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Recently, I found myself in a discussion with a group of Millennials, the subject was real estate. It started with one young lady moaning about the circumstance she is in, where her significant other and herself work 50 hours a week at service-industry jobs, are saddled with massive debt from college, -garnered while obtaining degrees that are useless to them in the real world, and are still unable to even dream of owning a house. The argument went thus: money was so much more valuable in the 1970’s, when baby-boomers were buying houses while holding down minimum-wage jobs; banks were so much easier to deal with back then; life was so much better; blah, blah, blah. On the other hand, there are no opportunities left today, no bank will deal with them, they will never be out of debt.
It is pointless to try to directly answer the concerns raised, all that does is bring more Millennials into the fray, with hate-filled diatribes about how privileged and evil a person must have to be to question this narrative they all accept and revel in; that they are destined to a life of poverty and misery, and they have no hope of breaking out of their “class.” It is a convenient way for ambitionless young people, who spend most of their money on marijuana, beer, tattoos and rock concerts to justify their lack of accomplishments.
I marvel that so many college-educated young people are so ignorant about the realities of finances. There is a perceived problem- I don’t make enough money per hour- and the solution is, of course, we have to raise the minimum wage. It never occurs to them that perhaps they should stop selling their hours so cheaply. It never occurs to them to step back, look at the problem squarely, and find the solution in a step by step fashion, i.e., I need to live somewhere, I would like to buy a house, there is a book full of houses for sale, what do I have to do to make this happen? First step is to find a house that appeals to you, call the agent representing the owner of the house and look at it. If you see a house you like with a “For Sale by Owner” sign in front, walk up to the door, knock, and ask the owner if you can get a showing.
Once you have found a couple places that appeal to you, ask the agent or the owner about what sort of options are available to you. Can the owner carry the mortgage? Can you lease with an option to buy? You can be upfront and tell them that you are very unlikely to qualify for a conventional mortgage. You may be surprised at how often people are willing to finance the purchase for you. Next step is to present an offer. My advice is to always offer multiple options, with different prices for each, with your offer.
The lowest price will be a cash offer. If you are unable to come close to the asking price, you may have to forego this option. The next lowest price will be a contract-for-deed offer. You will take all the cash that you can possibly scrape together and that will be your down payment. Using an amortization table, you can figure out your monthly payment. The key in making the right deal here is in the interest rate. The owner is much more likely to be happier with an offer close to his asking price but with a lower interest rate on the loan. Don’t include taxes and insurance in the loan, those will be covered in the contract, you are responsible for them. This is a good deal for the owner, because the loan is secured by the house itself, the house remains insured, he is the beneficiary, if you default on the loan, he gets the house back, plus all of the money you have paid him and any improvements you have made to the property.
The third option to include is the lease-with-option-to-buy. In this instrument, you offer the full asking price, but you pay rent with an added “option fee” for a period of time, usually 3 years, at which time you have the option to convert your collected “fees” into a down payment, then either have the owner finance the rest of the purchase price, or maybe your situation will have improved and you might be able to get a bank loan, and just pay the owner off. The key to this option being attractive, is that you pay a market-rate rent for the house, plus a $300 premium (or whatever you can agree on). The owner has a good rental rate, he gets a nice bonus every month with the option fee, and if you decide to walk away from the deal after 3 years and do not exercise your option, he can sell the house again.
There are numerous other instruments you can use to finance a house purchase without a bank, I have only listed three. The important thing is, in all of these scenarios, you end up with a purchase agreement, thus you are a homeowner! You can fix, clean, improve the property, knowing that, as long as you keep up your end of the deal, it is YOUR house. All of the contracts are readily available with a simple internet search on your phone, you may not even need to involve an attorney, although, I would recommend that you consult an attorney and use a title company if you are unsure of your rights and responsibilities. Once you get the hang of this, you can repeat it a hundred times and you will have created your own privilege, not to mention a full-time job for yourself buying and selling real estate.