mortgage giant Fannie Mae. (Source: Wall Street Journal, Dec. 22, 2005)

The smart realtor will realize that HE can get involved advising owners of property to allow HIM to find a "rent-to-own" person for the property.

For an realtor willing to work with me on rent-to-own, I'm willing to pay attractive finder's fees. See the description of my luxury time share unit in the Bahamas. I have others. They could be part of a fee.

An owner who has listed his property for sale will be, of course, bound by his Realtor Listing Agreement. Click here for information about the Legal Requirements, according to the State of California, for a valid Realtor Listing Agreement. The "Rent to Own" concept is sweeping the market -- it is now a good time to review more of these concepts -- here.

I am looking for an owner willing to consider a lease-option purchase arrangement. I am also looking for the realtor who sees the practicality of entering this little-used tool. I do not expect most realtors to be eager to help me since they usually do not make a commission on such -- but if the offer is made properly the realtor, nonetheless, can have a good income from helping "rent-to-own" buyers.

If the realtor does NOT see this reality, then he may realize that he is required by law to submit such a Rent-To-Buy offer to the owner. The owner may have a different interest than the realtor and be ready to discuss terms with me.

My Property Interest

I want to move my going business, my warehouse and my residence into a space of about 8,000 square feet or more -- several structures would be fine. The ideal would be an abandoned farm with at least 5 acres, barn and other structures that need work, but would total about 8,000 sq ft. I can move in with as little as 4,000 sq ft as long as it is usable, and bring the other 4,000 sq ft up to my standard over a couple years.

I am currently paying rent of $4,000 per month so can easily afford to pay a rent-to-own of that type. The typical rent-to-own contract includes an "option price" which may be one or two months' rent. I can certainly do that!

If the property would rent easily to another person, I would probably be willing to pay the list price, or some slight discount. If the property is so unusual (an abandoned farm?) I would probably offer a lower sale option price.

I'm ready to deal today and start paying as soon as the paperwork is finalized.

In addition to the "ideal" of a distressed farm property, I am also quite willing to look at a warehouse, mostly empty on the inside, at least 10,000 sq ft. The terms of this page still apply, but I could handle a warehouse where I would construct most of the residence and office space that I want -- from scratch. Below I mention that I don't want raw land on which to build. That is true. The warehouse has the needed feature of a roof and existing foundation and utilities. I'm willing to do construction from scratch inside a warehouse.

The same is true of some empty hospital, church, school or other property where there is that 8,000 sq ft of structure and ready for me to construct or repair offices, residence and warehouse facilities.

My ideal, and easier to arrange a rent-to-purchase for, would be a large luxury home, say 5,000 sq ft, and some extra space (4,000 sq ft) where I could locate my warehouse (or just the inventory) and office space. I wouldn't have customers coming to my office so I could probably even be in a residential area with my small office staff in my home.

I want to rent this space on a long term lease-option. The lease payment could be $4,000 per month (negotiable), all of which would apply on the purchase. With suitable guarantees to the owner I might rather invest $4,000 per month in repairs, reconstruction and related improvements. These repair costs would become the property of the owner if I do not exercise the purchase option as agreed. The purchase option price can be above the current fair market value of the property since this is to be two five-year options.

(A ten-year option may be considered an "installment sale" by the IRS and not be to the tax advantage of the seller.)

The price will need to be fixed in advance so that the value of my improvements do not affect the option price based on the appraisal at that time -- an appraisal which would include my improvements.

The shorter the option period the lower the option price and rent will have to be.

I expect that the property we want would not be very easily sold because of whatever construction or repairs are needed. Also, I believe real estate prices are starting to drop and that SOME owners are stretched too thin and ready to bail out. Thus, I would expect that the property is vacant and that the owner may well have "given up."

I am not very interested in considered "newly listed" properties. A property that has been on the market for 30 days of more would be my place to start looking.

I am capable of seeing the "optimistic" side of any property, and what can be done with it -- but expect the selling price (for the option) to reflect the fact that it may be abandoned or vacant, or need major repair or that that the owner needs to move fast. Obviously the easiest type of "repair" I would like to do would be "remodeling" rather than a complete replacement of an entire structure, or the creation of new sewage or the provision of missing utilities. The image on the left does not seem like what I am interested in. The image on the lower right would be of more interest. The total size of one or more structures will be an important factor. Some "unusual" feature may well be a real plus!

Over the first five-year lease period I could be investing at least $240,000 for repairs and improvements. If I exercise the option to renew the lease, there would be another $4,000 per month of this investment.

It will be my intention to finance the original purchase by taking out a standard mortgage based on the improved value -- so that it will be easy to obtain financing for the option selling price, based on the new improved valuation. There is also my expectation of having construction teams do much of the "heavy work" and for them to accept a second mortgage subordinated to whatever financing I put in place to exercise the purchase option.

I would need the standard protection and action by the owner to record my lease/option on his deed and agree on terms that would not endanger my lease/option.

I will be looking for a lending source that would show interest in financing this package when and as certain improvements are completed and appraised.

What is wanted is a five-year lease with an option to renew the lease for an additional five years, and with the purchase option to be possible at any time during the lease, and required by the end of the second term lease if that option is taken. Failure by me to exercise the purchase option would result in forfeit of the $4,000 per month (or more) invested by me in upgrading the property.

Click here for the type of improvements I want to make -- depending on what characteristics the property already has.

If the property involves farm acreage, the owner should know that I do not intend to do any commercial farming, and that a farm operation, on a rental basis, could be available to another party (who would not, however, have use of any of the structures).

In addition to considering a farm property, I would also be willing to consider a warehouse, empty hospital, vacant church or school or a simple large luxury home. The type of property is not as important as finding one where the owner would probably have difficulty selling it because of its condition, but where I could move in before the end of 2005, have enough space for minimum needs, and start immediately in the improvement project.

I am not, however, looking for vacant land on which to build -- I am looking for existing structure, totaling about 8,000+ sq ft. This would be structure in need of repair or remodeling.

The lease/option would need to be recorded on the deed. Probably the best way to do this would be to open an escrow, get a preliminary title report (it would have to be clean of problems) and include the lease/option terms within the escrow. Escrow would close either when I fail to live up to the promised performance (monthly pyments) or exercise the option.

I am in the process of obtaining very skilled legal/realtor advice on the entire concept of lease-option - so the seller should expect a sophisticated offer from me.

I will want to be sure that a bankrupt owner will not have the property foreclosed and I could lose the entire investment I would have made by then -- up to $580,000 over 10 years. So, someone whose property is indebted over its current value couldn't possibly sign a deal with me -- there would be no protection for my option. The details of the improvement project could be approved in advance by the seller. The $4,000 monthly investment could be handled like a required lease payment (into a "construction" account) with failure to pay in this amount making the deal forfeit.

The property may be located anywhere in the US, subject to "good climate" and good value. We can operate our mail-order business from anywhere. We would need access to high speed internet and UPS service. We want to avoid the cold weather. Arizona or Nevada, or any of many other areas would be fine.

Originally we were looking for somewhere within about 50 miles north or east of Los Angeles and have suitable power, water, gas, high speed internet and sewer available. A more desirable location would be within 25 miles radius of Westlake Village, California. I've looked at the prices in that area and suspect that there might not be many opportunities in that area -- that is why we have now broadened our interest outside the State of California.

My business involves the sale through the shopping cart on my web sites of vitamin products of my design -- generally shipped all over the world by UPS and other shippers. No retail trade would be conducted at this location. This business is primarily an Internet Business. I have more than 100,000 web pages published, including THIS.

Reasonable inspection and access to the operation would be available to the property owner on a continuing basis.

I will want the occupancy and eventual purchase of this property to be in the name of a "land trust" of my design. If it is possible for the owner to take any depreciation or other tax advantage of the improvements, that will be OK with me.

Timing

I am ready to start looking and negotiating immediately. I can and will drive to any location that fits my interest -- and to drive there within a few days of notice of the details. I do NOT expect the realtor to negotiate for me, but to find some initial alignment between my interests and the property. It will be I who finalizes this deal with a property owner. I expect to qualify any property, and the owner, as ready to do a lease-option before I spend time looking.

I would like to be able to move the warehouse and office space not later than October 2005, and the residence space not later than December 2005.

Full modernization is expected to continue for some years beyond initial occupancy.

Time Share Luxury Resort Barter

I own time shares in Starwood properties and am willing to arrange the details of an award of the equivalent of credit which I accumulate each year for one time share unit. This time share has been used already for the year 2005, so will be available for any time during 2006. CLICK HERE for the arrangements I've already made for my personal use of this time share in 2005. The time share I have at the Atlantis, for instance, costs about $875 per night for a "premier two bedroom villa." This has a full kitchen and dinning room, plus two bedrooms, each with its own bathroom. There is also a balcony overlooking the water. I have stayed in one of these "villas" and know them to be luxurious. I will be going again next December, with friends.

For an unusually attractive lease/option deal I could even throw in first class air travel from LAX to the Bahamas for two persons -- using my mileage points. Time shares and mileage points usually require planning long in advance and cannot be changed once they are set -- but these costs are regularly paid in cash by thousands of travelers, so the barter deal is "real."

Depending on which of the 12 luxury resorts or which of the hundreds of other luxury hotels, all over the planet, I will transfer my "points" to the realtor who provides the information leading to my successful culmination of the lease/option agreement described on these pages.

The Wall Street Journal recently published a report comparing renting with buying. For the first time in the history of this regular report covering 25 US cities, renting was a better deal than buying in every city -- with San Diego and Los Angeles showing the biggest advantage for renting versus buying. This is simply a reflection of the fact that prices have risen so high that it is virtually impossible to rent a property at any rent level that would correspond to the cost of buying. The people who are buying are betting on a continued rapid inflation of home prices -- the bubble is expanding. Will it burst? Are there people who are eagerly blowing up their own balloon while the needle is close?

In my opinion any property which is already "difficult to sell" because of repair or "high price" problems has a much better chance of being rented than being purchased in today's market. Realtors who see this view might be well-advised to look for "rental/option" deals, such as this one, for assuring their personal business income. Property owners who had hoped to sell and may have "missed the market" would be well-advised to consider a rental/option deal such as this one.

In the debate over whether the housing market is a bubble about to burst, the crowd that argues it isn't has been able to cite reassuring utterances by Federal Reserve officials. But there are proliferating signs that the housing market is looking a bit frothy. And now the U.S. central bank is beginning to worry more about it.

It isn't only that housing prices keep rising faster than almost anything else, up 10% on average nationally in 2004, according to the U.S. Office of Federal Housing Enterprise Oversight, and up 25% or more in the hottest markets in California, Florida and Nevada. (WSJ source)

Over the past five years, raging real-estate markets in some coastal areas have more than doubled housing prices, while farther inland prices have risen more moderately. That has stretched the price gap between the middle of the country and the coasts far beyond the norm. The typical home price for the 10 American metropolitan areas with the highest housing prices has jumped to 230% of the national median from 155% five years ago, according to an analysis by Economy.com for The Wall Street Journal.

Americans have been arguing for years about whether the surge in home prices on the coasts represents a bubble -- like Internet mania or the 1980s real-estate boom -- or merely an adjustment dictated by supply and demand. But anxiety over the question has been rising lately amid signs that some markets are finally cooling off. Inventories of unsold houses have begun growing in many parts of the nation, including Orange County, Calif., where the median home price has surged to $655,000, up 84% since 2001. Some owners are rushing to sell before it's too late. (Wall Street Journal)

The most recent WSJ report on national statistics of housing shows California housing sales actually decreased in the most recent quarter. (source)

So we were glad to hear the Fed Chairman use his bully pulpit again yesterday [May 19, 2005] on behalf of limiting the mortgage-backed securities portfolios of Fannie Mae and Freddie Mac. Limiting those MBS portfolios -- which have climbed to $1.5 trillion from $132 billion in 1990 -- is emerging as the key issue in how to prevent Fan and Fred from running into trouble that would stick taxpayers with a bailout tab. (Source)

(source)

Note on Stats: My log files allow me to measure the access to this page. By way of benchmark, on May 18, 2005, this page was ranked number 217 on this entire web site, with 21 visits during the previous 7 days -- probably almost all me as I was checking the page for viewing.

On May 18, 2005, I started my direct mail campaign with letters sent to 39 realtors in the Westlake Village area -- I will be sending out more such letters, and checking the statistics of visitors from my log file from time to time.

For the week ending May 25, 2005 there were 224 visitors to this one page. Even I am surprised, but very pleased, at this response. This page is my best shot at this technique. If this page doesn't work I have other techniques I will try. With this number of visitors this page ranked #10 in popularity.

On about May 18th, also, I sent out a small private mailing pointing to www.karlloren.com/realtor5.htm -- an interesting series of articles about real estate in the WSJ -- there were more than 330 visitors to this one page within a week after that small mailing.

Area 5: Karl's weekly electronic newsletter is sent out every Tuesday night. The issue of May 25, 2005, right after Karl's 74th birthday was sent out and is here:

Area 6: Karl has purchased a list of 3,600 realtors in Southern Califonria, and will start sending out letters to these people to suggest they visit THIS web page. The source is linked to the image on the left. The first mailing to this list was a group of 400 names located in the following zip codes: 91403, 91411, 91413, 91423, 91426, 91436, 93001, 93002, 93003, 93004, 93006, all mailed on May 23, 2005.

A second batch was mailed on May 24, of about 30 names to complete one zip code not fully used up in the previous mailing.

Rent is better than buy and rental option is better than both

For the seller, Realtor and the renter/buyer

The Real Estate Professionals’ Viewpoint:

The seller who is frustrated by the lack of interested buyers being brought over by the real estate agent might consider a rent to own by himself. The realtor, then, would lose out on any income from this transaction, depending on the realtor's sales agreement with the owner.

The realtor could stimulate a rapid response for their sellers’ home from the market place by running rent to own ads. The agent/broker could profit up front regardless of whether the option was sold or not by charging a management or consulting fee in addition to the normal commission.

Note: In most jurisdictions, agents are not allowed to receive a commission in advance of the sale!

My Property Interest

Timing

Time Share Luxury Resort Barter

Property Improvements