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Lease Options Solve Sellers’ Problems Too!

Kathy McWilliam Home Owners April 5, 2018 Leave a reply

There are several situations in which a straight-forward real estate purchase and sale transaction is not necessarily a seller’s best solution.

1. They may be responsible for managing and disposing of a property for an elderly relative who has moved into an extended care facility. 

With a lease option agreement in place, they can receive rental income for the term of the agreement, and sell the property to the tenant-buyer at the end of the agreement. The rental income can help pay for the extended care, with a lump sum at the end to use in the best interests of their loved one.

2. They may need to move to another locality,  and find another home, quickly – so quickly that covering the costs of the property they already have while they are trying to sell it will be financially disastrous for them.

With a lease option agreement in place, they can receive rental income to cover their existing mortgage, insurance and taxes during the term or the agreement. At the end, they will be able to sell the existing property at current market value.

3. They have become widowed, or they’ve had a relationship break-down, so that they are suddenly responsible for carrying the costs of their existing home by themselves. 

With a lease option agreement in place, they can down-size to a living situation they can afford on their own. Meanwhile, the monthly rental income will cover their costs, and they will be assured of a sale at the end of the agreement.

4. It’s a buyers’ market, and their house is not generating a lot of interest. They’re thinking seriously of taking it off the market, even though they really need to move on.

There is a market for houses like theirs, even in a buyers’ market, of people who don’t yet qualify for a traditional mortgage. With a lease option in place, they can move on and collect rent while the tenant-buyer lives in their home, repairs their credit and/or saves for their down-payment. By the end of the lease option agreement, the tenant-buyer qualifies for a mortgage and a normal closing takes place. Then, the sellers get their equity out.

Should I Rent or Should I Buy?

Kathy McWilliam Housing Options April 5, 2018 Leave a reply

The common old ‘saw’ is that when you pay your landlord’s mortgage, your landlord’s equity increases and you have nothing to show for it.

In a perfectly predictable future that would be true, in most situations. We have seen, however, that property prices and the cost of financing can vary, sometimes wildly. People have been burned, yes they have, and the reputation of home ownership as the safest of investment bets has taken a bit of a beating.

So let’s look at home ownership for you as an investment and compare it to renting. We’ll assume that you are equipped for either scenario – you have access to funds for a down-payment, closing costs, home ownership costs like taxes, insurance, maintenance and on-going utilities costs. You are equally able to pay rent and/or condo fees, parking, utilities, damage deposit, first/last month’s rent for a unit in your desired location.

The money you use for a down-payment on your own home is very much a direct contribution towards your home equity, and seen that way, the larger the down-payment, the better. The money you use for deposits (damage deposit, first/last month’s rent) on a rental unit can garner you some interest earnings and the longer you remain in the rental unit, the more interest you will accumulate. That assumes you will not incur any major damage expenses over the period of your lease, of course.

What of your periodic rent or mortgage payments? It is obvious that the rent you pay a landlord improves his/her equity position and rental earnings (providing he/she charges the right rent).  What you get in return is freedom from responsibility for home-related expenses. You also have the opportunity to invest your savings in other ways: stocks, bonds, etc.

So given that renting has many advantages, especially for the foot-loose and fancy-free, why is home ownership still the holy grail for millions? What is its’ continuing allure even among folks who refer to homes as ‘money pits’?

First, there is the common-sense response that ‘I have to pay to live somewhere – why not pay myself? Because once your mortgage is paid off, the asset is yours. And during the mortgage period, you are able to experience the home as if it were yours alone already, to renovate, to improve, to sell, to enjoy.

The common old ‘saw’ is that when you pay your landlord’s mortgage, your landlord’s equity increases and you have nothing to show for it.

In a perfectly predictable future that would be true, in most situations. We have seen, however, that property prices and the cost of financing can vary, sometimes wildly. People have been burned, yes they have, and the reputation of home ownership as the safest of investment bets has taken a bit of a beating.

So let’s look at home ownership for you as an investment and compare it to renting. We’ll assume that you are equipped for either scenario – you have access to funds for a down-payment, closing costs, home ownership costs like taxes, insurance, maintenance and on-going utilities costs. You are equally able to pay rent and/or condo fees, parking, utilities, damage deposit, first/last month’s rent for a unit in your desired location.

The money you use for a down-payment on your own home is very much a direct contribution towards your home equity, and seen that way, the larger the down-payment, the better. The money you use for deposits (damage deposit, first/last month’s rent) on a rental unit can garner you some interest earnings and the longer you remain in the rental unit, the more interest you will accumulate. That assumes you will not incur any major damage expenses over the period of your lease, of course.

What of your periodic rent or mortgage payments? It is obvious that the rent you pay a landlord improves his/her equity position and rental earnings (providing he/she charges the right rent).  What you get in return is freedom from responsibility for home-related expenses. You also have the opportunity to invest your savings in other ways: stocks, bonds, etc.

So given that renting has many advantages, especially for the foot-loose and fancy-free, why is home ownership still the holy grail for millions? What is its’ continuing allure even among folks who refer to homes as ‘money pits’?

First, there is the common-sense response that ‘I have to pay to live somewhere – why not pay myself? Because once your mortgage is paid off, the asset is yours. And during the mortgage period, you are able to experience the home as if it were yours alone already, to renovate, to improve, to sell, to enjoy.

There is the emotional tug towards home ownership, a desire to have a patch of earth, a stable base.

Third, home ownership is attractive as the kind of investment that, though ponderously slow in its’ process, is pretty much effortless. You can tweak it from time to time, for instance, by changing from a monthly to a bi-weekly payment schedule you can chop a year or two off the length of the mortgage. Then, at the end of the mortgage, you have something you can convert to an income-generating asset of another type, or simply live mortgage-free. The only questionable aspect is what the future value of the home will be at mortgage end.

Second, there is the emotional tug towards home ownership, a desire to have a patch of earth, a stable base. This often comes with parenthood, but you don’t have to be a mama to be emotionally drawn to the idea of putting down roots that include your own tree, in your own yard.

Third, home ownership is attractive as the kind of investment that, though ponderously slow in its’ process, is pretty much effortless. You can tweak it from time to time, for instance, by changing from a monthly to a bi-weekly payment schedule you can chop a year or two off the length of the mortgage. Then, at the end of the mortgage, you have something you can convert to an income-generating asset of another type, or simply live mortgage-free. The only questionable aspect is what the future value of the home will be at mortgage end.

Most people can live with that level of uncertainty.

Share Your Financial Truths with Your Partner

Kathy McWilliam Thought Starters February 16, 2018 Leave a reply

For Valentine’s Day this year, Justin Thouin, CEO and Co-founder of lowestrates.ca offered up some really good advice to the growing numbers of people who don’t tell their partners about the state of their finances. Good or bad.

It’s NOT crass to talk money with your sweetie. It’s essential, especially if you start to make life plans with each other. Full disclosure, folks! Leads to secure and trusting relationships. Dishonesty about debt and spending ranks right up there with infidelity as ‘ways to lose your lover’.

Who better to help and encourage you to gain financial control than someone who shares your life goals? If you’re in trouble, or your partner is, talk about it soon and often, and make a correction plan your most urgent goal.

Click here to see Justin’s blog on the subject and the research on which it is based. Money Bomb