Just as the housing market is in a bit of turmoil over valuations, foreclosures, lack of credit and over-supply, I've been noticing that the rental market seems to be a bit off as well. Obviously the two are related, but I think it is the number of "for rent" signs I've been seeing on my way to and from the shop this week that started this one brewing.
What if landlords, people who have invested money in a property in the hopes of selling it for a profit later on, stopped charging rent? What if instead of rent, tenants were offered a 2, 5 or 10 year contract to reside in the property, maintain it and even improve it? The contract could include a 'punch list' just as contractors are responsible for, and at the end of the contract period, either the list is completed or rent is due in full.
The benefit to the renter is that they get to live in a nice place, make it their home, without the huge outlay for rent. They should be encouraged to be saving the entire time so that they can become owners themselves at the end of the contract.
The benefit to the property owner/investor is that the property is being maintained and improved while their value appreciates without the expense normally incurred.
Why would any landlord/investor agree to such a thing when they could be making rent on that property?!?! Well, for one thing, there are a lot of landlords right now sitting on properties that are not producing. Worse, while they're not producing, they're costing money to maintain. Worse still, while they're sitting empty and costing money to maintain, they're not appreciating in value. This may be a situation unique to the particular market we find ourselves in right now, but if there's one person upside down on a second property, there are thousands. Not all of them amateur house-flippers, either.
A positive solution to this would be to get those properties occupied, maintained, improved and help the hard working people who would be qualified for such an arrangement. Think of it as Habitat for Humanity, but with pre-existing property. (It is even possible that property investors involved with such programs might qualify for charitable tax considerations, thus further justifying the idea.)
I can see where there would be a problem with securing the landlord's risk, but there are ways to deal with that. First, there is the contract as a binding legal instrument. Second, the tenants for such programs would have to be screened carefully. It would be more like interviewing for a job, than for an apartment. Third, there would be the option of a minimal payment from the tenant monthly in lieu of rent. This money would be held in an interest bearing account or in the case of longer term contracts, rolled regularly into stable government instruments with higher rates of return. At the end of the contract, if the 'punch list' is not fulfilled, the tenant would forfeit the entire amount in the account. If the tenant has fulfilled the contract, then the principal is returned to the tenant and the interest is split between landlord and tenant after fees. Win/Win.
If there are any real-estate types out there sitting on empty property, you'll find the link to the contacts page below.
In addition to the hard working, but low income family who could greatly benefit from such opportunities, there will be other markets for these arrangements as well. One of the first to mind would be relocation specialist companies. In some instances they will be sitting on property they don't want to/can't move because they would be at a loss. In this case they would sit on the landlord side of the contract. In other cases, they may have a long term arrangement with a company and be moving people in and out of an area on a regular basis, creating a need for temporary housing. They could, for nominal maintenance costs, act as the tenant in one of these situations during a period when their major client was experiencing periods of dramatic change. They get the full use of a property without having to pay rent or keep it on the books as real estate.
Admittedly, this kind of arrangement will be a tough sell. I think it's worth exploring, however. For our part, if anyone was interested in exploring this further, I think we would simultaneously explore creating an online marketplace as a clearinghouse for landlords and tenants showing interest. It would also be good to work with local and state government agencies to see if there might be any help to be given in moving people out of housing projects. Certain properties in private hands that need some work would be excellent transitional arrangements for specific candidates.
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