American Homeowner Preservation LLC, pioneers of the short sale leaseback to assist families at risk of foreclosure, has entered into an agreement with Millstone Landing LLC, the owners of a gated 613 single family development in Vero Beach, Florida, to offer lease options to credit-worthy buyers who cannot obtain financing in today's tight credit environment. Millstone Landing features newly-built quality homes nestled amongst lakes and a nature preserve.
The original developer, Shelby Homes, ended up in bankruptcy after defaulting on a construction loan amounting to $370,000 per home. In 2008, the average sales price of a Millstone Landing home was $618,000. Today, these same homes are offered new for under $260,000, and AHP investors can acquire for $155,000 subject to the leases and options to the end-user buyers. Typically, the end-user buyers are paying Millstone Landing a 10% option deposit and receive a two-year option and two-year lease. The monthly payments average $1,900 monthly, with $900 being credited to the eventual purchase.
For example, a British airline captain, who earns $120,000 annually from his six-year position with BMI Airlines, is under contract to purchase a 3,200 square foot Millstone Landing home for $235,000. Having difficulty qualifying for financing due to their foreign national status, this family wants to execute a lease and option now in order to take advantage of today's depressed prices. After paying a $30,000 deposit, this family can exercise their option to purchase anytime over two years by paying the remaining $205,000. The AHP investor buys the home for $155,000 and receives $1,905 monthly. When the option is exercised, AHP's investor receives $170,500, AHP receives their program fee of $7,750 and the subdivision owner receives the remaining $26,750 minus the $900 monthly credited towards the option price. In this case, the captain intends to sublet the home until relocating in the future. Similar homes nearby lease for $1,400 - $2,250. The projected annual return to AHP's investors is 16%.
"If financing was readily available, we would be sold-out. However, many prospective buyers cannot qualify for financing, despite strong income and positive credit histories. Thus, American Homeowner Preservation's Lease Option program is a tool which enables us to sell our homes faster. We do take a bit of a hit on the pricing in order to deliver the yield AHP's investors require, plus we have to defer some of our return," said Brian Plunkett, one of Millstone Landing's principals. "Still, the ability to promptly move our inventory and save many months of holding costs makes AHP a good solution for Millstone."
"We are delighted to expand the use of AHP's Lease Option model, particularly at a high-caliber development such as Millstone. The U.S. housing market will remain weak until the excess inventory is sopped up. With a dire lack of financing, many families are unable to take advantage of today's depressed pricing," said AHP's Director Jorge Newbery. "AHP's Lease Option program fills a void, getting families into homes at attractive prices and terms, facilitating the rapid disposition of inventory by subdivision owners and generating strong returns for AHP's investors."
