Owner Carry, Seller Carry, Wrap...

In Arizona, our “Yes We Can” attitude inspired the real estate market to respond positively.

The downturn began in 2007 and continued through last year, with a slow rebound. We all know now just how terrible it was, affecting the dirt, development and housing segments and the state and national economies as a whole. Few areas, perhaps Nevada, Florida and Texas, fared worse in real estate collapse.

We had buoys, though, through the storm. Where cash was lost, through a painful carrying cost as lending was on hold, we began looking for situations where the seller acts as the lender in a seller-carry capacity: He or she receives some upfront capital from the transaction as well as a continuing income stream from a qualified buyer.

Buyers’ cash may be a better payout than from the bank, and sellers are secured by a property they know well, one in which they’ve probably lived. We created many sales in the down market that way, and in most cases sold the property at a premium, creating wonderful comps for the area as well. 

After all, what were the other sales in the downturn market: short sales, distressed properties, foreclosures? These are all low figures that pull the average price down for the area. Carry-backs and wraps elevate the spirit of the market.

Here’s a typical seller carry-back situation: Buyer fronts at least 10 percent or more, seller carry-back is the balance as the first mortgage. Thus, a $100,000 house would have a $10,000 down payment from the buyer; seller carries the rest as a first-mortgage deed at a four- to eight-times higher interest rate return as if that cash were sitting in his or her bank account. Seller does not have to discount his asking price by much, and the buyer can own a home at a chance to increase in value and to be paid off at anytime. 

The seller carry-back has been used before in tight markets. Remember the RTC days in the early 80s? 

A property may have been owned free and clear, and the seller carried a first mortgage or trust deed. The buyer may have assumed the first trust deed, and the seller carried a second mortgage. Other sellers and Realtors used more sophisticated “agreement for sale contracts,” often coupled with a wrap-around addendum. 

Seller-carry transactions are advantageous for both buyers and sellers; everyone wins. The buyer benefits by owning, creating equity and writing the expenses off at the end of the year. The seller benefits by getting to that selling figure he or she wanted to obtain and not having to short-sell the property or become a landlord.

Fortunately, too, during the recession, lowball cash-offer sales from buyers entered the market, ensuring a basic level of transactions. Much of this was coming from out-of-state and out-of-country; investors, retirees and second-home buyers purchase fine-real-estate far below its replacement cost. 

Canadians, in fact, were supplying a good part of this boost as they have for years. They bought and rented homes back to the locals. Others purchased upside-down projects such as condos and subdivisions and immediately resold them for more — bailing out the owners for a nice profit.

Is it too late to get into the Arizona market? No, it’s never too late. Don’t discount the fact that we’re a destination state, where the sun shines under an enhanced tranquil lifestyle. 

Consult with my team of professionals today; we have mastered the art of analyzing each situation and can advise you along the way.

If supply is drying up, you can individuate your property through unique design and remodeling to return reasonable value plus profit. If you are a developer, you should create a unique subdivision themed around well-being, centered on a holistic Zen clubhouse, for example. Let’s provide what the consumer is looking for when they’re considering metro Phoenix.

I still remember growing up in an area where all homeowners grew their own vegetables and fruits; we can create that atmosphere here. What I love about Arizona is that most everyone brings a lifelong experience and knowledge with them as they park here. As we begin to grow again, let’s put all of that to use, with our sun, we should elevate to a better platform.

Frank Aazami’s Private Client Group is a listing agent for the Russ Lyon I Sotheby’s International Realty, Scottsdale. For a complete list of opportunities for owner carries, wraps, trades and lease purchases call me.