Last year, senior homeowners (those 62 and older), were reported to have a record-breaking $7.05 trillion in home equity, according to the National Reverse Mortgage Lenders Association (NRMLA), which has a vested interest in tracking that population’s equity — as you might imagine. Overall, U.S. homeowners of all ages saw an aggregate home-equity increase of $775.2 billion just over the course of 2018, which demonstrates how powerful simply owning your own home can be.
Of course, for real estate investors, this is not news. We all know instinctively that property ownership is one of the most reliable and proven paths to wealth. However, it turns out homeownership has a variety of other associated benefits as well. According to the Population Health Institute (PHI) in Wisconsin, families who spend half of their income on rent tend to have lower health outcomes than those who own their own homes and, in many cases, spend about a third of their income on rent.
“There’s little room left in the budget for other expenses,” explained PHI’s action learning coach Karen Odegaard. “Many communities are finding that their housing costs have outpaced incomes … [and] with that number increasing, we see more children in poverty, more people in poor health.” Odegaard noted this extends to homeowners who are spending more than half their income on mortgage payments as well.
What Created This Problem?
It has long been accepted as conventional wisdom among real estate investors that not everyone should be a homeowner. There are a lot of people who will be better off financially if they rent instead of own. However, homeowners tend to have more wealth accumulated when they reach retirement and, as PHI and other similar groups have identified, also tend to have better quality of life. The problem, then, becomes how to help a non-traditional buyer access the advantages of homeownership without placing them in that high-risk category where they are paying more of their income than they should toward owning that home.
“We know that, historically, homeownership has been a way for people to build wealth,” admitted Odegaard. However, as PHI’s study revealed, owning a home with too much mortgage-related pressure actually can hurt your health. The study indicated about one in six households who are paying “too much” for housing tend to experience at least one of four problems associated with “severe” housing issues: overcrowding, high cost of housing, lack of a kitchen, or lack of plumbing.
Creativity is the Solution
As real estate investors, we are all wired to seek solutions to housing problems. Investors are dedicated to what you have probably heard referred to as the “win-win-win” outcome where not only the investor and the seller win, but the eventual buyer as well. The result of this creativity and determined solution-seeking is a plethora of creative financing options that have been in use for as long as the traditional mortgage has been around.
Creative financing options are generally best suited for buyers who want to be homeowners but who are unqualified for traditional mortgages. In some cases, this may be due to a past foreclosure or other credit issue. In others, it may be due to lack of an adequate down payment. Still others may simply not have the credit history to obtain traditional financing. Creative financing options give these buyers a window of opportunity in which to save for a down payment or build up their credit while still gaining the massive benefits of owning their own home. These same arrangements enable investors to create highly positive assets in their portfolios while improving the homeownership situation for a deserving buyer whose life will change as a result of the opportunity.
The PIP Group’s H.O.P.E. Program Can Help
PIP Group’s H.O.P.E. program is an ideal way for passive income real estate investors to make homeownership a reality for those who may have believed it impossible while also generating strong real estate investing results at the same time. H.O.P.E. combines elements of owner financing (there is that investor creativity at work!) with credit optimization to help buyers get their “foot in the door” and start making payments on a home. Within three to five years, their credit is fundable and they can access traditional financing while your investment yields significant dividends.
As always, The PIP Group functions as the turnkey service provider, handling price negotiations and other terms of sale, dealing with the down payment or deposit, overseeing timely payments as well as taxes, insurance, and HOA fees, and ultimately making sure the investor involved in the deal receives their monthly payments and ultimate payout when the property is refinanced. The PIP Group keeps investors informed via a fully transparent client portal, doing all the work while keeping investors informed and updated at the same time.