Breaking a lease to buy?
J. had a second part to his question about buying off-season:
If we would be able to save a significant chunk (while still getting a quality property) by buying off-season, say 5% or more, it might be worth turning our lives upside down a bit to make it work. We are currently on the September rental cycle, and understandably, our landlord is not keen on letting us go month-to-month in late 2010. Our apartment is not cheap, and we would potentially have to eat a huge chunk of rent were we to sign a lease for 2010-2011 and then break it to move into a purchased home.
There are two parts to this answer:
The first is about the depth of the savings. Yesterday, I wrote about what I expect. It varies house to house. If a really good deal comes along, and it is a good place ---- not a yellow and pink XXL guy’s Speedo --- it could be worth the leap.
The second question is about the financial risk of breaking a lease on an expensive apartment.
I say this over and over: in the real world, percentages are a bad way to calculate savings. Real numbers work much better. J. and his girlfriend need to look at the hard numbers of what they need to save to make this purchase worth it. If the numbers don’t work, they should stay until the end of the spring market, 2010.
I look at all purchases on a case by case basis. The quality of their rental is a big factor in whether they should attempt an off-season purchase when they have a yearly lease. Suppose J. and his girlfriend are paying $2000 a month for rent. They find a place to buy this winter. They close February 1st. Their potential loss to pay off their lease for February-August = $16,000. This is the worst case, since they and the landlord would try to re-rent the apartment. If their place is fairly priced, and nice, they are likely to succeed in re-renting it.
If J. and his girlfriend see a $20,000 benefit from buying in the mid-winter, is it worth it? If they are unlikely to be able to re-rent, the fuss, bother, and lack of choice is not worth it, IMHO. It wouldn’t be worth it for me. If re-renting will be easy, try it. Again, it depends; it’s apartment to apartment.
What’s your advice for J. and his girlfriend? J., if you want to, tell them about your apartment. Maybe the readership can tell you if it is fairly priced and will re-rent easily.
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We almost hit this--had an offer accepted the same day the lease renewal came in the mail.
My advice would be to advise the landlord that you'll do everything you can to get the place rented--be available to show it, keep it spotless, answer questions, etc. I even wrote a little note to prospective tenants and left it out in the kitchen to answer some of the common questions we had here. Place got rented, problem solved, no money lost.
Good luck
It can be even a little more nerve-wracking if you're buying at the same time that your lease is ending. That's what I did. When the closing started to go a little wonky, the possibility of not having a place to move my stuff was pretty unsettling. Fortunately it worked out. But it was a rollercoaster ride for my stomach.
I would push hard to go month to month. From what I've heard its tough market for rentals now, and real money from a tenant you know is going to pay on time is worth a LOT. We asked our landlord to go month to moth in March and he pushed back and offered to sign a short term lease that would expire in June. I assume he talked to a broker after that because he called back a day later and offered to go month to month. And asked that we give him more notice if possible. We ended up giving notice at the end of Aug that we'd be closing in Oct. So I think it worked out best for everyone.
Boston area landlords absolutely do not want to have an apartment become vacant during the winter. They are just about impossible to lease Dec. 1, Jan 1. Feb. 1. If you are good tenants the landlord should be willing to give you a shorter lease, say through March 31. If you find a house in the fall or winter, it could take a couple of months to close. If your apartment cannot be rented, then your liability is much less. If you don't close on something by the time your shorter term lease is up, the landlord may be willing to let you go month to month since the apartment won't be so hard to rent during the spring summer. I am a landlord and I would find this arrangement reasonable.
We had a similar situation and I couldn't agree more with comments 1-4. Push for month to month or short-term lease arrangement and communication with your landlord about when you plan to close, offering a long notice period to rent out the place and perhaps offering to pay the broker fees to re-rent it will go a long way. The landlord benefits from being able to show the place with a happy tenant who keeps the place clean and showing well, provides access for prospective renters so there's a lot you can offer in return for the short-term lease concession that won't cost you anything. You should also make the sellers aware of your lease constraints. In our case, the buyer took our reduced offer price more seriously knowing that the clock was ticking on our lease so when we submitted the offer we were credible in saying that if this offer is rejected and we need to sign a new lease, we won't have as much flexibilty to offer the price we're offering now. In the end it got us a reduced purchase price and the landlord was very receptive to our situation and we worked out a fair arrangement to give us time to close and move our stuff out. The open line of communication with our landlord went a long way.
My wife & I (and daughter) were in a 1 yr lease (June-June), and found a house we ABSOLUTELY couldn't pass up on...only challenge is that this was in October (2008). We were above-board with the landlord the entire time, and the leased apt was in very good shape.
The agreement we made (and it was documented & notorized, etc) - was that we would be responsible for the rent until it was subletted to another person(s). We closed in December - the WORST time to vacate a place, and ended up having the apt vacant for 6 weeks. (1.5 months rent). Since it was a TERRIBLE time to find renters, we ended up "subsidizing" the rent - to make the value for the price more enticing to potential renters. The new renters signed a short-term lease (for the remainder of our term...) at the adjusted price - with the understanding that once that was up - they could resign for another 12 months @ "normal" price to rent it was (factoring in market conditions, of course).
All said & done, we probably swallowed 2 months rent - but we were able to amicably terminate our lease (which would have been 5+ months rent). For me, 2 months wasn't bad - since I convinced myself that it was just a "switching cost" of renting to owning our own patch of land....
It can DEFINITELY be done, assuming your landlord is a reasonable person. The key is to make sure you make efforts to find good renters to replace you - and make sure the landlord is kept "whole" (isn't adversely impacted financially from an early lease termination).
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