Home Buying Strategies: Lease Option?

Home Buying Strategies: Lease Option?

One of the hardest problems for a buyer to overcome is moving up. How do you successfully sell your current home, get the funds, and then turn around and buy something new, all when inventory is so tight?  It can be quite a daunting maneuver.

One idea to consider is a lease option. A lease option will reverse that process. Basically you find the new property, lock it in with an option, move in, then sell your current home. We are in the middle of a deal right now like that, and so far, everyone is happy.

Here is how it works in Marin County. The Buyer puts an offer in on the new home, with an option agreement. The option agreement requires funds be put down, usually 5% of the sale price, and given directly to the Seller. The funds are non-refundable, but applicable to the purchase price of the home. At the same time, the Buyer also executes a lease agreement to move into the home and pay rent to the Seller. Once in the new home, the Buyer sells their current home, then uses the proceeds to close on the new property.

For example, let’s say the Buyer finds a willing Seller at $1,000,000, with a lease price of $5000 a month. The Buyer puts down $50,000, which goes directly to Seller. They move in at $5000 a month; often a portion of the rent may also be applicable to the purchase. They then sell their home for $700,000, and use the funds to complete the purchase (which is now only $950,000, because the option payment has been deducted from the sale price.)

There are risks, of course, as the Buyer may get less for their home than anticipated. It also requires a Seller who is willing to wait a little while for their proceeds. But occasionally the stars line up and it can work for everyone involved.


Is Marin market too good to be true?

417S_DuskPatio207FinalBubble is a word we are starting to hear more and more as we approach the end of another year of double digit appreciation. The memories of the crash in 2008, when Marin real estate prices dropped 15 to 45%, are still fresh. When prices rocket upward as quickly as they did in 2013, and again as they did through the first three quarters of 2014, the question has to be asked, “Is this another bubble?

Is something going to trigger more foreclosures and short sales sometime in the near future, or maybe even just around the corner? Are we about to have a big fat deja vu?

Not so fast — at least that’s how it seems to us. This two year run up seems like  a legitimate housing recovery, funded by real money and real jobs. Unemployment has declined dramatically in both Marin and San Francisco, and all of those new workers now want to own real estate and maybe even start a family, which is what usually brings people to Marin County.

Real estate always moves in boom or bust cycles, but there are two major factors separating this recovery from the last one in Marin County.

1. Down payments. The financial strength of Marin buyers today is unprecedented. There are still some FHA loans, which require as little as 3% down, but the majority of  homes are bought today with a minimum of 20% down. Oftentimes, the percentage is much higher than that as buyers pull from other assets to make their offer stronger and more attractive, showing they can cover the difference if the home does not appraise at full value. There is also a startling amount of all cash buyers at all price levels, as buyers will go all cash to make their offer more attractive, then put a loan on the property later.

2. Better lending standards. If you’ve gotten a loan in the last two years, you know how difficult it is. Banks are very demanding not just in their documentation, but in what they demand from clients. The last years of the real estate boom in 2005-2007 was fueled by tactics like 100 % financing, interest only loans, and stated income. Now tax returns, W2’s, employment history and ability to pay back the loan are all carefully reviewed.

3. Rising rents. Next we’ll do the math on this – but as crazy as it sounds, it still makes sense to buy vs. rent, at least in most markets in Marin.

Marin’s recovery has been built on strong market fundamentals and sound lending practices. Barring some major national economic calamity, we predict a solid end of year for 2014, and a equally reliable market in at least the first half of 2015. Keep in mind, we do not own a crystal ball, and even if we did, we would not reccommend you trust it.  Nobody knows for sure what the future holds, but taking a good guess is an important part of any good buying or selling strategy.

Are Larkspur and Corte Madera Marin’s Sweet Spots?

Screen Shot 2014-05-15 at 11.12.09 AMMarin County home sellers have had a phenomenal year so far. Maybe it’s the new elementary school, the worsening traffic to the north, the nicer weather, and for a myriad of reasons, but the Twin Cities market is as hot as Marin gets right now. Which is pretty hot. Well priced homes in many areas have been flying off the market. But if the real test is how much people are willing to pay per square foot for a home, then the year to date the two of the strongest markets in Southern and Central Marin are Corte Madera and Larkspur.

In Corte Madera, homes year to date are selling for $672 a square foot, a 21% increase vs. a year ago. In Larkspur, homes are selling for $766 a square foot, a 25% increase vs. last year. That does not mean these are the most expensive markets in Marin- that would still be Ross, where this year buyers are paying an astonishing $1,042 a square foot for homes. Well, actually they are more similar to estates, with an average size of 3,034 sq feet.

Mill Valley also saw a big jump, with price per square foot rising 19% to $731 a square foot.

Why the big increases in these two towns? In a word, value. Relative to neighboring towns prices have historically been much lower there than in the neighboring communities of Mill Valley, Tiburon, and Kentfield. Yet commute times to the city are similar, school districts are also excellent, and many believe the weather is better on the Corte Madera-Larkspur side of the ridge, with less fog and warmer temperatures.

Our candidate for value right now is Greenbrae, where price per square foot is actually down slightly from last year at $577 a foot. But the Bacich School District is excellent, proximity to the freeway and the Larkspur ferry outstanding, and Bon Air Shopping Center provides most of the amenities anyone needs.

A close second would be San Rafael. School district scores there are lower, but there are so many young families moving in to the area we expect that trend to improve. And we love the corridor north of San Pedro Road. Country Club, Loch Lomond, Glenwood, and Peacock Gap al have great weather, commutes, and communities!