Low Risk Way to Play the Real Estate Market

I promised that I would give you a safe way to play the real estate market, just in case you think it still has legs left. (I don't, but we can always hope.)

Let's say that the latest figures coming out on new home starts and existing home sales have spooked you and you have decided to sell you fairly new expensive home and pocket any equity you may have. I hope you have some because if you don't it means you have an adjustable rate mortgage or an interest only mortgage or some other new breed of mortgage product which spells financial doom in a down market.

So you sell your home, pocket the cash, and now you are kicking yourself, because the market has not crashed and you feel like your missing out on even more profits. Here's what you do...you shop around for a nice home in a nice neighborhood. Say something in the $250,000 range. You find a seller who is wanting to downsize or has been transferred out of town and really needs to sell right away. You approach the buyer and offer a lease with an option to buy.

Here's where this strategy pays. If you live in a hot real estate market, then I can almost guarantee you that home prices have outpaced rents. That means that you will be able to rent this house for less than the monthly payment would be with a modest down. Instead of a down payment, you offer a non-refundable earnest money deposit equal to two months rent. You ask for a lease term of three to five years and a fixed selling price and you negotiate that a percentage of your rent money be applied to the purchase of the house. Now your housing is cheaper than if you purchased, if the market continues to appreciate in your area you will pocket the profits, and if the market collapses, you simple walk away from the deal and you are only out your deposit.

And you have conserved your equity for the day when real deals will abound. Nifty eh? It might take a while to find the right seller and the right property, but it is well worth the reduction in risk to your overall wealth.

What are you waiting for? Start looking.