You may not have noticed, but the residential marketplace is changing. In some ways, the more the marketplace changes, the more it stays the same. Too many people are still unable to buy a home because of high home prices, wages that don’t keep pace with inflation, and strict mortgage approvals. As of Mid-March, higher interest rates will be added to the burden making it more difficult for first-time buyers. But…
…Rent to own properties continue leveling the playing field to make it possible for people to enjoy the benefits of owning a home sooner rather than later.
Higher Interest Rates are Coming Now
The median price for a home in January was $350,300, up 15.4% from a year ago, according to the National Association of Realtors. And that was in the middle of the winter. One of the big reasons was to lock in interest rates ahead of the Mid-March rate increase by the Federal Reserve that is now considered a foregone conclusion.
Rent to own properties and sandwich lease options will play a strong role to help people find a way to become homeowners in the tough months ahead.
Mid-March is also almost certain to be only the first uptick in interest rates this year. Three or four more rate hikes are expected to follow in coming months. The ability to purchase a home has been a big problem for millions of people for a couple of years already.
It won’t get easier anytime soon without a creative solution like rent to own properties.
Here is what you can expect as mortgage rates rise…
What Higher Mortgage Rates Mean for Rent to Own Properties and Homebuyers
Rising home prices plus higher interest rates will eliminate many buyers from the market. Fewer buyers should lead to more stable prices and fewer bidding wars. The refinance market has already seen a 45% decline because most homeowners that could benefit from the historically low mortgage rates have already done so.
Moderate-income buyers who were barely qualified for a mortgage when interest rates were lower will now be unable to afford a mortgage. Even those that had a cushion in qualifying will see it harder to afford a mortgage because their total budget will be impacted by inflation rising all consumer costs.
As mortgage rates rise, affordability will keep many more buyers out of the market. For rent to own investors, this will reduce the competition for the limited supply of homes. At the same time, there will still be pent-up demand from first-time buyers.
It will be the ongoing pent-up demand for homeownership that heats up the demand for rent to own properties!
Rent to Own Properties – Move in Now, Buy Later
When fewer people are able to buy homes because of higher mortgage costs, the rise in home prices can be expected to slow. Bidding wars may soon be a thing of the past. This can be good for investors interested in rent to own properties. More sellers can be expected to enter the market as they realize this is the top of the market and it is time to sell. Or will it be too late?
Enabling buyers to qualify for a mortgage is the backbone of rent to own properties.
Investors and sellers will have a solution with sandwich lease options.
Rent to own properties work well in all scenarios. Especially my favorite, the sandwich lease option. If people cannot buy, they have to rent. Rent to own properties is a great solution in this scenario.
For both sellers and sandwich lease option investors, this is an opportunity to collect reliable monthly rent as a landlord without the hassle of maintenance and repairs. Once the deal is in place it becomes a passive income stream. Based on my decades of real estate investing experience, I’m firmly convinced that lease options are the least risky and still highly profitable niche for investors in this scenario.
You can expect tenant-buyers to treat rent to own properties as a purchase agreement. Although they are renting, their intention to purchase is already there. Tenant-buyers should have an inspection done before signing the contract. Then the tenant-buyer needs to take the step of working with a mortgage professional to develop a plan enabling him/her to qualify for a mortgage before the option period expires. This creates the mindset of buying the home. Tenant-buyers take better care of homes. The sandwich lease option contract specifies that tenant-buyers make and pay for most repairs. At the same time, you and the seller collect a higher than market rent with the full expectation of a big profit when the sale closes in several months.
This is the best of both worlds!
Rent to Own Properties is a Solid All-Around Strategy
Real estate markets change. They go through a well-known cycle. There are hot markets, normal markets, and cool or cold markets. Market conditions don’t change overnight but there are leading indicators. We’ve enjoyed the current hot market for several years. This was a sellers’ and landlords’ market. Landlords enjoyed ever-increasing rents. Rent to own investors did also. Rehab flippers enjoyed ever-increasing sales prices. Rent to own investors did also. Today, rent to own properties will continue flourishing as the market moves from hot to normal and will continue prospering even when the market eventually cools off.
Something good for tenant-buyers (and rent to own investors) is that all the foreclosures, short sales, job losses, and other credit disorders from past years are now removed from credit reports. But that doesn’t make it is clear sailing for homebuyers. The mortgage market has already changed, interest rates have already risen since last December. It’s time for investors to adjust to the new market condition of higher interest rates.
Rent to own properties will continue thriving in this environment while other investment strategies struggle.
Why Rent to Own Properties Will Continue to Prosper
The tenant-buyer’s credit score and down payment are a benefit in today’s evolving real estate market. Rent to own properties have a built-in mechanism to help people rebuild their credit by making timely rental payments during the lease period. This increases the likelihood that they’ll be approved for a mortgage to buy the home in a short amount of time. The lease option fee applies to the down payment. Even if that isn’t enough for the full down payment, the tenant-buyer now has time and motivation to save the rest during the option period. At the same time, sandwich lease options continue to be favored by investors…
You don’t own it, no one can sue you for it, and no one can put a lien against you – this is low-risk investing. Your expenses are nothing because the tenant-buyer pays for repairs and maintenance. As an investor, you don’t have to have any money in the deal. You pay a small “option fee” for control rather than a hefty down payment. Your small option fee typically comes out of the tenant-buyer’s large option fee. That makes it no or low cost.
Exactly what you’re looking for – a low-risk and low or no-cost investment property!
Who is sandwich lease option investing suited for? The short answer is any investor. Beginning investors that are cash poor find the cooperative lease option particularly appealing. As does the experienced investor that has maxed out his/her ability to obtain new financing with high interest rates. Also, every investor in between. Real estate investing is about “controlling” as many properties as you can. It is NOT about “owning” as many properties as you can.
This makes rent to own properties ideal in today’s market with rising interest rates!
Answers to investing questions in any real estate market are immediately available to you:
- Begin with Cooperative Lease Options.
- Advance to strategies for Buying and Selling with Sandwich Lease Options.
- Your Wealth Building Arsenal.
- Investing In Real Estate with Lease Options.
- Add Personalized Coaching.
- Expand to Get the Deed “Subject To.”
- Round it all out by Working with Realtors.
By Wendy Patton
For more than 30 years, I’ve used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It’s because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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