By Carl Fischer
With the passage of time and little sign of improvement in the housing and lending markets, we find ourselves seeking new solutions to old problems. Many folks who really need a house, do not qualify for a loan based on the new lender guidelines. And many who have applied, seem to constantly need “one more thing…” in order to go forward with their loan approval…. but they never get there.
Recently, I have had success connecting responsible potential buyers with frustrated, stock- market weary investors in an arrangement that works well for both.
One such scenario in process now connects a responsible wage-earner (“Joe” the buyer/tenant) who has demonstrated financial responsibility in the management of his resources, but whose income profile “doesn’t work” for most lenders, with a conservative businessman (“Sam” the investor) who has a fair amount of cash now earning him .075 percent interest in bank CDs. (NOTE: According to the www.usinflationcalculator.com/inflation/current- inflation-rate/ table, the current inflation rate is 3.9 percent. Our investor is LOSING MONEY by placing his reserves in CDs.)
Under this agreement, Joe signs a multi-year lease, and puts up a non-refundable cash deposit which protects Sam’s interests. Sam then buys a home of Joe’s choosing and leases it back to him at the market rate for a rental property. Sam collects interest only on his investment capital, while the remainder of Joe’s payments cover the HOA, taxes and insurance.
Though Sam holds title to the property, Joe is responsible for all maintenance, repairs and improvements to the property during the term of the lease, and he has the right at any time prior to the end of the lease to buy the home at the price agreed to at the time of the original purchase of the property.
While this plan does not represent original thinking on my part, it does produce great results for all parties when a modicum of care and planning guides the process.
Parallel procedures have worked well in my commercial real estate business as well.
In order to sell commercial properties, which historically would go to end users, what I find myself doing today is leasing those properties instead to that “end-user”, but structuring the lease so that the tenant ultimately gets to buy that property, thereby assuring himself the un- interrupted pursuit of his business.
Often, that’s the only way the end user can achieve his goal, since most, if not all, of his start- up capital is used just getting the doors open while his new business builds to generate measurable revenue. Two or three years later, securing permanent financing from either the present owner, the SBA, or a local bank gets a whole lot easier because by then, the business man has a track record affirming his ability to meet his obligations in a timely and responsible manner.
What’s important to keep in mind is the fact that life here in Western Loudoun goes on in any market. As a dedicated professional, my job is to constantly develop solutions that work for my client’s everyday needs so that they can focus on moving forward with their lives and their businesses with a minimum of stress and delay.
Call me with your thoughts. Carl Fischer 703-727-5025