Just a thought and possible future exit strategies For USA properties

this was posted here a few months back and I just reprinted this in my newsletter  thought I would share this.

After numerous conversations with International and National  clients the last few weeks, we are looking at viable exit strategies with the USA properties down the road. I am not sold on the 5 year return that a lot of other investors are speaking about ( I am seeing prices rise faster in all markets faster then we anticipated ). I am also concerned about us turning retail areas into glorified rental markets ( I still see this as a concern but that is where the article below would come in). This is a big concern for me, as I see some international clients thinking in 5 to 10 years they can sell these deals that they are purchasing, in hopes of capturing appreciation.( Which I can see happening now but selling to investors or funds buying these deal ) My first concern is that Americans in general  do not move to rental areas. This could change with the new nicer rental homes that we and other companies are now dealing with. Again, this is purely speculation for down the road. I do see most of these renters will not get loans in current situations but 6 to 10 years from  now could be different story .

So if one is buying for buy and hold  (cash flow) and not really concerned about future appreciation, this should not interest them. If one is looking at being able to sell in 10 – 12 or 15 years, this could be a viable option. Again, this is just my opinion, but I am not sold on appreciation coming back in 5 to 7 years( changing daily ). The USA is going through some problems that are new for us. I do see us as a strong resilient nation, and expect things to come back to a reasonable pricing point.  To me, this 5 to 7 year plan is more of a marketing strategy for the sales teams when they say buy now and in 5 years, the market will rebound. Again, I am not saying anyone is wrong, I am  just saying I am not sold on this concept.  At least not for the markets I have been to, which include all USA investment markets except Texas (I have not been there).

Just some background information: the phrase 'lease option" in the USA. To me this is really just another false phrase (just a marketing ploy). Property management companies use it to hopefully bring in a better tenant. Besides putting some extra cash in your pocket as the investor with a slightly larger down payment, I don't see this set up as a win-win situation. Investors might win with extra cash, but tenants are not being taken care of. Yes, the tenants are the most important factor (besides property management for investors in today's real estate market). Our property management company sets most lease options (rentals) for our tenants. I know in the beginning very few will buy. Not to sound repetitive, but this is more for our marketing end to keep properties filled.

Now again, in the end this will really come down to each individual investor's game plan or investment strategy when they get started. This below is what we are looking at in the markets, in which we buy and sell homes. Again, these are for cash buyers only. One cannot truly owner finance an existing property with financing on that property. Some people will do this (sub lease and creative financing)  but I think they are playing in a gray area where loans can be called "due". Our thinking is for cash deals only. This would only work for investors who purchased cash

Owner Financing is what we are talking about here.Let's start off talking about the advantages of owner financing. Everyone has this high expectation that in 5 years or so the homes they are purchasing today in the U.S. will be able to be sold at this high retail price. The only true way to do this is to Owner Finance the property. You can sell the home to a buyer at tomorrow's value today (Which is a risk for the back end buyer).  Here is the way that it should be done to give you, as the owner, the most security as possible. You would do owner financing for the person looking to purchase your home (current renter). This is done just like any other Real Estate closing, through an attorney. You would want to set this up in the beginning, the buyer will be paying a balloon note. This can be set up we are thinking on an 8 – 10 – 12 year mortgage note.

This will put them in a position to where they need to refinance to pay off the investor. Secondly, every home should have a deed in lieu signed at closing. This will circumvent any costly foreclosure fees and the lengthy time that is involved. If the buyer does go into default, it is a $30.00 fee to file the deed in lieu and the home is returned to you. Now keep in mind, that when you do owner financing, the buyer is now responsible for the taxes, insurance and any HOA's. You will be named as the insured on the insurance policy. This is another advantage of doing the owner financing, as everyone knows property values in the US have fallen greatly. Most of your retail neighborhoods have fallen victim to this and have started turning into rental areas. Rental neighborhoods will take much longer to recover. By doing owner financing you and other investors are actually helping to prevent these neighborhoods from turning into rental areas and bring the home values back up, or at the very least keep the values in the area sustained. Of course, you can only owner finance if you yourself or company own the property free and clear. This is a major benefit for you the owner, the home buyer, and the actual neighborhood.

Again, this is our company looking at viable options for getting out of properties a few years from now. With  subprime not coming back we are working on rolling this into the lower end homes as well. You just got to be realistic on keeping payments affordable for the back end potential buyer. Looking at cash flow here and how to capture this part of the buyer spectrum that lost in the USA