New long-terms rental concepts may work in NYC

The Gross lease(Junsae) concept.

New gross lease has been popular in foreign countries, when the market is unstable and housing price is unpredictable. The sellers and buyers both want to wait a few more years until market becomes stablized. Here's how it works. First, the buyer deposits key money, about 50% or more of selling price for average 3 years or more of Junsae contracts, Tenants  gets the deposited key money back when the lease expires. A big incentive to the Junsae tenant is that the tenant can use the apartment without paying rent or pays partial of rent and tenant simply wait and see what the market will be like in 3 or more of contractual years' time. Buyers do not have to worry about an uncertain market in case the price continues to come down. The tenant has the option to either walk out or buy the propeerty when the lease expires.  Junsae tanants can wait for the best time to buy the home. Meantime, the developers, sellers, can use money, not in escrow.

The Junsae rental contract was never introduced to the U.S. market. Since the current market is very unstable, it may be workable very well in the N.Y. Market. as a new marketing tools I would like to have introduced in NY, honestly hoping to create a new demand from foreign buyers. When the real estate market is unstable in Korea, a total of 365,000 families engaged in junsae lease contracts, that is one out every five families. Junsae tenants are all qualified potential home buyers at least holding deposit money for home purchase.

What is junsae?

Advantage for the tenants

  • Tenants pay no rent, only pay utility bills
  • Tenants move out freely when lease contract expires
  • Tenants get key money back when lease expires
  • With an option to buy, tenant buy the property at a pre-fixed price.

Advantage for the builders and sponsors

  • easy financing burden
  • Tenants pay common charge and utility bills
  • Tenants repair own apartment
  • sell the house already qualified buyer.

To make the deal workable junsae tenants looking for solid gurantee of money being returned when the lease expires. If in case the sponsors/builders/owners file for bankrupcy, the tenant's deposited key money may be in danger. For example, in Korea where the Junsae transactions is popular, the government issue temporary co-ownership, a lien is placed on the property to protect the Junsae tenant's interest.

To make junsae transaction possible, and sucessful in the U.S. there must be some kinds of legal protection for junsae tenants who paid key money for the use of the apartment.

The developers of condominium who own unsold properties because of the uncertain market conditions, payment of more then half of the purchase price, all cash, by the Junsae tenants is much better than keeping the apartment unoccupied for many years. This surely will reduce financial burden of the sellers.

By the time Junsae contract expires and the market price of condo either goes up or down, the Junsae tenant or seller will find it easy to negotiate the price of market value, or they just closing the deal with an option to purchase. Absolutely, this is a win-win situation for both parties. The Junsae tenants wants sto make sure that the key money paid to the sellers will be returned  to tenants when the contract expires.

The amont involved in the key money also subject to market conditions, depending on the demand and supply of market situation. Demand is geneally strong when the market is unpredictable.

Lease with key money with option to buy

This is the sale contract that allows the renter to lease the property at reduced rate. At the end of lease contract, to buy the condo.

This is a different concept for the regualr lease option to buy. The tenant is ready and willing to pay key money upfront, looking for reduced rental rate. The tenant has been proven to be financially qualified. For example, if the market price of the condo is $400,000 and rental is $2000 monthly, The tenant would like to pay key money about 30% of the purchase price ($120,000) in exchange for reduced rent payment.

Under an uncertain market, the buyer is afraid to delay the purchase and waits until the maket becomes stable.

Advantage for the seller:

  • Immediate cash flow from the tenant and good opportunity to sell the property later on
  • An already financially approved high quality tenant, who will take care of the homes, since the tenant may want to purchase the home in the future.

Advantage for the buyer:

  • Saving of rental payment
  • typically, the portion of the rent goes toward building equity and when tenant purchase a condo, it is applied toward the down payment
  • tenant has contract to buy the home when the lease is expires.
  • One can buy the condo anytime tanant is ready
  • Tenant have chance to see if the rented property is working good.
  • In appreciatin market, one may get a good deal if the condo price goes up in value and price is already locked up.