Some small real estate investors whose primary strategies were geared toward the buying and selling of single family homes, had their plans turned around when selling prices of these properties began a rapid spiral downward.
Many were in the process of renovating fixer-uppers that they had purchased at a low price, or were in the midst of adding upgrades of one kind or another to other homes recently bought, and had the bad luck timing of not being able to put their properties on the market before the stunning short sale and foreclosure crisis had begun to take its toll.
What to do? Selling at a loss, or breaking even, even if selling the property quickly were possible in such a competitive market, did not seem to be an acceptable option to most of these investors.
The only logical step to take would be to get the property into good shape and ride out the down market by renting. Investing in upgrading the property was a planned for and acceptable expense anyway.
So, the buyer and seller of properties then became landlords. Most reluctantly, for sure!
Long-term and short-term decisions now had to be made as to the future of these properties, all based on uncertainties. Ultimate goals have to be taken into consideration, but for how long to rent and when to sell in a market as unpredictable as this makes long-term decisions more difficult to contemplate.
Several options could be considered in these cases, such as; rent month-to-month, one or two year lease, rent with option to buy, setting a firm one to three year lease and then purchase time limit.
When renting month-to-month, many investors are advised to collect larger deposits or charge a somewhat higher rent than longer term lease would require. Month to month tenants are not necessarily to be avoided, some people just feel more comfortable with a less restricting arrangement.
When leasing with an option to buy, the investor will have a tenant who will undoubtedly take better care of the property. However, prearranging a price for this type of arrangement could pose a dilemma for the investor, most particularly in these unsettled times.
Careful consideration must be given to the length of the lease, and what the level of appreciation might be at the time the renter will purchase the property, otherwise the investor might end up having to sell the home for less than it is worth.
Additionally, funds must be allocated to cover the period or periods when the property is vacant, and if there are several properties involved, one might also consider hiring a property manager to handle all of the details involved in land lording.
Many other details, decisions and absolutes are involved in these situations, and an investor must make these decisions specific to each particular property, among them; how cash flow will be affected by mortgage expenses if any, insurance costs, estimates of possible continued property depreciation, and estimates of future appreciation.
These are no easy decisions for the investor to make in these uncertain times.
