Moneymaking strategy: Don't sell, rent

Moneymaking strategy: Don’t sell, rent

Today's Financial News - Posted November 10, 2008

The real estate market is downright scary. Houses across the country are selling for a fraction of what they were just a few months ago. But smart investors are using a unique strategy to buy without selling.

By Andrew Snyder, TodaysFinancialNews.com

Baltimore – (TFN): It is a great time to be buying a house, but an absolutely horrible time to be selling one. Potential buyers are scared off by the financial crisis. Mortgages are tough to come by. And buyers that do get qualified for a loan cannot sign a contract because they have no buyer for their own house.

That is why smart homeowners are not selling, they are renting. Instead of selling their houses today, when they are worth a pittance of what they were just a year ago or a fraction of what they will be in a year or two, savvy would-be sellers are renting.

By renting a house, homeowners with no mortgages receive enough cash flow to keep them afloat until the market rebounds. They can take advantage of a once-in-a-generation buyer’s market, purchase a home at a fantastic price and collect enough income from rent to help them get by until the crisis weakens.

Money may be tight over the next few years for these folks, but pulling a few extra hundred dollars out of a monthly budget to meet mortgage costs for a year or two is certainly better than locking in a huge loss by selling your home at today’s prices.

When the market rebounds in a few years, renters can once again put their homes on the market, hopefully selling them for $30,000, $50,000 or even $100,000 more than they could have today. Pinching pennies for a couple of years does not seem all that bad when those kinds of profits are available.

Forget the open house

There is a house just down the road from mine that is a perfect example of how profitable this strategy could be. Earlier this fall, the quaint rancher was listed for $209,000. In a normal market, the house is worth every penny of that price. At the peak of the market, it was likely worth closer to $275,000.

I talked with a realtor friend and she said, right now, the owner would be lucky to get $175,000 for it. So it was no surprise when she said the house was taken off the market. Instead, the owner rented it for $1,100 a month.

Now, I have no idea what the owner originally paid for the house, but I do know in just a few years it will be worth significantly more than what he could get today. If he gets his original $209,000 for it, he will receive $34,000 more than what he could get today, plus he would have received $1,100 in cash every month in between.

Obviously, this situation does not work for everybody and renting comes with its own set of hassles, but for a lot of folks forced to move during this crisis, or for those that simply want to take advantage of a fantastic buyers market, this is a money-making strategy.

The economy may have handed us a bushel full of lemons, but there is always an opportunity to make some great-tasting lemonade. Instead of putting up a “for sale” sign, look for a good set of renters. In an economy like this, there are plenty to choose from.