Let's talk about this.

Are you able to extend the agreement for another yr or two until the market hopefully starts going back up and you can get your agreed upon price?
I think whoever has property needs to sit on it until the market swings, especially if you have a poitive cash flow going on it.
JMO
Richie

I think that is my best option. My concern is that renters, paying $1100 in rent, can now buy a home, simular to what they are renting, for a mortgage of $700 to $800. It costs me about $850/month to hold the property. Once the market starts to recover, there will be less demand for rentals, and the rental rates will go down. I expect that even when the market starts to recover, it will take years for it to appreciate back to my purchase price.

I see what your saying, but some people would rather rent and not have to worry about the up keep of owning. They just like to pay rent and make a call when something needs to be fixed. The only other option I see is if you get lucky enough to find someone that really likes the house and has the cash to off set the difference. Or you can sell it for your agreed upon price but hold the difference in a second mortgage. I dont know your numbers so I would say if you agreed upon 100k and the bank will only loan 60k, you hold a second mortgage for 40k.The house is sold and you get a monthly check with interst on it and maybe a balloon payment in 5 yrs.
Any way Al, good luck.
Richie.

Richie brings up a good point about some people not wanting the hassle of owning a home. And your concerns about what they are paying in rent vs. what a mortgage would cost them may not be warranted, especially if you are not taking into consideration PITI when figuring what it would cost them to own. They also may not have a downpayment.

Personally, I would hold onto it for now and when prices go up again, then sell.

One question - does the lease option you entered into with them in any way obligate you to let them have the house at a certain price should they choose to exercise their option?

I really have no choice but to hold onto the property at this time. The agreement in the purchase option was for $165K in two years, which will be December 2010. My renters want to buy, but they will not qualify for a mortgage that is greater than the value of the home, so they may go after another home while the market values are low. The current value is $90K I purchased for $115K with a value at that time of $180K. When the demand for rentals go down, rental rates will go down also. I hope I will be able to keep a break even or positive cash flow until the value allows me to sell without taking a loss. I may be able to do a wrap around mortgage, if I can find the right buyer.

Al you know I feel your pain in Phoenix.

It is this very same thing that is holding me up on the deal that we have been trying to close one.

Yes, I'm in Phoenix, too and understand. I'm upside down on my own house. However, I think there is still a demand for renters. All those people that lost their homes now have to rent (I personally know several of these). All the people that lost their jobs will NOT be able to buy and will need to rent. Or the people that downsize from a 4-bd house to a 2-bd house are still going to rent.

There is however, some competition in the rental market. One of my co-workers just moved into an apt. building and negotiated the rent downward because of this. On a better note, I don't believe it will do down much further. That's not just me talking (because I'm still new), but my agent also believes this.

What is it that you or your agent see in this market, that causes you to believe that the market is at or near bottom. That was the feeling of many agents and investors a year ago. The inventory is high, foreclosure rate is high, and buyers can't get money. Investors, for the most part, are the only ones buying. They are buying below value, which causes values to continue to decrease. I don't have the depth of experiance to know what to expect with these conditions. (And I'm not sure this has ever happened before)

Note: I am not trying to be negative, I am just wanting to generate some discussion that we all can learn from. Please post your thoughts.