LEASE OPTION A LAS VEGAS RENTAL INVESTMENT OWNERS ALTERNATIVE
Suppose your REALTOR® helped you land a prime Las Vegas rental investment property—and you’ve been more than content with the result. Your longtime tenant proved to be conscientious and dependable, with resulting passive income that has been quietly building your bank account with very little oversight from you. In short, your Las Vegas rental investment has made you a very happy landlord. But now, that smooth sailing may be nearing an end. Your tenant rings you up with the news. Even though she loves the house, over Thanksgiving dinner her brother convinced her she should become a Las Vegas homeowner herself. Since she doesn’t have quite enough cash to qualify for a home loan, he told her she should go out and find a rent-to own property. But since she’s content with the house she’s been living in—your rental investment—she wonders if you’d like to discuss switching to a lease-option arrangement? If you had ever contemplated cashing in on your rental investment, there are several reasons you might want to give it some thought. First, this would spare you the effort and expense of selling. You won’t have to wait for an interested buyer—and you know from experience that your tenant is a solid citizen. Furthermore, whenever you put a rental investment property up for sale, there can be complications if you want to continue to rent it—sometimes a tenant resents having to accommodate strangers tramping through their home. Worse, they may even subtly sabotage showings. Although there is no single formula for how a lease-option (aka ‘rent-to-own’) agreement is constructed, some basic underpinnings are common. The landlord retains ownership, and the tenant pays rent until the option to buy is exercised. Both agree on the sale price and on a specified period by which the sale must be completed (usually the time the tenant estimates will be needed to qualify for a mortgage). As compensation for your agreement to refrain from selling the property to anyone else during this option period, the tenant usually pays either an up-front fee or agrees to a higher-than-market rent. Some of that overage may be set aside to be applied to the ultimate purchase. Property maintenance is often made the responsibility of the tenant, along with provisions in case he or she fails to maintain it properly. And a number of other issues may be addressed. But if the tenant does not exercise the option to buy within the specified timeframe, typically no refund is owed—the option lapses, and since the deed has always remained with the investment property owner, it becomes free to be rented or sold to another party…That is if all local and state laws have been scrupulously observed—and all other conditions met. In other words, if ever there were an agreement that cried out for a trusted lawyer’s oversight, this is it! Offering a lease option on your rental investment in Las Vegas is just one possibility when you’ve landed a choice property (which is where I come in). If you’re considering selling your Las Vegas investment property and would prefer a more traditional route, call me today! 0
LAS VEGAS ECONOMY OFTEN PLAYS OFF OF CONSUMER ATTITUDES
Las Vegas’s economy, like all others, is largely dependent upon consumers doing what consumers are supposed to do: buy! Why they make their decision to behave or not is every bit as complicated as you would suppose. It’s the product of how their own careers are faring; how the greater economy (and the economy in Las Vegas) are doing; even how the world economy is behaving—or seems likely to behave anytime soon. In all of this, the hard facts about how the economy is doing are not just backward-looking, they’re also slow to arrive. Worse yet to those who think numbers should mean something definite, the numbers are frequently recalculated later. The latest ‘jobs’ numbers or the ‘housing starts’ numbers, when they are announced, are often accompanied by a statement that the previous quarters number has been “revised to” x. If you are a local business person who makes projections based on the best information available, that won’t be the new number—it would be the previous, now revised number: very old information. There is one way around this, though, and that’s fortunate. Everybody has the same reliability and timeliness problems, yet have to have some basis for making discretionary spending decisions. The usual solution is to rely upon measurements, not of the actual economy’s activity now or in the past, but of what most people expect that activity to be in the future. Yes, that kind of measurement is ‘soft’—opinion, rather than hard data. But if those expectations are widely publicized, they affect what comes to pass. If consumers are bullish on the future, well, that’s reassuring news! Las Vegas businesses are encouraged to stock their shelves. People are more likely to list their Las Vegas homes for sale. The local economy looks better and better! On the other hand, if consumers are depressed about the future, caution will prevail. Businesses will hold off on new hires and trim their inventories. You can’t be too careful, after all. To some degree, consumer expectations often become self-fulfilling prophesies. That’s why December’s latest consumer confidence reports are the best news for the future of the economy we’ve heard for some time. Last week, Reuters ran the headline, “U.S. Consumer Sentiment at Eight-Year High” ; the Business Insider, “Consumer Confidence Crushes Expectations.” Reuters attributed the burst of citizen optimism to “improved prospects for jobs and wages, and on lower gasoline prices…” The University of Michigan co-sponsors the index upon which the numbers are based, which showed December’s reading of consumer sentiment at 93.8, “the highest reading since January 2007.” That was a full 4 points above the median that had been previously forecast by 70 economists. It was also 5 points higher than the final reading for November. If the Las Vegas economy perks up as anticipated, area real estate watchers should expect a noticeable uptick in activity—particularly if mortgage interest rates stay low, and inflation remains a non-factor (the same survey pegged consumer inflation expectations at 2.9%). If you are a Las Vegas homeowner or prospective buyer with an equally upbeat outlook, it’s the good reason to give me a call to discuss how your plans dovetail with a rebounding market!
WHEN AND WHEN NOT TO TAP YOUR LAS VEGAS HOME EQUITY
Your Las Vegas home is your castle, sure—but it’s also a great deal more than that. In addition to being the place where you relax after work, spend time with family, and generally live your life, it’s also the most substantial investment most people ever make. Much of its prominence is due to the many advantages homeownership brings in the personal financial realm. In addition to the ongoing tax savings its mortgage provides, it’s the home equity—the difference between market value and the amount owed—that’s such a valuable contribution. A Las Vegas property’s equity adds considerable financial flexibility in the form of easily obtainable home equity loans. That’s how your Las Vegas home can be an enabler for financing key life events—important undertakings like college, home improvements or major debt consolidation. It’s a mainstream activity, and one that’s growing in popularity. Credit reporting firm Equifax tells us that the number of home equity loans have increased by 16.1% over last year; home equity lines of credit, 21.4%. But at the same time, it’s the ease with which home equity financing can be arranged that should be cause for caution. Before anyone takes advantage of this kind of financing, they should clearly consider what they are getting into, the better to decide when and when not to make use of it. There are two forms of home equity credit—the home equity loan (HEL), and the home equity line of credit (HELOC). HELs are straightforward loans, created and retired when you take a one-time, lump-sum of cash, then pay it back, with interest, over time. HELOCs work more like credit card accounts. You are approved for a line of credit with a top limit, and you can spend as much as you want until you reach the limit. You may use it or not as you wish. In fact, with most HELOCs, you’re issued a credit card or checkbook to use as you see fit. Deciding when home equity financing is appropriate is an individual decision, but a conventional rule of thumb is that it is usually best reserved for single events. One good use is for home improvements since they add equity to the underlying collateral. Another is for debt consolidation when it has the effect of lowering monthly interest outlays. When are Las Vegas home equity loans not a good idea? For one, if you don’t need a lot of money, since opening a HEL or HELOC might involve closing costs and other fees, make sure it makes financial sense. And always look to the future. Since failing to make timely payments can force the sale of your home, any time you are less than certain your cash flow will support repayment, better look for other forms of financing. Your Las Vegas home is a castle worth protecting; you want to be sure that you are the single voice to say if and when a move is in order. And of course, whenever you are contemplating a major move, give me a call!
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