As median sales prices have climbed throughout the country, many buyers are unable to purchase property in the city where they live. As a result, many buyers are purchasing their first home far from where they live. With just a few minor adjustments in your marketing strategies, you can capitalize upon this growing trend.
The Saturday after Thanksgiving, the Seattle Post-Intelligencer contained an interesting article about a young couple who lived in Manhattan. The couple could not afford to purchase a home in Manhattan, even though they were paying $2,600 per month in rent. To capitalize on the benefits of home ownership, they decided to purchase an $80,000 home back in their hometown in Michigan. The article went on to discuss this growing trend for buyers who cannot afford pricey housing. You can capitalize on this opportunity by following the steps below:
1. Prospect high-end rentals
If you live in an area where many find home ownership out of reach, consider prospecting high-end rental properties. Some renters will be able to afford to purchase in your area. Others will be unable to qualify. In either case, put them in contact with your lender to see what they can afford. For those who qualify but cannot afford to purchase in your immediate area, ask them if they have family or friends living elsewhere in the country. If so, let them know they can still enjoy many of the benefits of home ownership by purchasing an investment property in that area.
2. Prospect older homeowners
Parents commonly help their children purchase their first home. When their children head off to college, many parents purchase a condominium rather than paying for a rental. They hold the property as an investment. If their equity increases, they can use the increase to help their child buy a better property after graduation. If the children are in the workforce and cannot afford a home in their current location, the parents can assist them in purchasing an investment property close to where the parents live. In either case, the parents may be candidates for downsizing once the kids are out on their own.
3. Explain the benefits
In addition to providing a tax deduction, income properties often pay for themselves. When the loan is paid off, the effect is the same as having an annuity. For example, assume the buyers purchase a break-even property for $100,000 and the property costs $1,000 per month to maintain. Once the loan is paid off, the buyers will receive $750 per month in income, or $9,000 per year.
4. Market using your Web site
Create a separate page on your Web site outlining how first-time buyers can purchase properties in less expensive areas and still enjoy the benefits of home ownership.
5. Help them with the loan
Non-owner-occupied loans are usually more expensive than owner-occupied properties. Be sure to advise the lender that your buyers will not be occupying the property as their primary residence. Many lenders will call the loan “all due and payable” if they issue an owner-occupied loan and later learn the property is an investment. Some lenders will even charge the buyers with fraud. The good news is the interest rates for investment properties are usually one-quarter to one-half point higher than for owner-occupied properties. Moreover, interest rates for two to four units are usually the same as those for single-family residences.
6. Help them find a relocation agent
If you’re with a company that has offices throughout the country, you can make a referral using your internal relocation network. If not, do a Google search to determine the best agents in the area. Contact the agent and negotiate a referral fee before giving the agent your buyers’ names. If you are handling the loan and the closing with a local lender, you may want to have the relocation agent handle the showings and the inspections. In this case, you may be able to negotiate a 50-50 referral fee rather than the usual 20 percent most agents receive from buyer referrals.
7. Help them buy additional investment property
As your buyers’ equity grows, they can often refinance to purchase additional properties. If they repeat this process, eventually your buyers will have enough money to purchase property almost anywhere they want to live. When they are ready to move their investment property into a primary residence, they must rent out the residence for at least one full tax year. After that period, they can legally convert it to personal use.
IMPORTANT CAVEAT: ALWAYS insist that your clients check with their tax advisor to determine the impact of any purchase. I once sold a property to a client who was expecting a tax deduction and was not eligible because of the Alternative Minimum Tax requirements.
With a little creativity and some smart marketing, you can capitalize on this new breed of first-time buyers.
Bernice Ross is an owner of Realestatecoach.com and can be reached at bernice@realestatecoach.com.
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