Charlotte Property Management Weekly: Solving the High-End Home Sales Stagnation with Rentals and Rent-To-Own

Realtors everywhere are breathing a sigh of relief with the upswing in home sales in April and May. Things seem to be picking up a little, they have some money in their pockets, and there appears to be a light at the end of (what has been) a very dark and long tunnel of diminished sales activity.



Though, with the end of the tax credit, it looks like the roadrunner might have just lathered some white paint on the wall ahead as pending home sales are dropping fast.


Owners of higher end homes in Charlotte, defined here as over the FHA maximum of $304K, never really saw this light. They have beautiful homes that are priced relatively low (much too low they would say- and I would agree!). Their houses are still are not selling and the monthly nut on them is just sucking the life out of them. Unfortunately, banks are now requiring so much more (700 credit scores and 10% down minimum) from potential buyers of these homes that there can’t be a fluid market.


So where does that leave them?


Most of the owners of these homes don’t want to go the foreclosure or short sale route. They also don’t like the fact that they know their homes have value that the market won’t recognize at present. Their sterling credit scores and reputation with their former neighbors mean something. They are just not willing to walk away when they can still afford the monthly payment, as unsettling as paying it every month is.


Many are realizing that they need a solution to get them past the next few years. They are starting to explore rental and rent-to-own options. They’ve heard the horror stories that people tell about renters, but they can also do basic math.


What do I mean by that?


Let’s take an $800K home, for example, and say the monthly cost is $4K. The current market value is $600K. They can rent it for $3K. We’ll assume a 2-year lease.


Not rented:

1. Loss of $4K+ (monthly payment, utilities, other holding costs)

2. Maybe sell it for $600K sometime during the time it is on the market vacant


The math: If not sold, they are looking at a loss of $100K+ in 2 years (24 months X $4K + holding costs) OR (if sold) a $200K potential “loss” on the sale


Rented:

1. $1K loss per month ($4K - $3K) on monthly rent versus their costs

2. Assume (medium-to-bad case of irresponsible renters): $15K of damages when the tenants leave (if they don’t buy)


The math: Loss of $39K ($1K X 24 months + $15K damages) if they don’t buy OR the realization of market value (around $800K depending on what the home appraises for at the time of sale) in a year or two if the tenant buys (through a rent-to-own scenario).

So, the results look like this:

Keeping their home vacant on the market: $100K - $200K loss
Renting or Rent-To-Selling their home: >$39K loss


Is it any wonder why the rental or rent-to-own option is gaining traction for higher-end homes in this economy?

Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com.