Remaking the Housing Market

The housing market is in the tank. But it's not due to lack of demand. In fact, the number of homes sold on an annual basis has fallen below the growth in the number of households. Something's gotta give.

Lenders, in general, are not in a position to loosen up just yet and most home buyers aren't walking around with $200K in their pocket. So how do you get the deal done?

First, look at what it is the home buyer is really shopping for. Why do people buy as opposed to rent? The number one reason is predictability. It's not "ownership", since, as many have discovered, if you have a mortgage, you don't own it. However, buying can give you a fixed monthly payment for a long time and as long as you make your payments, nobody can tell you to leave.

What if you worked those features into a rental or lease deal? Forget about what's standard and think about giving the shopper what they're looking for while generating good cash flow for yourself. Don't wait for the banks to get healthy. Get on with business.

Here's an example. I have a house that would normally result in a 30 year fixed rate payment or monthly rental rate of about $1000. For many would-be home buyers, making the payment is not the issue at the moment. Getting the loan is. They don't want to rent, because they don't like the prospect of renewing a lease every 3-5 years. What if they had an open-ended lease option at a fixed rate? You offer to rent them the property at $1100/month for as long as they'd like. The lease could only be terminated on your end for lack of payment or some kind of criminal behavior. In any case, as long as the customer continued to make payments in full and on time, the rate remains the same and they can't be asked to leave.

A minimum term would be in order. Say 12 months, with 60 day notification of intent to move. Details could vary (non-transferrable, no sub-letting, etc), but the general idea is giving the renter predictability and security, while still having the ability to move if/when it suits them as opposed to when their lease is up. This may seem like a big risk on the part of the owner, but in reality, people tend to move every 5-7 years anyway, so you wont necessarily be locked into a below market deal for an extended period of time. Having several rental properties dilutes that risk even more.

It's similar to "rent controlled" properties except that because it's not a government program, you could tailor it to make sense from your perspective as well as the renters, and tweak it from deal to deal. One thing you've gotta notice about rent controlled properties: they're never empty.

There is housing available. There is demand for housing. When the institutionalized, generally accepted practices aren't doing the job of putting the two together, think of another way.