Posts Tagged ‘rental properties’
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As real estate agents, at the end of the day, we’re in business to make money, and our bottom lines don’t discriminate. Complaints about the market changes over the past few years just make me shake my head. I like to look at change not as an obstacle, but as an opportunity. For agents, one of the biggest changes is the opportunity to make money in rentals.
Here are a few reasons I think every agent should think about taking on a few rental listings:
Big opportunities
While I’m sure it’s not “The Year of the Landlord” everywhere, when sales slow down people still need places to live. And while most agents focus on residential sales, the reality is that there are a ton of renters out there.
Here in Manhattan, our rental market is truly on fire. New York is an exceptionally rental-centric city, where about 70% of available housing is for rent. In February 2012 Citi Habitats’ research reported a vacancy rate of a mere 1.25%. In the same month, the average apartment rented for $3,376, just $18 shy of the market’s peak back in May 2007.
This trend may seem like an anomaly; however, statistics show the rental market is thriving in many markets. A recent Reuters release reported the national apartment vacancy rate is at a 10-year low.
If agents can open their minds to using their market expertise in a different way, they can take advantage of rental activity to help grow and sustain their business.
Simpler, faster transactions
While one “for sale” property can take six months to even a year to close, depending on price and market conditions, good rental agents can expect to close four, five, or even six rental transactions in a single month.
Buying or selling a home is a huge investment decision that requires a lot of paperwork and includes many interested parties; sellers, buyers, lawyers, mortgage brokers, banks, etc. If you add all of the unexpected issues that can arise and endanger a deal, rentals should be an obvious thought.
In rentals things are a lot simpler and faster. Rental deals are less complex and take less time to close because:
- you’re primarily dealing with one party, the renters, clients who likely view their move as temporary;
- most renters want to find a place as fast as possible and view renting as a small, necessary investment; and
- in many markets, landlords require minimal paperwork, just a credit check and income verification in most cases, because their objective is to fill vacancies quickly .
Future owner leads
Another great reason to consider rentals is that almost every buyer was once a renter.
Agents looking to stay in the business more than three years need to remember this. Working with someone on a rental today and letting them know you also help buy and sell property generally builds connections that can benefit you down the road.
As I said, I’m completely biased. Rentals have been good for my business. But I do think one mark of a good agent is their ability to change with market conditions, and change quickly. Diversifying your business model is key to weathering the ebbs and flows. If you cultivate strong skills in both rentals and sales, you will truly be unstoppable – no matter what’s happening in the market.
About the Author:
Caroline Bass is a Senior Vice President and Associate Broker with Citi Habitats in New York City. Recently selected as one of Forbes, “Top 30 under 30 in Real Estate” for 2011, Caroline has closed an estimated $30 million in rental deals since joining the business in 2005 and has worked with some of New York’s most high profile clients including Tim Gunn.
BY NICK TIMIRAOS, ROBBIE WHELAN AND MATT PHILLIPS
Some of the biggest names on Wall Street are lining up to become landlords to cash-strapped Americans by bidding on pools of foreclosed properties being sold by Fannie Mae.
The idea is that the new owners would rent out the homes at first rather than reselling—potentially aiding a housing-market recovery by reducing the number of properties clogging the market. The fact that big-name investors are interested also suggests they anticipate sizable future profits in housing.
Bulk sales, however, pose a trade-off. While the current approach of selling homes one-by-one has its own high costs and is sometimes inefficient, selling properties …
http://online.wsj.com/article/SB10001424052702303863404577285791317719200.html?mod=googlenews_wsj
Nothing sells your rental property like a great photograph, so this is no area for shortcuts. Whether you hire a professional or decide to try these tips for yourself, make sure you get the shots that show off your rental property in its best light!
Hit the highlights
Just like anything you’re marketing, put your rental’s best face forward. Renters want to know how livable a home can be, so they will be especially interested in the areas they’ll spend the most time in that have gotten the highest traffic from previous tenants: the kitchen, living room, bathroom and bedrooms, especially.
Once you’ve covered the main areas, don’t forget to get a few close-ups of the amenities—new appliances, designer cabinets, or the brand-new sink in the bathroom. Whatever details give your rental character and appeal deserve a good photograph.
Go for high resolution
Even a pretty good digital camera (not your phone!) can produce great shots, if you take your time with the settings. On your camera’s menu, be sure to set it for the highest resolution you can achieve. Color saturation is the key, so be hesitant to use the flash if you don’t need it. Experiment with and without it to see which setting gives you the best depth of focus and room detail. You want the viewer to feel as if they are in the rooms themselves when they see your property photos.
Take multiple angles
As in life, every room has a different sense of place, depending on how you look at it. Try your rooms from each entrance and from different sides to see which shots give the best look and feel. Angles may be affected by natural light, so you might want to try different times of day, as well.
Be sure to go outside, too, to shoot the view from the main windows and get a whole-house exterior shot, as well as photos of the yard or deck.
If you have access to a 360-degree camera and know how to use it, the results can give potential residents the feel of actually being inside your property.
Don’t forget the power of a visual aid when it comes to marketing your rentals. Photographs are key, so take the proper steps to make sure yours make your property truly shine!
By Motoko Rich, New York Times News Service
The housing market remains a potent drag on the economy as home prices continue to slip, foreclosed homes fill some neighborhoods, and millions of construction workers scramble for jobs.
But one group is sitting pretty: landlords.
Unlike home prices, rents have been rising, up 2.4 percent in January from a year earlier, according to recent data, not adjusted for inflation, released by the Labor Department.
With few rental buildings erected over the past few years, available units are going fast. Nationwide, the apartment vacancy rate is down to 5.2 percent, its lowest level in more than a decade, according to the research firm Reis Inc.
Rent increases are greatest in places like San Francisco; Austin, Texas; and Boston, where technology companies in particular are hiring, as well as in New York City and Washington, D.C. But cities like Chicago and Seattle, where house prices are still declining quite sharply, have had rental increases, too.
“We are more of a renter nation than we have been for a while,” said Christopher J. Mayer, a professor of real estate at the Columbia University Business School.
Economists suggest favorable conditions for landlords will continue for at least a year, with employment gradually rising and apartment construction remaining constrained.
As job growth has begun to accelerate in recent months, young people are starting to move out of their parents’ homes or away from shared rooms and into their own rentals. Families who might previously have bought homes are also staying in rentals longer. They may be waiting for the housing market to hit bottom or finding it difficult to qualify for a mortgage.
Many others remain uncertain about their job prospects and wary of the obligations of ownership after the housing bust.
When Charles Griffith moved with his wife and two children to Orlando, Fla., last fall, they chose a new two-bedroom apartment for $1,140 a month. They left a four-bedroom, 2-1/2-bath house they had bought a decade ago in Antioch, Calif. His brother-in-law has moved in and taken over the mortgage payments.
Griffith, who works as a supervisor for Southwest Airlines, and his wife, a customer service representative for the airline, are enjoying the flexibility and convenience of renting, as well as amenities like a pool.
“We kind of like the situation now of not having to be under so much pressure,” said Griffith, 40, adding that the family may eventually buy in Orlando. But “with the economy and the airline industry, that factors into us thinking maybe we should hold off for a while.”
The home ownership rate has been falling from its peak of 69.4 percent in 2004, according to census data. By the fourth quarter of 2011, it was down to 66 percent. That means about 2 million more households are renting, said Kenneth Rosen, an economist and professor of real estate at the Haas School of Business at the University of California, Berkeley.
Not all those people are choosing apartments, of course. Some are moving into single-family homes left vacant by foreclosures. Eager to capitalize on the trend, investors are scooping up some houses at a deep discount and leasing them to tenants who have lost their own homes.
Several prominent hedge funds and private equity firms have recently announced plans to invest in distressed properties and convert them to rentals. And earlier this month, the government solicited applications from investors interested in buying pools of foreclosed properties held by Fannie Mae and Freddie Mac, as well as the Federal Housing Administration.
Investors could help the market by turning empty houses into rentals, said Diane Swonk, an economist at Mesirow Financial in Chicago.
“It can make the difference between a neighborhood being literally like Detroit — dead forever — or a neighborhood that has another chance at life,” she said.
Still, it is apartments, not houses, that are in the most rental demand.
Although many families crushed by the recession have doubled up and plenty of underemployed 20-somethings are living with their parents, some young people are finally getting their own space. Nearly 60 percent of job gains in the past two years have gone to people who are 20-34, a crucial rental group, according to an analysis of Labor Department data by G. Ronald Witten, a consultant to apartment companies.
During the economic downturn, apartment developers retrenched. The number of new apartments completed fell from 284,200 in 2006 to less than half that number in 2011, according to census data.
The limited supply is pushing up prices in some markets. In San Francisco, rents jumped close to 5 percent last year, according to Reis, and increases averaged 3 percent in Austin and New York. Landlords have also been withdrawing incentives like a free month’s rent.
Liz Brent and Matt Mochizuki moved into a studio apartment a year ago in the Mission District in San Francisco for $1,395 a month. Now they want more space.
Brent, 26, makes costumes and is working as a barista at a cafe where customers leave big tips. Mochizuki, 27, has a steady job with a metal fabricating studio. They are budgeting $1,800 a month in rent.
But at an open house for an apartment billed as a one bedroom, they found a studio with an awkward layout and bad light. More than 40 people were in line, many ready to hand over a check.
“That’s what the market is like now,” Brent said of her fruitless search. “That’s how many people showed up for this tiny apartment with no windows.”
A few metropolitan areas are experiencing a much softer rental market. In Atlanta, owners of vacant condos are lowering rents to attract tenants, and in Las Vegas, homes are taking six weeks to lease and rents are still well below their peaks, said C. Terry Robertson, broker of Desert Realty.
Orlando might seem an unlikely place for rental strength. The unemployment rate, at 9.7 percent, is higher than the national average, and home prices slipped 4.6 percent last year, according to the Standard & Poor’s Case-Shiller home price index.
Yet Ric Campo, chief executive of Camden Properties, a real estate investment trust that owns apartment buildings, said rental business was brisk at its LaVina development. Since the office for the 420-unit complex opened last summer, more than half the apartments have rented.
That’s “a faster rate than we’ve ever seen in Orlando,” Campo said. The company has raised the base rent on a two-bedroom apartment to $1,080, from $995 a month.
Many are left to wonder whether the housing collapse has had a more profound effect.
“I think it’s going to be interesting to see whether there’s been a fundamental sociological shift in that 20-35 year old cohort, where they literally say ‘this American dream just doesn’t work for me,”’ said Brad Forrester, chief executive of the ConAm Group, which manages about 50,000 apartments in the western United States.
Matt Byford, a 24-year-old litigation consultant in Chicago, is certainly in no hurry to buy. He has been renting in the Lincoln Park neighborhood since his college days.
Given the low purchase prices and record low interest rates, Byford acknowledges that the financial scale probably tips more toward buying than renting. “Since I can pretty much assume with confidence that it’s not going to go anywhere,” he said, “I don’t necessarily have a sense of urgency.”
By Lou Carlozo
Wed Feb 15, 2012 12:05pm EST
(Reuters) – Rich Arzaga owns a luxury home in San Ramon, California, but he’s not betting on it as an investment.
The founder and CEO of Cornerstone Wealth Management, who bought the 5,000 sq. ft. property in 2005 for $1.8 million and has spent $500,000 improving it, considers the abode a wonderful place for his family. But ask him to rate his home — or any home, for that matter — as a financial investment, and Arzaga balks.
“It’s the American Dream to own a home, but whoever said that didn’t do the analysis on it,” says Arzaga, knowing he’s taking a contrarian stance to conventional wisdom.
Examining 250 properties around the U.S., and going through close to 40 client files to project the financial impact of owning real estate versus liquidating it, Arzaga, an adjunct professor in personal finance at the University of California at Berkeley, found that, “100 percent of the time it was better to rent, rather than own.”
That’s right: 100 percent.
The reason is simple. While a home is the main repository of wealth for many Americans, it comes with numerous hefty expenses. The carrying costs – what’s needed to hold and maintain the asset – range from property taxes and home insurance to emergency repairs and renovations. In a rental situation, the landlord covers those costs, leaving the occupant free to invest revenue in other areas.
“I don’t have the emotions a lot of people do surrounding real estate,” Arzaga says. “I have steely eyes for how investing in real estate works, and I’d better be a prudent investor for my clients.”
Owning a dream home, he says, creates a drain on other financial priorities, causing homeowners “not to meet their financial goals. They were going to fail.”
Some real estate experts thought there was some truth to Arzaga’s argument, albeit with several conditions.
“To state that owning a home is or isn’t a good investment is too simplistic,” says Jeffrey Rogers, president and COO of Integra Realty Resources. “It depends. In times of relatively higher rents, low home values, and low interest rates, it makes sense to own a home. But in a reverse market, it wouldn’t be economically feasible. Over time, those who purchase in down or flat markets with low interest rates come out ahead.”
“Our lifetimes are a long time, and when we look over the long term, real estate and other investments tend to have a positive return,” says Jed Kolko, chief economist at Trulia.com,
a real estate search and research website. “But when it comes to real estate, changing your mind is expensive. There are a lot of costs involved in buying, selling and moving. If you move every two years, it’s probably a bad investment for you. It also depends on your job market. If you’re in a one-company town and the company goes down, there goes your job and there goes your home value.”
Greg McBride, a senior analyst at Bankrate.com, agrees with one point of Arzaga’s. “Home ownership is not so much a creator of wealth as a store of wealth,” he says. “The promise of home ownership is that over the long haul, it can rebate many or perhaps all of your costs, unlike rent, which doesn’t rebate a dime.”
The trouble, he says, is that many Americans want a home so badly, they neglect other ways to grow wealth and financial security.
“You have the other financial bases covered: emergency savings, retirement savings, paying off debt, saving for the education of your children,” McBride says. “There’s no sense in buying a home if it’s going to deplete your emergency or retirement savings.”
McBride crunched the numbers in a pre-bubble era (2004) for a home purchased at $200,000 by a buyer in the 27 percent marginal tax bracket. Factoring in a 30-year mortgage, $1,200 in annual home insurance, closing costs of $5,500 and maintenance costs of $100 a month, along with property taxes, he calculated that it would take a selling price, 10 years later, of $395,404 just to break even. His conclusion gave Arzaga’s view credence: “Homeownership may not be the moneymaker you think it is.” (See the full chart at link.reuters.com/hej66s)
Then there’s the emergency fund, a must for when a home requires unexpected repair work.
“As far as emergency savings is concerned, six months of a cushion is adequate,” McBride says. “But only 24 percent of people have that kind of cushion, and about 65 percent own homes.”
So while home ownership may sound glamorous, you need a lot of money to make it work, without much guarantee of positive returns in a post-bubble era. Indeed, Arzaga cites himself as an example of how home ownership doesn’t pay off. His residence is today worth $1.5 million, about 17 percent less than what he paid.
So why not sell? For Arzaga, it’s a lifestyle choice, and one that he doesn’t regret, since his big money-making investments are elsewhere.
(Editing by Bernadette Baum, Beth Pinsker Gladstone and Andrew Hay)
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The average rate on the 30-year fixed mortgage dropped to the lowest since records have been kept, creating a tempting target for people to refinance their homes.
Freddie Mac said Thursday the average rate on the 30-year fixed mortgage hit 3.87 percent, down from 3.98 percent the prior week. That’s below the previous record of 3.88 hit two weeks ago.
The average on the 15-year fixed mortgage fell to 3.14 percent, also a record low. Records for mortgage rates
date back to the 1950s.
Mortgage rates tend to track the yield on the 10-year Treasury note, which fell below 1.9 percent this week.
Mortgage rates have hovered near 4 percent for the past three months, and have perhaps contributed to a slight improvement in the housing market. But many homeowners remain underwater and the pipeline of foreclosures continues to be huge, putting heavy pressure on housing prices.
High unemployment and scant wage gains have made it harder for many people to qualify for loans. Many don’t want to sink money into a home that they fear could lose value over the next few years.
Sales of previously occupied homes were dismal last year. New-home sales in 2011 were the worst on records going back half a century.
Builders are hopeful that the low rates could boost sales next year. But so far, they have had a minimal impact.
Mortgage applications have risen slightly over the past four weeks, according to the Mortgage Bankers Association. But they are coming off extremely low levels.
To calculate the average rates, Freddie Mac surveys lenders across the country Monday through Wednesday of each week.
The average rates don’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1 percent of the loan amount.
The average fee for the 30-year loan rose to 0.8 from 0.7; the average on the 15-year fixed mortgage was unchanged at 0.8.
For the five-year adjustable loan, the average rate fell to 2.80 percent from 2.85 percent. The average on the one-year adjustable loan rose to 2.76 percent from 2.74 percent.
The average fee on the five-year adjustable loan rose was unchanged at 0.7; the average on the one-year adjustable
The Associated Press contributed to this report.
Once you have invested in a rental property, the responsibility of maintaining and running the property can quickly become overwhelming. For many landlords, the logical solution is to hire a property management company to oversee their rental property. But is this the right decision for you? Here are several issues to consider.
- Do you have what it takes to run a rental property? If this is your first foray into property management, you could find yourself in over your head. Collecting rent may sound easy, but in reality, it can be more like a painful extraction. If you are not familiar with rent collection, you can quickly find that your tenants are taking advantage of your inexperience. In addition to rent collection, day-to-day maintenance of a rental property can be tiring. If you are not operating your property as a full-time job, you may not have the time to address tenant concerns and repairs in a timely manner. This may make hiring a property management company an excellent choice.
- Where is your rental property located? If you have purchased a rental property near your home or place of business, you’ll be able to keep an eye on the property. However, if your rental property is far away, you’ll be loath to travel to it to deal with the inevitable problems that arise. If you’re unable to check on the property on a regular basis and handle any issues that may arise, finding a local property management company can mitigate these concerns.
- Does the property need frequent visits, repairs, or attention? If your rental property is a veritable money pit, you can find yourself spending more time there than at your regular job. If you’re getting constant requests for repairs to a property, having someone who can devote the majority of their time to your property is very helpful. The more units you have, the more you can benefit from a professional maintenance worker or property management company.
- What services do you need? If you’re looking for a small amount of assistance, such as monthly rent collection, a full-service agency may be too much for your needs. Since you’ll need to budget in the fees charged by a property management company, this will cut into your profit margin. Therefore, instead of hiring a full-service company, you may be better served by a part-time property manager or specialist who can handle the most frequent problems. On the other hand, if you do need a complete solution, make sure that the company can provide you with all the services you require. For example, if you need someone who is capable of light maintenance work in addition to rent collection, keep this in mind while you shop for a property management company.
- Is the company trustworthy and friendly? Before hiring a property management company, do thorough research to ensure that it is reputable. If you are an absentee landlord, this is extremely important. You will be relying on this company to collect rent and represent you and you interests. Check references and talk to other landlords who have worked with this company. Make sure the representative of the property management company is level-headed and diplomatic. Just one bad interaction between tenant and rent collector can destroy goodwill that can take years to restore.
With 2012 nearly upon us, many of us will be spending this week reviewing the events of 2011 and setting resolutions, goals or visions for what we’d like to accomplish next year.
It will come as no surprise that the most common New Year’s resolutions fall into the categories of getting organized and getting fit — physically and financially.
Financial fitness includes getting your real estate business in order. But you can’t set up your real estate plans for the year in a vacuum. They must be done in context of what’s going on in the market. Here are four predictions about what that market context will look like in the coming year:
1. Even more foreclosures
While I’d like to claim crystal-ball credit for this one, it doesn’t take heightened powers of prediction to foresee an uptick in the rate of home repossessions in 2012. Last fall’s robo-signing debacle and the ongoing legal fallout from it created a massive backlog in the foreclosure pipeline, meaning that banks are taking many months, even years, to actually foreclose on mortgages in default.
Earlier this year, the New York Times reported that the additional hurdles New York state courts are requiring banks to leap in the wake of the robo-signing revelations, like additional settlement meetings with the homeowner to see if a modification can be brokered, have created a backlog of foreclosures that it would take 62 years to clear, at the current rate of foreclosure.
It’s pretty clear that in 2012 and beyond, the banks will work through those backlogs. The inevitable result will be an increase in foreclosures.
2. REOs and short sales will become the new normal
If you even know anyone who has house-hunted in the past couple of years, you’ve likely heard tales of the high-drama high jinks — super-long escrows, first-time buyers being bested by investors’ cash offers, banks resistant to negotiating for repairs — that take place in the course of a distressed property sale.
In the coming year, distressed home sales will continue to represent an increasing share of homes on the market. So, buyers will shift from considering whether to buy a short sale to understanding that they must be educated and prepared to do a deal with a seller, a bank (to buy an REO) or a hybrid of the two (to buy a short sale) to access the full selection of homes on the market.
This, in turn, will empower buyers to make smart decisions about what to offer and what to expect on any listing they like, as well as to set smart priorities and make realistic comparisons between listings based on their own personal priorities around timing, certainty and seller flexibility.
3. So-called ‘smart cities’ will do well
This year, a number of housing markets saw double- or even triple-dips in home values. In others, pricing stayed relatively flat. However, in areas where technology powers the economy, home values prospered along with the industry. Silicon Valley real estate, for instance, saw fierce competition among buyers as the young employees of companies that went public like used their newly stocked bank accounts to buy their first homes.
I recently talked with Jed Kolko, chief economist for real estate search site Trulia, and his 2012 forecast was that so-called “smart cities” will continue to have hot real estate markets next year. But Kolko defined smart cities much more broadly than the California tech hubs. Other tech centers like Austin, Texas, and the Massachusetts suburbs of Cambridge, Newton and Framingham all made Kolko’s list, as did Rochester, N.Y. (a town known for its highly educated, highly skilled work force).
4. Consumers will get ‘hopeless’
I mean hopeless in the best of all possible ways. For years, buyers and sellers have been waiting for that singular event to occur that would cause a quick market recovery. But 2012 will mark the fifth or sixth year of the real estate recession, depending on who you talk to. I predict that those consumers who have not already done so will drop unrealistic hopes for a fast return to the heady real estate fortunes of the subprime era. Instead, people will make their real estate plans based on:
- today’s low home prices, rather than the fantasy of what could happen if the market miraculously came back;
- assumptions of very low, or no, appreciation in home values for years to come; and
- very conservative estimates of their own finances and how they will grow.
As a result, buyers won’t break their necks to hurry and buy before prices uptick; rather, they’ll save and plan to buy when it makes the most sense for their finances. Homeowners will do the same; they will either refi, remodel and be content where they are for the long haul, or decide their homes no longer fit their lifestyles and their finances, divest of them and move on. But the good news is, people will make these decisions based on what is or is not sustainable for their lives and their finances, and not based on inflated hopes about what the market will or will not do.
Tara-Nicholle Nelson is author of “The Savvy Woman’s Homebuying Handbook” and “Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions.” Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
Residential real estate is not rocket science. We know that this housing crisis is:
1. Explainable – bad lending, mad speculation, wild expectations, government meddling
2. Isolated – bad mortgages, negative equity, strategic default, government meddling
3. Temporary – demand for housing always catches up to supply eventually
Anyone with any experience and perspective will agree that this market will recover over the next 10 years, but what will this particular recovery look like? Since the root of the problem was unprecedented, the solution might be as well.
My belief is that renters are going to solve the housing crisis.
Home ownership rates have fallen by a few percentage points, which has translated into more than four million new rental households in just the past few years. According to the Census, 1.4 million of those were added between July 2010 and June 2011, showing that this trend is accelerating.
As a result, rental rates are growing at more than 5% per year, and this trend is also accelerating.
As a result of this, investors are pouring capital into American housing with a long-term mindset, kicking this trend into hyperspeed.
This crisis will not be solved by enticing home buyers. Their confidence is waiting for unemployment to come down and government to act responsibly, which could take a while.
But investors are confident right now. Why? Because they see the big picture. Rental demand equals stable cash flow. So what can be done to encourage them?
How about eliminating archaic waiting periods for investors who want to buy foreclosures? How about eliminating waiting periods for investors who paid cash and want to tap it with a refinance? Today they have to wait months to put that money back to work. Why not eliminate the overall bias against investors in FHA, Fannie Mae and Freddie Mac and require big down payments to make it safe to lend, and lend.
Better yet, keep your eyes peeled for a private sector player to seize this opportunity to create America’s first national investor mortgage brand. The estimates are that half a million investor loans close every year, and who owns that niche? No one.
The Martial Arts teach you how to use the weight and momentum of your opponent against them (or so they say in the movies). This is the same thing. This drastic increase in rental demand is a by-product of the foreclosure crisis. Use it against the crisis by turning it into positive cash flow investments for those willing to be confident and take a risk in this environment.
Burn off that shadow inventory and create housing options for newly minted renters, which will, in turn, stabilize rental rates, and everybody wins. Good credit renters and buy-hold investors will be the heroes at the end of this saga.
Greg Rand is CEO of OwnAmerica.com and former managing partner of Better Homes and Gardens Rand Realty.
After half a decade of withering sales and slumping prices, there are strong and diverse signs that the single-family housing market is poised for a rebound. In some metropolitan areas, the market has bottomed, with both sales and prices on the rise and foreclosures on the decline.
Industry analysts and players cite a number of reasons – some traditional (employment), others unique to the post-credit bubble era (foreclosures) Â - for the long-awaited sea change. An analysis of industry and government data also support the forecast.
Proponents admit that the nascent rebound could easily be derailed, but stress that after years of government efforts to support sales and prices as well as the volatile impact of foreclosures, the market has regained a measure of normalcy.
“With the exception of really hard-hit markets, the vast majority is ready to turn around,” adds Jerry Howard, president and CEO of the National Association of Home Builders, NAHB. “The Washington, D.C., area is not only ripe for recovery, they need to start building units.”
Nevertheless, skeptics overwhelmingly outnumber the optimists, given the false-starts of previous years, the economy’s sub-par performance, a new wave of distressed properties and the capacity for the European debt crisis to spook business, consumers and investors.
“I think it’s premature,” says Richard Smith, CEO of Realogy, the nation’s largest real estate company, whose brands include Century 21, Coldwell Banker and Sotheby’s International. “We see little indications here and there. Transaction volume is improving. Prices are still under pressure. This isn’t going to be one of those spiked robust recoveries.”
Smith is echoing the conventional industry calculus: that price increases follow sales growth amid consistently strengthening demand.
There’s been little conventional, however, about this housing slump, which is one reason it’s had so many false bottoms. Among its many firsts – housing starts fell through 1 million annual units, foreclosures topped 2 million in three consecutive years, and home prices declined on a national basis.
The catalysts to recovery are mostly the same: for potential buyers, residential rents have now risen enough to consider buying; existing-home inventory is the lowest in five years, while that of new homes is at a 40-year low; affordability is at a record high; delinquencies have peaked;consumer confidence is on the rise ; and job growth is accelerating.
For investors, with a continuation of the gold rally in question, real estate is beginning to look like a viable inflation hedge alternative, while rising rents mean greater profits.
That thinking may help explain why the iShares Dow Jones US Home Construction Index Fund(NYSE Arca: itb), a broad barometer for the housing market, is up some 38 percent from the stock market’s October bottom, while the S&P 500 is up about 21 percent.
Finally, there’s the intangible fatigue with bad news, and a desire to end the negative feedback loop.
“We believe there is sizable housing demand that could be released into the market,” says Lawrence Yun, chief economist of the National Association of Realtors, NAR.
The NAR is forecasting existing home sales will rise 5 percent in both 2012 and 2013; prices will edge up 2 percent in each of those two years, then 4 percent in 2014.
The NAHB is forecasting a 5.1-percent increase in new home sales and a 10-percent increase for new home starts in 2012.
As an owner of a mortgaged rental property, how do you know when it might be a financially beneficial time to refinance?
Know your goals
Before you set out to get refinancing information, decide what it is you’re looking to accomplish. Do you want have more cash available by making a lower monthly payment? Would you like to pay off your property faster? Do you want to use the equity in your property to make improvements (and raise rents) or earmark money for the purchase of another property?
Also, consider how long you plan to keep the property. If you’re planning to sell in three years, for instance, investing in a refinance effort — with its associated closing costs — might not be the most profitable move.
Questions to ask
You can make a better decision between many loan options once you’ve determined the most important aspects of refinancing for you.
As you make specific inquiries about loans, compare the details carefully. Determine the details of the rate and the term of the loan you’re interested in. The most important question is whether the interest rate, the length of the loan, or the combination of the two will lower your monthly payment or your pay-off amount, thanks to less accrued interest.
Be sure to assess whether the rate is fixed or variable. With a variable rate, what is the ceiling on the rate, if any? Read the terms and conditions of the loan carefully before you sign. A borrower can find himself in a bad situation with a low introductory rate that turns into a rate far beyond what was originally budgeted for.
You’ll also want to find out about closing costs. If there are some (and there usually are), can they be rolled into the refinance? And, if so, is your new monthly payment still low enough to make the deal worthwhile?
Consider the economy
Though there is no crystal ball to predict economic ups and downs, there are indicators that can help you make informed decisions. In a downturn, mortgage loans can be harder to get approved, potentially creating a higher demand for rental properties. If a refinance of an existing property would make it possible for you to make improvements to that property or buy additional rental properties to fill new demand, it might be the right choice for you.
Shop around
Though you can compare rates online through a variety of sites, consider having a professional do the footwork for you to offer advice on the many different kinds of loans available. It helps to have someone point out the pros and cons of individual loans and give insight on what might be the best match for your investment goals.
Refinancing can help make a rental property you’ve been considering selling viable again or give you the equity to buy an additional one. Shop carefully, read the fine print and you may soon have more money in your pocket even after paying the mortgage payment on your rental property.
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