What happens if market collapses?

[rburke 0]

Ok guys and gals. my first post on this forum. I have been lurking around for a few weeks, read the manual, and I am ready to get running. I have a major concern about the real estate market in my area. I think the houses in my area are currently very overpriced. The house across the street from me is for sale for 364k - this house was purchased 5 years ago for around 225k. Now I am no fortune teller, but if these prices are inflated, and the market collapses, how does this affect the l/p business? What of the seller who is agreed to the l/p, the market collapses, and I do not excercise my option? Is he now SOL?

 

I know getting into the business of predicting the future is not a very profitable one, but I did get into the stock market around Sep 1999 (anybody remember March 2000???) - luckily I was smart enough to get out before too much was lost.

 

So I am "nervous" about the current climate and economy - any thoughts or insights?

[man 0]

rburke,

 

I wasn't fortunate enough to get out of the stock market before it crashed . The beauty of lease purchasing is there is no risk to you. If the market collapses, the worst I can see happens to you is that you pay the owner an extra month of rent, and cancel the agreement (you should always have a cancellation clause for you to get out if needed). Just get out there and start making some deals... don't get discouraged before you start. Good luck!

[Mr Saint 0]

rburke,

 

I agree with man. Real estate will almost always treat you better than the stock market...and I think you know that too, or else you wouldn't be here. Now I'm not an expert by any stretch of the imagination, but I think it's pretty safe to say that real estate markets are a lot less flexible than the stock market. I mean, if your market is inflated right now, the chances of a huge crash is very slim. The prices might come down a bit, but most likely will just flatline. It's all about supply and demand. If your market is inflated then probably there is a boom in buyers, which makes sense because of the low interest rates and such. Now one factor that might turn it around would be a rise in interest rates. If this happens and the market fluctuates because of it...I'd say you are actually sitting pretty in the LP business. How? Well, if the rates are rising, buyers are fewer, and prices start coming down, for one, you've got a ton of motivated sellers out there, and two, chances are you've got a plethora of prospective tenant/buyers just dying to get into houses by creative means.

 

Now that's just one scenario, and like I said, I'm no expert. However, as man put it, you are protected by your quality contracts if disaster should strike.

 

I think you've probably noticed that most of us are fairly new at this whole lease/purchase thing, but as far as I'm concerned you won't find a more honest, helpful, sincere bunch of people to hang with. You're in the right place.

 

 

Good luck!

 

Mr. Saint

[JerseyJeff 0]

rburke

 

Wlecome to the site.

 

Now I am no fortune teller, but if these prices are inflated, and the market collapses, how does this affect the l/p business?

As Mr. Saint stated, I think we'd prefer a "Buyer's Market" versus a "Seller's Market" because sellers will be motivated enough to at least consider a creative approach such as a Lease Purchase. Make your calls, do your studying, and when the market does turn, and we have more motivated sellers out there, you'll be experienced enough to cash in on a few.

 

What of the seller who is agreed to the l/p, the market collapses, and I do not excercise my option? Is he now SOL?

You can not worry about the risks everyone else in the world is taking. If the seller agreed to sign a Lease Purchase with you, he should know the risks, that you have an "Option" to purchase, not a requirement. He should also understand that markets fluctuate, and that if you do not exercise your option, he may be in the situation you expressed.

 

Do you think he will feel sad if you LP'ed his house for $300,000, exercised your option to buy, and 2 months later, the market crashed, and the home is now only worth $250,000.

 

Do your business honestly, make offers on the Fair Market Value of the home today, and collect your fees.

 

Good luck to you. And feel free to stop by with any questions you may have.

 

As Mr. Saint said,

I think you've probably noticed that most of us are fairly new at this whole lease/purchase thing, but as far as I'm concerned you won't find a more honest, helpful, sincere bunch of people to hang with. You're in the right place.

I couldn't agree more.

 

JerseyJeff

[MichaelC 160]

Hello, rburke. Glad to see you've leaped from lurker to learner? Huh? What'd I say?

Anyway, you asked a good question, and you've already received very good advice.

Your local housing market may very well be overpriced. I know it is where I live. In fact, I read a study about five or six months ago, and it named the Fort Lauderdale area as the number one "bubble city" in the country. Meaning, the real estate bubble was most likely to burst here than anywhere else. They have some variety of data they input to make such a determination, and they estimate a 20% drop when the bubble blows. We'll see..............

In the meantime, I don't care. One of the many advantages to a properly laid out lease purchase deal is I have no liability in the event housing prices drop. The end user, the tenant/buyer, bears all those concerns. At the end of, say, a thirty six month agreement, if I find myself sitting with a property that is now worth 20% less than the agreed to purchase price, the homeowner bears the brunt of that. I hand him the keys back. Perhaps he wants to set up another deal, with terms that reflect current conditions. If not, I wish 'em luck and move on.

So, RB, from where we stand, working real estate with lease purchase deals has the advantage of not needing to overly concern ourselves in the event of an unexpected calamity which leads to a real estate collapse.

If that does happen, as has already been pointed out, you'll have a load of homeowners calling you, saying, "Take my home, please."