Written by: Haitham A.
For more than a year, the Las Vegas property prices have been soaring. This raised some important questions for renters and homeowners alike. The former are asking themselves whether they should purchase a house soon (before prices go up even more) or wait for the market to slow down. The current property values also make it more expensive for renters to save money for a down payment. Existing homeowners, meanwhile, are wondering if selling their properties at a relatively inflated price is a financially wise investment. The lack of inventory creates hesitancy because sellers cannot easily find a desirable new home to move into. Although these problems are common across the country, the Las Vegas housing market is in a unique position due to the rapid growth of rent-to-own homes. These types of properties may solve many of the challenges that Las Vegas renters and owners face. Amongst them are time flexibility and affordability.
Buyers and Rent-to-Own Homes
Rent-to-own properties offer plenty of benefits. First of all, aspiring homeowners enjoy a lot of flexibility when it comes to the closing time and price. For example, if you don’t have enough money for a down payment, you could rent the property until you save the amount that you need. This is because a portion of the rent that you pay will go towards the down payment. After that, you can simply close the deal by transitioning from a rental agreement to homeownership. Equally as important, rent-to-own houses are accessible to buyers who have a low credit score that would prevent them from qualifying for a traditional mortgage loan. By making rental payments on time, the tenants can build a positive history with the lender, even if they have no or bad credit.
Although most of the local properties are being occupied by small families that are moving into the area from out-of-state, these trends are also benefiting Las Vegas homebuyers. This doesn’t only include newly-weds and small families, but it extends to existing homeowners who want to sell their house and downsize. For example, if you bought your house twenty or thirty years ago, it might sound like a great idea to sell it now while property prices are soaring. Yet a big challenge that many homeowners face is finding a new residence after selling the property, especially in light of the high demand for houses and the lack of inventory. Rent-to-own agreements can be especially suitable for sellers who want to take advantage of their property’s value, but still haven’t determined whether they want to purchase or rent their next home. The small size of rent-to-own houses is even more beneficial for older couples who want to downsize after their children have become adults and moved out.
Having said all that, before entering into a rent-to-own agreement, there are a few things that you should consider. Perhaps the most noteworthy one is the cost. Since rent-to-own contracts offer more flexibility than a typical mortgage, you may end up paying more in fees. Similarly, if housing values go up, you could rent the home for longer than expected while you wait for property prices to cool down. Does this mean that you should forgo these contracts? Not necessarily. There are certain steps that you can take to make sure that you get a desirable deal. For starters, an aspiring homeowner should carefully review their contract, particularly when it comes to how the selling price is determined and whether it’s fixed or tied to the at-large market. In the same vein, renters/interested buyers should carefully study local real estate trends and the potential future price of a rent-to-own home. Likewise, getting to know a property’s neighborhood can crucially help you pick a home in an area that you desire.
Rent-to-Own Investment Opportunities
The expanding demand for rent-to-own houses doesn’t just benefit aspiring Las Vegas homeowners. It also creates a lot of opportunities for both institutional and retail investors. When done the right way, investing in a rent-to-own property can be a very low-risk opportunity. If housing prices keep going up, as they have been over the last 12 months, the renters may decide to delay purchasing the home. In turn, the investor/landlord will continue to generate a rental income. When home values go down, on the other hand, buyers are more likely to purchase the property soon after they rent it. In this scenario, you, as an investor, will still earn revenues (as opposed to losing money on the investment). Why? Because the rental income that you make will outweigh your expenses (such as property taxes and insurance), regardless of how long the tenant waits before exercising their right to purchase the home.
It is important to note that the Las Vegas rent-to-own market is overcrowded with large out-of-state corporations. This can scare away mom-and-pop investors because it creates a false impression that the barriers to entering this market are high. In reality, many Las Vegas families and individuals can certainly make use of these trends. First of all, this will be the case if you have a good credit score and the funds for a down payment. Both of which make it relatively quick and easy to purchase the house. Your return on investment will also increase if you can leverage your strong credit to lock-in a low interest rate. It is important to keep in mind that most rent-to-own properties are single-family homes. In other words, the down payment is relatively much lower than that on a larger house. Some current homeowners are able to pay for a rent-to-own investment through refinancing their existing house. In the same vein, if you’re looking to take advantage of high property prices by selling your home, consider offering it under a rent-to-own agreement. As mentioned earlier, the associated risks are relatively low. Lastly, but certainly not least, is that you can benefit from this real estate trend even when you don’t have the credit score or down payment to purchase a property. Many real estate investment funds (REITs), mutual funds, and publicly traded corporations (such as Zillow) are heavily expanding their presence in the local market. You can buy the shares of those companies for hundreds of dollars, if not less. To put it another way, this is a good method to invest in the rent-to-own market without having to put in a lot of capital or purchase a property.
Looking Ahead: The Real Estate Market and Rent-to-Own Houses
In short, the rapidly expanding rent-to-own market creates many opportunities for buyers, sellers, and investors. For Las Vegans who want to take advantage of this, their next step entails determining when and how they want to do so. Above all, because of the flexible nature of these properties, time will most likely be on their side.
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