Newsletter Articles
Winter Articles as seen in Volume 1, Issue 4:
Lease Purchasing in a Bear Market
By Michael Hironimus
Well, December is behind us and the holiday fog has lifted. We rang in the New Year and hoped that 2008 would be better than 2007 in real estate. Unfortunately, 2008 started out with a rude slap in the face. The stock market is off to a dismal start, the dollar continues to trend downward and most real estate professionals project the housing market to hit the trough this year as more adjustable rate mortgages reset within the next two years. What everyone’s asking is: where is the bottom to the market? There are many factors affecting the residential housing market, which are too long and involved for a newsletter, but a few of the basics include: high foreclosure rate, high inventory rate due to skeptical buyers, and tightening credit standards. In this crazy financial environment, what is one to do for their family and the dream of owning a home?
Lease purchasing allows families to build equity in a home while waiting out the uncertainty of the housing market. Imagine controlling a property and building equity, but not having to worry about a slumping housing market. Lease purchasing gives you the option of checking out the home, the neighborhood, and your neighbors before taking the big plunge into the housing market. If the market goes south, you don’t get hurt; but if the market appreciates within your lease term, you have the price of the home locked in and have built equity in a home that is suddenly worth more than what you could buy it for. Talk about control over your future!
Let’s take a hypothetical situation. Say you find a beautiful lease purchase home for $2000 per month rent, with 50% rent credits applicable towards the purchase price of the home. It’s a two year lease and the purchase price is locked in at $500,000. It’s only 3% to get into the home instead of the traditional 10-20% and it is also applicable towards the purchase price. This is how it will look.
Selling price: $500,000
Rent credits: $24,000
Option consideration: $15,000
Purchase price: $461,000
So instead of throwing away $48,000 in rents for the past two years, you’ve built equity in a great home in a great neighborhood. Now let’s add in a conservative 5% annual appreciation, and suddenly you’re buying a home for $461,000 that is actually worth around $550,000!
Now, instead of appreciation, what if the bottom drops out of the market and housing declines for another two years (which will never happen according to history)? You haven’t been hurt at all! In fact, maybe you saved even more money by not being dragged to the bottom of the housing pit of despair. Either way you have the CONTROL and you get the opportunity to make intelligent decision based on the current market trends.
So bear market…bull market, who cares? You can sit back, relax, and smile, knowing that you hold the key to your financial future. Furthermore you can make intelligent decisions for your family, on your terms and your time. Now if they only allowed you to buy stocks on a lease purchase…
OR 
Who cares?!
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