How To Beat Being Priced Out Of Renting In Your Area

Posted by JD Esajian

Affordable housing is becoming a major issue in many American cities. Many residents and key workers are simply being priced out of the cities they have lived in for years, and where their kids have been growing up. So if you feel like you are being priced out of town, what can you do about it?

America’s Affordable Housing Crisis

While we technically still have a long way to go to return to previous real estate highs, many are complaining about a lack of affordable housing. Earnings just haven’t kept pace with rent and home price growth. Even if minimum wage workers win the battle for $15 an hour, they’ll barely be making 30% to 50% of what they need to afford the median priced apartment in many cities. According to statistics from Zillow, you’d need to make over $416,000 to afford the average apartment in the most desirable part of the country. Within the next 12 months, most renters will be up for lease renewal. And they aren’t going to like the new numbers.

So what can renters do to avoid being priced out of their cities, or out of housing altogether?

Why Outrageous Rents Aren’t A Big Deal Anymore?

Sky high rents in areas like San Francisco, CA have many worried that key workers simply can’t afford to live nearby. An area that lacks good teachers, emergency workers, and law enforcement could be headed toward some of these issues. However, with over half of individuals now expected to be working remotely, the dynamics are changing. This is causing a glitch in employment figures. But it also means that individuals are free to move anywhere. At least where there is decent internet service. Instead of a stampede to dense urban areas with overpriced micro-apartments, many could choose to move outward to the burbs and rural areas. Here, housing costs are dramatically lower. Yet, the same incomes can be achieved as if working in San Francisco or New York.

Of course, not everyone wants leave their home city. Not everyone wants to move far from the best healthcare, their family, or take their kids out of their schools and away from their friends. So what are the other options?

Airbnb It

One way to offset higher rents and home prices is to rent out a part of your property. Even renters can do this if they get permission from their landlords. Rent a room, or two, and bring in enough income to combat higher rent.

Build It

Building a home may even be a less expensive option for some. Shipping container homes, tiny homes, and manufactured homes have all been trending. Not all are less expensive options, but some can be. And of course, not everyone wants to live in these alternative housing options. However, for some, they could mean eliminating housing costs far earlier. If you are paying $1,000 in rent now, a $24,000 manufactured home would mean you could be rent and mortgage free for life in just 24 months.

Buy Now Before It’s Too Late

Unless you realistically expect your income to rise dramatically and outpace housing costs, this is the time to buy a home. Interest rates are great, and they are only going up. Rates make much more of a difference to the real cost of buying a home than asking prices. So while you might have to pay $10,000 or $20,000 more for the same home today versus last year, this is still the cheapest it is going to get. In many areas, buying is even far cheaper than renting today. And when you consider how tough many rental applications and screening processes have become, it is even easier to qualify to buy a house than to rent one. Even if you pay the same amount in mortgage payments as you were in rent, at least you are gaining equity, and you’ll only have those payments for 15 to 30 years, until your mortgage is paid off. That sure beats a lifetime of rising rent payments.

Note: if you can’t afford to buy where you really want to live, you can buy and rent a property out for a profit. Then use the cash flow to pay your rent where you really want to be.

Key workers can also find many deals. Some foreclosure auctions offer up to 50% discounts to law enforcement, teachers, and EMTs. Real estate wholesalers can be a great resource for everyone looking for discounts on houses and condos.

However, once you buy a home and solve your own affordable housing crisis don’t forget to help someone else. A huge part of the problem is just accessing the right information. Too few people are aware of their options, or of how easy buying a home really is today.

The Truth About Owner Financed Real Estate

Owner financed real estate is still relatively popular. So who is it for? What are the advantages it provides? What traps are there to avoid?

Seller financing has been a common way to facilitate real estate transactions for several decades, and has been used in various forms for far longer. It comes in and out of fashion as other real estate and finance trends rotate, but while always potentially very attractive to both sides, it is often misunderstood or poorly used. So what do you need to know about owner financed real estate?

Seller Held Mortgages

This is perhaps the truest form of ‘seller financing,’ and is most similar to regular real estate transactions in which a home buyer pays cash or uses a traditional mortgage loan to purchase property. Everything else is the same, except the seller of the property also acts as the lender. A mortgage and promissory note is credit laying out the terms, and providing the old owner collateral in the property until the debt is satisfied.

A variation of this can be a second or third seller financed mortgage, which is taken out behind a new first mortgage obtained from a bank or mortgage company.

Land Contracts and Contracts for Deed

These are very common in Midwest housing markets. Instead of an upfront closing and transfer of title, the buyer contracts to buy the property over a period of time with mortgage like installment payments. Once the predetermined amount is paid off, the title is officially transferred to the buyer.

Rent to Own

Rent to own is similar to a land contract, except the new purchaser is clearly defined as only a tenant of the property until a later closing. Each monthly installment payment often sees part of the payment dedicated as rent for use of the property, with a partial credit towards purchasing the property and buying into equity. These agreements can vary in length, but two years is pretty standard. After this point, the renter-buyer will need to obtain outside financing or find the cash to complete the purchase based on a predetermined calculation of sales price. This may be current value, or a figure set in advance of entering the rent to own agreement.

Lease Options

Lease options are a variation of rent to own. It effectively means leasing with the option to buy at a later date. For example; 2 to 5 years from now. The difference here is that two separate legal agreements are typically used; the lease, and the purchase contract. The property is leased as with renting any other property, and the tenant secures the option to buy the property later. This is two separate transactions, and while the seller is obligated to sell if the buyer chooses to execute their option, and can, the buyer is not obliged to make the final purchase if they change their minds.

Subject-To

‘Subject-to’ deals are often used when the existing financing in place is attractive, or the balance is too high to facilitate a more traditional sale, or money can be saved by not paying off existing financing yet. The property is being purchased ‘subject-to’ existing debts and liens on the property. This is often done in conjunction with a ‘wrap-around’ mortgage, which is held by the seller and provides profit to the seller of the property.

How to Find Owner Financed Real Estate Deals

Owner financed real estate deals vary in availability by type of market, and by wider market conditions. Where buyers may be more scarce, or scarce for a particular property type, and when mortgage loans are hard to come by owner financing in more prevalent and more notably advertised. Even in a strong market, this can be seen in commercial property, rural property, large parcels of land, and even high end luxury homes, as well as being very common for mobile and manufactured homes. In the current market place, an even wider variety of regular homes for sale may be available with seller financing due to tight lending and low yields on other types of investments.

For sellers wondering where they will find renters and buyers that are interested in these types of transaction structures; they are pretty much everywhere. How fast a property will sell on terms like this really depends on the property, amount of down payment or upfront money required if any, the amount of payments, and the net price of the property in comparison to others, as well as how credible you appear. In other words; if you offer good deals in a credible manner they should go fast. When the opposite is true; they may still sit on the market for extended periods of time.

The Advantages of Seller Financing

There are many advantages to seller financing. Sellers can find this often helps them move properties faster and for more net proceeds, even in a tough market. It can also mean creating strong passive income streams and minimizing taxes on the proceeds of a transaction, while achieving higher yields than available elsewhere.

For buyers and real estate investors, this type of arrangement can be highly attractive in being able to avoid the hassles and high costs of borrowing from a bank of mortgage lender, as well as the opportunity to get better rates, and close faster. Often it won’t matter what credit looks like, and investors like the advantage of being able to control more property without tying up personal credit.

The Pitfall

The one main pitfall that both parties in these transactions need to watch out for is that balloon mortgages or rent to own agreements, which don’t fully pay off the sales price within the term of the contract, mean renter-buyers must be able to qualify for third party financing in that period of time. If they don’t; sellers can take back the property and all of the equity gained. To avoid this, buyers must formulate a real plan and timeline for building credit, applying for loans, and must carefully document all payments made.