I have put together Seven Secrets for selling (or renting for that matter) a house when no one else can and this secret is called, "Make Your House Sell Fast by Making it Easy to Buy." Stay Tuned for More.
(Normal disclaimer, this is not legal, accounting, financial planning advice and you should contact a board certified real estate attorney to be sure the laws in your state allow what you are going to do and to see that you are doing it correctly. All real estate closings should be done by an attorney or licensed closing agency and check out the person you are dealing with.)
Of course the first thing that comes to mind is to lower the price of the house so that it is priced lower than the homes nearby that are similar and have sold in the last six months. This probably will not be a pleasant experience since roughly half of the houses that sell in my area are bank owned properties selling at very low prices. The property appraiser in my county now uses these sale prices to determine appraised value under certain circumstances.
I "discovered" what I consider a better way to accomplish the same end- kicking and screaming-nearly a quarter of a century ago and have been using the technique ever since. At the time Maryan and I were stock brokers in Boca Raton and were looking to move back to Pinellas County to start a stock brokerage business. Problem was we had a house to sell.
Not only was the market bad back then, but the house we owned was one mile away from where they were planning to build a garbage burning incinerator (which we did not know about when we bought the home). Fears of disease from the smoke coupled with the bad housing market had driven sales in our subdivision to near zero.
We knew nothing about real estate. We could not sell it ourselves and turned it over to a real estate agent and moved to Palm Harbor, now owning two homes. Maybe you can relate to that?
A few months after making two sets of payments, the agent called to say they had a buyer with almost no money to put down and could not get a loan. Would we finance?
Knowing nothing about real estate, we were pretty negative. "What if they don't pay?" "What if they destroy the house?" "What if they leave in the middle of the night?"
I don't really remember how many "What Ifs" we came up with. And then the real estate agent said, "you need to be able to compare the bad things that are really happening (two sets of payments, two sets of taxes and insurance, bad things happen to vacant houses, you are six hours away, two lawn services, etc.) with the "bad things" that might or might not happen."
We sold the house. We didn't have the skills or knowledge to rent it out at that time. Normal closing. Seller signed a mortgage and note to us and started making payments and paying all of the local costs. We went from negative cash flow to a nice positive and everything was fine for a few months.
Then... A check bounced. I was frantic, panicky and had no idea what to do. So we went to a lawyer. I didn't know I should have a real estate lawyer. A lawyer is a lawyer, I thought. He wrote a letter to the new home owner and said "pay."
The letter was a little longer than that, but not much. They paid. He charged me $75 for the letter. And I started thinking, "I bet I could have written the letter and saved $75."
About a year later they refinanced and we got all of our money. We had sold at top dollar, but more importantly we had sold a house when no one else was selling at top dollar, because we had made it easy for someone to buy.
Frankly, I really didn't "get it" at the time and continued being a securities broker for a couple of years before going into real estate.
If my stock and bond customer had bought a stock for $30 a share and the stock is now $15 a share (a 50 per cent decline, much like the decline in real estate values over the last few years) there is nothing he can do to sell at $30 a share. But in real estate you can come close to doing exactly that.
Let's say you bought a house five years ago for $60,000 and today it is worth $30,000. You live in Buffalo and maybe use the house two weeks a year and pay all the expenses 52 weeks a year.
1. You could rent and wait it out. And that is what I am doing now. And I am told that if you are not temperamentally suited to be a long distance landlord, you probably should not be one, or should learn how to meditate to maintain your health and sanity.
2. You can list it with a real estate agent at $60,000 and hope one of those dumb rich people buy it. Have to be a rich person, because anyone getting a mortgage (if anyone can) will have to have the house appraise for twice its value. Not going to happen today!
3. Sell it for $50,000 to a landlord with seller financing.
4. List it at $30,000, sell for $27,000 and net about $24,500 cash now.
I think it is pretty amazing to compare option 3 with option 4 in terms of a Win Win situation.
Option 3 might look like this. Landlord buys for $50,000 no cash down, pays all closing costs and pays the seller $278.00 a month for 15 years, realizing 50,000 cash, no further expense for taxes, renovation, vacancy, insurance.
Landlord pays $278 plus taxes, insurance, etc. and rents for $600 a month, or about $6,000 a year in gross income a year after vacancies and repairs and $1,500 to $2,000 a year net after house payment, taxes and insurance. Obviously these numbers will fluctuate dramatically.
Option 4 puts $24,500 in cash in seller's hand which she/he can put in the bank for less than 2% interest yielding about $41 a month cash into the hands of the seller, which she/he then gets to pay tax at the ordinary income rate, maybe 15 per cent a year, or $34.85 a month.
The Big Problem, however, is the what ifs!
And, without doubt, if you sell enough houses this way all of the things you fear will happen at some time.
Fortunately, there are some things you can do. And understand that no matter how careful you are some bad things will happen. Fortunately most of them are fixable a lot easier than you anticipate.
This may be my prejudice, but I would want to sell to someone with a track record that I could verify. And I would do it this way.
First, check the public records in the area where the house is located and see if the person buying my house owns other houses and has done so for a long period of time. Many landlords enter the business by accident or without knowing how stressful it is and are delighted when they sell their final rental house.
Look for someone who has owns housing and has rented it for years.
Then look in the records of the county civil and circuit courts to see if this person has failed to pay other people in the past. Of course look for foreclosures and look for the early warning signs of foreclosure which is law suits against the person from banks and finance companies. Frankly if you find a land owner in this market with an unblemished record of making payments, I would think that was an awfully good person to trust.
Part of the reason this work for buyer and seller is eliminating the banks form the equation. If the Landlord got a bank loan and paid the seller cash, the seller would still be getting paid lunch money each month and the Landlords would not be profitable because the banks charges a lot more for money than they pay for it. Also interest payments from the bank is taxable, reducing your net monthly income.
