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Top Reasons To Be Optimistic About Real Estate Market In 2012

Aaron Bosshardt — Mon, 16 Jan 2012 20:11:41 +0000

As we close the books on 2011, we can say it was better year than 2010 for activity in real estate. Prices continued to drift lower for us, primarily brought down by distressed sales. Every agent I have has positive feelings about the year 2012. What’s even more shocking is that bank executives I have been talking to are positive for the first time since 2008. If you are a looking to perfectly time a long-term purchase of real estate, then this might well be the year to do it. Let’s get right to the nuts and bolts of why I believe 2012 is going to be remembered as a great year to buy real estate.

Top 10 reasons why you should be optimistic about the real estate market in 2012.

According to Case Shiller in 2012, 372 of the 384 real estate markets they track are projected to have housing prices appreciate, while only 12 markets are expected to see prices decline.
In markets that have had the largest price drops, those markets now have the most significant increases in affordability. For us in Florida, Miami is most notable where the ratio of mortgage payment to family income has dropped from its height of 59% in 2007 to 19% today. That means people are paying 1/3 of what they did just four years ago to own their homes.
Apartment move outs to buy homes are escalating. Currently, measured at a six-quarter high of 13.5% by Zelman and Associates. That means that 13 out of every 100 renters moving out of apartments are doing so to buy a new home.
Low prices combined with historically low interest rates make 2012 a once-in-a-generation opportunity to buy real estate and build wealth. Look for this trend to continue only through 2012.
Wall Street wants in! That’s right. Hedge fund managers are trying to figure out how to capitalize on the opportunities in the single family home market. There is some irony here. Wall Street is trying to occupy us. You should know that they are going to do it, charge some fees, and then ask your fund manager to buy in with your money. Why not cut out at least two middlemen?
This month’s headline from Credit Suisse monthly survey of real estate agents is a telling sign of things to come. “Affordability Slowly Pulls Wary Buyers back!”
2012 is when CNBC’s Jim Kramer originally forecasted the housing crisis to end. I know he has revised this but the two things you need to remember are that Wall Street generally worries more about new home starts and builder stocks then the existing housing market. Then just remember what your old SAT test prep instructor preached, “Always stick with your first answer!”
According to local mortgage guru Mike Jones at Alarion Mortgage, “Rates look to continue to decline as the fed works to reduce rate in the commercial backed securities(CMBS) market as part of QE3.” Can rates drop below 4%? It’s possible. While I’m not qualified to say there is a bubble that is going to burst, it sure looks like irrational behavior is driving long-term rates that low. That’s behavior that real estate buyers should capitalize on with long-term fixed rates.
Job Growth looks strong as retailers and small business entrepreneurs now lean from the recession look to take on new locations and bring new jobs into our communities.
Of course ultimately you have heard it over and over that real estate markets are local. So for us in Gainesville, FL, 2012 forecasts look good!

Home prices: Your local forecast 384 markets tracked

Median home prices are expected to fall another 3.6% by the end of June, 2012. See how your market is expected to fare.

Gainesville, FL Metropolitan Statistical Area
Forecast Change: 2nd Quarter, 2011 – 2nd Quarter, 2012 = -5.6%
Forecast Change: 2nd Quarter, 2012 – 2nd Quarter, 2013 = +1.9%

Market Fundamentals
Median Family Income (2010) = $53,100
Median Home Price (2nd Quarter 2011) = $155,000
Change in Home Prices: 2nd Quarter, 2010 – 2nd Quarter, 2011 = -10.5%
Worst 1-Year Home Price Change (From 1980-2011) = 1st Quarter, 2007 (-12.3%)

Forecasts as of October, 2011, courtesy of Fiserv

Quick Bio:
Aaron Bosshardt, CPM is the President of Bosshardt Property Management, LLC and Bosshardt Realty Services, LLC. He has been a NARPM member since 2001 and currently serves on the National Governmental Affairs Committee as well as the Florida State Chapter’s governance committee. Bosshardt Property Management manages single family residential homes, apartment communities, condo and homeowner associations, office space and retail centers.

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Rental Housing and Apartment Rental Market Trends for 2012

Marc Courtenay — Wed, 04 Jan 2012 20:40:48 +0000

The year 2011 will go down in history as the year when the rental housing and multifamily apartment rental markets began to tip in favor of owners and landlords. In many areas in the U.S. like Los Angeles, Dallas, Phoenix, Chicago and Miami, the vacancy rates lowered compared to 2010.

Other areas like Cleveland, Ohio, Denver, Colorado, Houston, Texas, Atlanta, Georgia as well as the San Francisco-Oakland Bay Areas of California saw vacancy rates flatten out or improve somewhat during 2011, according to the National Association of Realtors (NAR).

The 2012 Forecast for Multifamily Rental Markets

The apartment rental market (aka multifamily rental housing) is expected to see vacancy rates drop from a nationwide average of 5.0 percent in the fourth quarter of 2011 to 4.3 percent in the fourth quarter of 2012, again according to the NAR. Multifamily vacancy rates below 5 percent generally are considered a landlord’s market with demand-supply factors usually leading to higher rents and higher capitalization rates for owners.

Areas in the U.S. with the lowest multifamily vacancy rates currently are Minneapolis, Minnesota, 2.4 percent; New York City, 2.7 percent; and Portland, Oregon, at 2.8 percent. According to the NAR, the average apartment rent was projected to rise 2.5 percent by the end of 2011 and another 3.5 percent in 2012. That’s an amazing 40% increase year-over-year! Multifamily net absorption is likely to be around 238,400 units all tolled for 2011 and 126,600 in 2012. The number apparently drops in 2012 because of a considerable reduction in supply. The true measure of change in total demand is net absorption. Gross absorption is often an inappropriate and potentially misleading indicator in terms of understanding and evaluating changes in total demand for rental units.

How Rental Housing is Being Advertised and Vacancies Filled

2012 will see the expansion of rental housing being advertised online or via sites that correlate to the explosive growth in the usage of Smart Phones and tablets such as the Apple’s iPad. The following video is a reminder of how many property managers around the nation are choosing to advertise vacant rentals using the worldwide web and why (click here). Property managers are also finding that social networking sites, like Facebook and Twitter, can be another great channel to market vacancies. Specialty websites like RentVine.com have been used by an increasing number of owners and property managers to expand their advertising of vacancies online. That trend should continue and grow in 2012.

The number of houses going into foreclosure increased exponentially in 2011. As a result, the number of displaced former homeowners looking for rentals increased to record levels. The good news is that the year 2012 looks very bright and promising for the property management industry and for both single and multifamily rental housing owners.

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What Property Managers Need to Know Now About the Real Estate Market

Marc Courtenay — Fri, 30 Dec 2011 16:00:31 +0000

If you ask 5 different realtors in your area how the real estate market is fairing, you’re likely to get 5 different responses. The reason for this is that there is a great deal of confusion and uncertainty right now. How many homes are in foreclosure or about to go into foreclosure seems to be a well-guarded secret. Add to that the growing number of homes that have been taken off the market and are being rented for the time being and you can see why the accurate supply figures on unsold homes is skewed.

Key Factors to Keep Your Eye On

First, it’s the challenge of borrowing money, a.k.a. qualifying for a mortgage. The standards for qualifying are stricter than they’ve been for many years, and only those with top credit scores are able to qualify for the lowest rates. Interest rates would be the next key factor going forward. Real estate interest rates are important, not just because of the debt service one pays. They’re also critical because all value in real estate is determined by capitalization rates. If interest rates increase, cap rates increase. This would be devastating to values. Many analysts think the risk of rising interest rates far outweighs any reward present in today’s market. Unless an owner can qualify for a very reasonable, fixed longer-term rate, it may be difficult to charge enough rent to service the debt and the operating costs of the rental unit. Sure enough, operating expenses are the next key factor to focus on. We’ve already witnessed expenses increase for every product type, in all areas. That’s how inflation will continue to have a major impact on the value of real estate. In fact it already has, and if inflation suddenly increases it will impact wages, cost of materials and other operating expenses.

Next, be aware of the kind of prospective renters that are out there looking for a place to live. There are more extremes appearing. There are some extremely qualified people who have lost their homes due to the “upside down” valuation implosion on their homes. There are also a growing number of unemployed and under-employed people who are having to lower their standard of living while at the same time having to move to less expensive rental housing. Many new apartment complexes are in the process of being built. I’m told anecdotally that rarely have many areas seen as many apartment units planned as are now on the drawing board. In Denver for instance, there are at least 14,000 units planned or under construction. This will all be financed through Fannie Mae, Freddie Mae, or HUD. In addition, the rents that are needed for these new multifamily units are high and going higher. This is due to the increasing construction costs.

Reports from around the country are telling us that the housing market under $250,000 is active and apparently stabilizing. However, the more expensive “jumbo loan” home market is deteriorating steadily. As you know, the GSEs (Government Sponsored Enterprise) and HUD doesn’t finance homes over $417,000 in most of the country. That’s why if a home buyer requires a loan over that amount, it’s very likely that they’ll have to come up with the money themselves for 20-25% of the price of the house. So, a borrower looking to finance a home with a price of $500,000 will likely have to write a check for at least $100,000 to get the loan. In this day and age of volatility and negative savings, there aren’t many borrowers who can do that. As a result, the jumbo markets are severely impacted.

The Bottom Line

Efforts are under way by lenders and the GSEs to organize rental programs for single-family homes becoming available due to foreclosures. Once available, a rental home has far more appeal to a resident than an apartment. This is especially true for prospective renters who formerly were home owners. That’s why the houses usually rent faster than apartments in many areas of the country. This is an anomaly we should watch carefully. When one considers this reality and the other risk factors confronting real estate, investors are seeing that building new apartments could be a risky proposition in these times. We are most likely at least another year away from the bottom of this housing price slump. The price of houses in your area may not drop much further, but their recovery may be at least 5 to 10 years away. Rents are not going up in all areas, but operating expenses are. Know what the trends are in your areas of operation and know them accurately.

Property managers need to streamline the application and screening process of filling vacancies. Finding good renters in this economy is becoming a numbers game. The better you know the condition of the housing market in your area, and the more potential renters you can reach and process, the more you’ll succeed.

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Rent vs. Buy

Mary Girsch-Bock — Tue, 15 Nov 2011 19:21:18 +0000

It’s been a tough economy particularly for housing these last few years. Only in recent months have there been any concrete signs of recovery. It’s a buyers market for those looking for housing with record low mortgage rates and record low prices. But for some, renting makes much more sense economically, particularly for the short term, which is generally less than five years. So how do you convince someone that it’s in their best interest to rent? Consider these facts:

If the possibility of relocation exists, it’s almost always better to rent. It’s difficult to sell a home quickly in this market, and applicants would be better off renting until they have a more stable job where the risk of being relocated is eliminated.

If an applicant’s credit score is lower than 620, it would be much more costly for them to purchase a home. Mortgage companies have tightened lending restrictions dramatically, usually requiring 20 to 30% down, as well as a credit score above 620. Anything below means a higher interest rate as well as a higher down payment. For these applicants, renting is much more affordable.

Home maintenance and repairs can also be costly for those owning a home. Many people enjoy a pretty view, but don’t really want to be the one out in the hot sun cutting the grass and planting the flowers. Remind them that YOU take care of things like refrigerators that stop working, or leaking roofs.

Tax breaks may not be as substantial as expected. Depending on the interest rate received on a loan, and the applicant’s tax bracket, the write-off they receive on their taxes may not be significant enough to make it a genuine factor when determining whether to rent or buy. Of course, it’s best to consult a tax specialist to determine this or any other tax break.

If your applicant is looking at homeownership as a good investment, they may want to consider the fact that for the last 15 years, homes have appreciated annually at about 1% when figuring in inflation.

While the kind of housing crash that happened in the last several years is less likely to happen again, it’s important to educate applicants considering home ownership to consider these and other facts. Millions of people are now in homes with mortgages much higher than what the house is appraised for in essence trapped, whether they wish to move or not. Renting offers a freedom that home ownership does not, and while owning a home is a great investment, not everyone is suited for home ownership. Simply sell applicants a lifestyle, offering flexibility while providing them with a comfortable place to call home.

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Winterizing Your Property

Jennifer Newton — Mon, 07 Nov 2011 19:10:25 +0000

You wouldn’t head out into a snowstorm without a warm hat, lined gloves and sturdy boots. A property heading into a wintry season needs the same kind of preparation. (For those of you lucky enough to live in warmer climates, now would be a good time to take the dog for a walk.)

Frozen pipes. Drafty rooms. Broken tree limbs. Ice dams. These are just a few of the potential joys winter offers to the unsuspecting property owner — in addition to, of course, regularly shoveling and de-icing sidewalks and driveways.

Here are a few things to put on your list for winterizing a property so you stay curled up on the sofa with a cup of hot cocoa instead of trudging out into the cold to fix something at your rental property.

Wrap Pipes: Insulate exposed piping. Turn off the water to garden spigots and drain hoses. While you’re at it, wrap your water heater, too.

Caulk Windows: Sometimes you can see a decent-sized gap in the window framing just by looking. But you can be sure to identify an elusive gap on a cold, windy day by moving your hand along the frame. Believe me, you’ll know where to caulk.

Change Furnace Filters: If you use traditional filters, replace them monthly. Better yet, invest in a filter that you can clean and reuse. I spent about $20 several years ago on a reusable one. After a simple rinse with water, it emerges looking good as new.

Program the Thermostat: It’s night time that you install one. They are affordable, readily available and easy to install. When you program it, keep the temperature cooler during the workday or overnight.

Install Weather Stripping: During my home energy audit last year, a contractor installed weather stripping around two external doors. It’s a simple addition, but it saves us money on our heating bill and makes a big difference in our comfort level.

Insulate the Attic: A warm roof melts rooftop snow too quickly and the subsequent water, trapped by unmelted snow and ice lower along the roof, has nowhere to drain. Last winter, several friends experienced costly, frustrating ice dams. Water blocked by an ice dam reroutes into a house and causes a whole host of new problems — like damage to ceilings or walls, which invites mold issues down the road.

Clean Gutters: Remove leaves, seedpods or other debris from gutters. Our gutters have leaf guards on them, but we still give the gutters a good clean-out with a high-pressure nozzle on our hose before freezing temperatures set in. Blockages strain gutters from the extra weight and also can contribute to the formation of ice dams.

Find more winterizing tips here: http://www.ecobroker.com/misc/articleview.aspx?ArticleID=69

What’s an important part of your winterizing plan?

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Renting vs. Owning: The Rent Ratio

Marc Courtenay — Thu, 03 Nov 2011 18:01:28 +0000

The buy-versus-rent question is particularly relevant right now as we see home prices continuing to decline and interest rates on new mortgages also going down to the lowest levels in 60 years.
Back in April of 2010 The New York Times did an impressive job of explaining the ratio that helps define whether it is economically more sensible for residents to buy or rent their housing. Part of the purpose of the article was to help those looking for housing to decide. http://www.nytimes.com/interactive/2010/04/20/business/20100420-rent-ratios-table.html

The Times analysis is based on comparing the costs of buying and renting a similar home, using data from Moody’s Economy.com, a research firm, and from real estate agents. This kind of comparison can never tell someone for sure what the best financial move will be. However, it does show whether a buyer will need a big jump in future prices to cover all the costs of owning — including the down payment, closing costs, property taxes, mortgage interest, repairs and co-op fees.

A simple way to do the comparison is to look at something called the rent ratio: the purchase price of a house divided by the annual cost of renting a similar one. The number 20 provides a useful rule of thumb. When you do the math, you discover that a ratio above 20 means you should at least consider renting, especially if you may move again in the next five years or so. When the ratio is well below 20, the case for buying becomes a lot stronger.

In many large metropolitan areas, including New York, Los Angeles, Chicago, Houston, Dallas, Atlanta and South Florida, the average ratio is now 16 or lower. It was more than 25 in several of these places at the peak of the bubble, about five years ago. Recently The Times asked Mark Zandi the chief economist at Moody’s Analytics about the chances of yet another housing crash happening and his current analysis of “The Rent Ratio”. His answers are revealing:

Q. I’m struck by how much higher the rent ratio still is in many places, relative to its average from 1990 to 2010. It’s about 18 in Washington (relative to a 1990-2010 average of 13), about 17 in Boston (relative to 15) and 15 across all metropolitan areas (relative to 11). Is there any reason to think the ratio should remain higher in the future than it was in the not-too-distant past? Or should we expect the ratio to continue falling in coming years, either through further house-price declines or through rent increases?

Mr. Zandi: I expect the house-price-to-rent ratio to continue falling at least through the remainder of this year and next. National house prices are set to decline by 5 percent this year, and apartment rents are on track to rise by about 5 percent. I do expect home prices to stabilize in 2012, but rents will continue to rise strongly. Supporting the strong rent growth is declining apartment vacancy rates. Apartment demand is healthy given the better job market and accelerating household formation, particularly among younger households that generally rent, and the ongoing foreclosure crisis which is forcing families from home ownership into renting. Apartment construction is also especially low by historical standards. If this script roughly holds, the house-price-to-rent ratio will be back close to its long-run average in most areas of the country by 2013.

Q. When we were talking earlier, you mentioned that a straight comparison of rents and home prices argues for renting in most places — but that once you consider other factors, the issue becomes a closer call. Can you explain what you meant?

Mr. Zandi: A literal interpretation of the current house-price-to-rent ratio argues that it is still better for most households to rent rather than buy. This suggests that a prospective home buyer might want to wait until house prices fall even more before buying, but there are several important things to consider. Most of the coming house price declines will be for distressed properties — foreclosures and short sales. And timing the precise bottom of house prices is an intrepid affair, and may not the best strategy if the homeowner plans to live in their home for more than a couple of years, as most homeowners do. It is also important to keep in mind that mortgage rates are extraordinarily low, with the rate on a 30-year fixed rate mortgage currently well below 5 percent. Rates could go lower, but it is unlikely. As the economy continues to gain traction and the Federal Reserve ends its zero interest rate policy, mortgage rates will move higher. Indeed, in a well-functioning economy fixed mortgage rates will be closer to 6 percent.

The entire interview can be found at http://economix.blogs.nytimes.com/2011/05/11/is-another-housing-crash-coming/?scp=6&sq=rent%20ratio&st=Search The still high price-to-rent ratio means that home buyers shouldn’t be in a rush to buy a home, but owning is quickly looking more attractive, and it won’t be long before owning is once again more financially attractive than renting.

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Grow Your Property Management Business with New Investors

Marc Courtenay — Thu, 20 Oct 2011 15:00:48 +0000

Just yesterday I interviewed a local bank manager (the branch manager for one of the largest banking and financial services companies in the United States). To help supplement his meager income he is buying distressed houses and duplexes that are selling “dirt cheap” in areas where property taxes are lower and vacancies are fewer. Using his knowledge and connection within the world of banking, he mapped out a way to buy one property at a time, fill them with residents, and then leverage these properties to buy more.

“It takes money to make money” the adage goes. So do as I did, and become familiar with the latest banking and financing strategies. Talk to bankers and loan officers so you know the latest “tricks of the trade,” and make sure you speak their language so you can gain credibility in their eyes. Be aware of all the latest tax advantages of owning residential rental property. Take a look at the IRS (Internal Revenue Service) site that goes into all the tax laws and incentives. One of the best places to start this search is at the IRS index page. Everything you’ll need to know is found there, from depreciation to the rules concerning personal use of a rental unit. It even gives many useful ideas on how to find tax help and where to locate low-income taxpayer clinics.

Know the reasons why now is the best time to own residential rental income property. This isn’t a cliché, but an actual fact. If you can get in front of groups of potential rental income investors (service clubs, investment clubs, and fraternal organizations) you’ll need to know the reasons and be able to discuss why potential investors shouldn’t delay by hoping for better times.

These are the “better times”, when interest rates are their historical lowest and the number of people needing rental housing is growing exponentially with each passing year. As one publication stated it, “However, in real estate, the right time, the most advantageous time, is always the present. Real estate investing is not like stock market investing. It is not a game of chance where the investor must speculate whether it is the right time to get in or out of the market. “In fact, the only unprofitable prudent Multi-Family/Residential Income Property investments made in the last fifty years, even during times of severe economic hardship, were the ones that never closed escrow.”

“The truth is that profitable real estate investments have little to do with the economic climate at the time of the purchase. Many investors are afraid to close on the first transaction because they want the economy to turn around first. They want everything to be perfect before jumping in. “This is impractical and unreasonable. Successful real estate investing requires the investor to be informed, disciplined and ready to evaluate the current and future profitability of a property.

“Waiting for the “right time” to buy does nothing more than delay success. Prosperity comes as one takes action, not when one sits and waits.” Read the rest of that article and become more familiar with how to motivate investors to take action by studying web sites like http://www.yourincomeproperty.com/the-university/residential-income-property-investing/. Sites like this one can help you learn how to form real estate investor syndicates. More specific information on that topic can be found at http://www.towardswealth.com/node/285. One of the best ways to create more clients for your property management business is to create them and mentor them. If you’re willing to try you’ll see what I mean and you’ll learn so much in the process.

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Let Your Owners Know You’re a Source for Real Estate News

Marc Courtenay — Mon, 03 Oct 2011 21:47:00 +0000

Rental property owners want managers who are keeping up with the latest trends and keeping their eyes peeled for ways to help their clients prosper. One of the ways you can impress them is by being the “conduit” of news about lucrative opportunities in today’s fast-changing economy. You can call them about the latest industry news. Give them some ideas on how they can take advantage of today’s real estate and financial trends. Impress them with your creativity and business acumen.

Many property managers are using emails and online “newsletters” to highlight what’s happening in the rental property market and the latest trends in interest rates and financing. Mortgage Rates are Falling and Mortgage Default Rates are Rising: “Carpe Diem!” Fixed mortgage rates fell to the lowest level in six decades for the second straight week. But few Americans can take advantage of the historically low rates because they are unable to qualify for new loans or refinanced mortgages. Freddie Mac said on Thursday September 15th that the average rate on the 30-year fixed mortgage fell to 4.09 percent this week, down from 4.12 percent. That’s the lowest rate seen in 60 years, going all the way back to 1951. The average rate on the 15-year mortgage, a popular refinancing option, fell to 3.30 percent from 3.33 percent. Economists say it is likely the lowest rate on the 15-year ever. Mortgage rates tend to track the yield on the 10-year Treasury note. Worries over Europe’s debt crisis are pushing investors to shift money into safe Treasuries, forcing the yield lower.

Let your clients and any qualified residential rental property investors that now is the best time ever to find new financing on homes to buy. If they have existing mortgage loans that are at higher rates or loans that are about to expire, recommend some eager lenders in your area who will help them take advantage of these record low interest rates. Some lenders are very motivated to offer financing in areas where the number of people needing affordable rental housing meets or exceeds the current supply. Many of these lenders are lowering and even waiving the loan charges and origination fees.

Today we learned that default notices sent to delinquent U.S. homeowners surged 33 percent in August from the previous month. Why is that important? Because it’s a sign that lenders are speeding up the foreclosure process after almost a year of delays, said RealtyTrac Inc. (http://www.realtytrac.com/trendcenter/trend.html).

California, Florida and Michigan were leading the nation in foreclosure activity as of the end of August. Nationwide 1 out of every 570 housing units received a foreclosure filing in August 2011. So the number of dislocated, former homeowners continues to increase. Their income may still be adequate though, and they’ll be looking for affordable rental housing.

Lenders seized 64,813 properties in August, a 4 percent decline from the previous month and a 32 percent slump from a year earlier, according to RealtyTrac. However some industry analysts are predicting that the jump in default notices means repossessions will probably increase in coming months as more foreclosures are processed. Some incredibly good “deals” on houses and duplexes appear to be growing in number around the nation.

Let your owners know this is “the best of both worlds”—low buy-in prices and record low interest rates with many motivated lenders. That’s a “perfect storm” for increasing your client’s rental unit inventory, and increasing your income. Meantime you’re owner-clients will realize you’re the “heads up” property manager who’s looking for ways to keep them prosperous and their rental income expanding.

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Bulldozer-Style Foreclosures and Their Hidden Potential

Marc Courtenay — Mon, 29 Aug 2011 21:19:04 +0000

There are many ways for a lending institution to handle a foreclosure, and there are apparently many ways to deal with the foreclosed property after they have it in their possession. There are close to 1.7 million houses in the U.S. in some stage of foreclosure. Banks already own a large number of these houses and will soon repossess many more. Housing economists worry that a near constant stream of home sales by banks could keep housing prices down for years to come. But what if some of those homes virtually “disappeared” and weren’t sold?

Increasingly and perhaps surprisingly, evidence is surfacing that banks are turning to demolition teams instead of realtors to get rid of their less marketable, repossessed houses. According to a report I read in Time Magazine, Bank of America last month announced plans to demolish 100 foreclosed homes in the Cleveland area (an area where house prices are quite depressed). The article claimed that land that the demolished houses stood on will then be donated to local government authorities. Spokespersons for Bank of America say the donations in Cleveland are part of a larger plan to rid itself of its properties with the least marketable value. Many of these soon-to-be demolished houses, according to a company spokesperson, are worth less than $10,000. The bank has already donated 100 homes in Detroit and 150 in Chicago, and may add as many as nine more cities by the end of the year.

This situation may exist in your city. The not-so-obvious opportunity in these circumstances may be whether the banks would be willing to offer these houses for next to nothing to entrepreneurs who would either fix them or move them to areas where the foreclosures could be converted into rental housing. A number of banks are making plans to not just rid themselves of their unwanted inventory of foreclosed and repossessed houses but also fully dispose of them.

Fannie Mae has a program to sell houses to local municipalities for a few hundred dollars. You can learn more about this and Fannie Mae’s rental programs by going to their web site at http://www.fanniemae.com/kb/index?page=home.

Wells Fargo has donated 800 homes since 2009. While some of those homes have been demolished, a spokesperson for the bank says many of the homes have been given to not-for-profits with plans to renovate the homes, not tear them down.

JPMorgan Chase says it was one of the first banks to donate houses it couldn’t sell or weren’t worth repairing. Since 2008, they donated or sold at a discount 1,900 houses to city or county officials. They also have more information available at their web site at https://www.chase.com/.

The hidden potential for these unwanted and undervalued houses are just now becoming obvious to investors and property managers who know how to parlay them into affordable rental housing. It’s definitely worth exploring.

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Who Doesn’t Want Residential Income Property Right Now?

Marc Courtenay — Thu, 26 May 2011 12:00:18 +0000

Owning and managing residential income property is not for the faint of heart. Dealing personally with residents, filling vacancies, collecting the rent and maintaining the properties are the reasons many owners hire professional property managers.

That being said, there are hundreds of thousands of semi-retired and retired investors who need income. They are likely to be sitting on a large nest-egg of cash or a mostly liquid self-directed Individual Retirement Account (IRA) where they are making little income or profits. Yet when I’ve interviewed these investors and ask them if they’ve considered owning residential income property, their answer often includes the phrase “that’s too big a responsibility” or “what a hassle for a moderate investment return”.

Many investors today have considered investing in multi-family residential properties, but they sometimes discover that the cap rate is too low to justify the responsibilities. So in the past couple of years these dubious investors have turned to Real Estate Investment Trusts (REITs) to satisfy their appetites for monthly or quarterly income.

Such REITs as Realty Income (NYSE:O), Equity Residential (NYSE:EQR) and Armour Residential REIT (NYSE:ARR) have seen their price-per-share soar, especially in the past year. Thus their dividend yield has dropped to as low as 2.3% with EQR and 5% with Realty Income. Both are trading near their 52-week highs.

REITs like ARR have paid a much higher yield, but to accomplish this they’ve had to use leverage or invest in mortgage-backed securities (MBS). This often makes the share price volatile which is not what typical income investors want.

There are other kind of publicly-traded companies like Preferred Apartment Communities, Inc, (AMEX:APT). They’re a Maryland corporation formed to acquire multifamily properties in select targeted markets throughout the United States.

As a secondary strategy, they often acquire senior mortgage loans, subordinate loans or mezzanine debt secured by interests in multifamily properties and other multifamily related assets. That’s partially how they generate their approximately 5.5% dividend yield.

The Federal Reserve has also been buying MBS and mortgage loans. But that policy may end or be reduced by the end of June 2011. This may cause corrections in the share price of many residential REITs and publicly-traded investment companies.

Like the underlying properties themselves, buying when prices are high increases risk. Investors also forget that the success of the REIT or the company is greatly dependent on how well they are managed and on the ever-changing financial conditions.

Thus the advantages of owning a property directly become more attractive. You know exactly what you own and where it’s located. The owner-investor is personally involved with the financing arrangements and can benefit from the terms plus the use of leverage.

Last but not least, the owner can choose their property managers. Those who have a good reputation and who know the advantages of direct ownership (versus buying shares on a stock exchange) will be sought out and retained.

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