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'Game over' for FL flippers counting on rising rents to bail them out.


               
2007 Jul 17, 3:54am   18,816 views  87 comments

by HARM   follow (0)  

flopper's dilemma

Thanks to Ben Jones at the Housingbubbleblog for posting this delicious, glorious link.

Life is sweet for North Port renters
A massive supply of vacant homes in the city pushes rents downward and prompts owners to offer incentives

"...with hundreds of houses, condos and apartments for rent in North Port, not every owner has been able to find a tenant. So rents are plummeting, and so are rental standards.

"We're talking to people we would not have considered two years ago," said Linda Haese, who is trying to rent two new 1,800-square-foot houses. "These are people who don't have deposit money, but are willing to put $25 aside every month. As long as they don't have a criminal record, we're willing to say OK."

"Why should tenants renew their leases when they can rent a house for about the same price?" Black asked. "I am told that apartment occupancy is down to 80 percent."

Black explained that 80 percent to 85 percent is the break-even point for apartment owners. He said owners do not start kicking off serious profits until occupancy passes 90 percent.

...Everyone contacted by the Herald-Tribune acknowledged that rents are plunging.

"Rents are coming way down because of supply," said Karen St. Pierre, a rental specialist with ERA Advantage Realty. "A 1,800-square-foot house without a pool that rented for $1,400 a year and a half ago is now renting from $900 to $1,000 a month."

That represents a 36 percent drop and has created a wave of resentment among investors, who have seen their taxes and insurance bills move rapidly in the opposite direction.

"Some owners are going crazy," said Noone of Sun Coast Real Estate. "They say they need the higher rent or they'll go bankrupt."

...Haese said she is not making money at that level, and she would like to sell, but the market is glutted with houses for sale.

"I think it will be five or six years before I can get out," she said.

But for people looking to rent houses in North Port, the situation could not be better.

They are being offered new houses with swimming pools at ridiculously low prices.

"It makes much more sense to rent than to buy right now," said Black the Port Charlotte appraiser. "A renter will pay 60 percent of what it costs to own."

Game, set, match.

Marin & the Bay Area "Fortress" aside, could this be a preview of coming attractions for long-suffering JBRs in Kalifornia? Or is the Flipper State completely immune to the laws of supply and demand, as the REIC Koolaid crowd continues to insist?

Quite a change from just a year ago, no?
Reflexivity's a real bitch. And she has a sister named "deleverage" who's even nastier.

Discuss, enjoy...
HARM

#housing

Comments 1 - 17 of 87       Last »     Search these comments

1   HelloKitty   @   2007 Jul 17, 4:30am  

Rents Are Down
Forclosures Skyrocket
Casey's Life Imploding

Times are getting better.

2   Steveoh   @   2007 Jul 17, 5:59am  

Some weeks ago, I shared with this crowd that my L/L raised our rent a seemingly arbitrary 5%. With this news, also came their offer to extend the lease 6 months, at the end of which, they would re-evaluate the situation. Many of you offered some "spirited" advice, which I truely appreciated. However, caught unprepared to move on short notice, we opted to stay and pay. 31 Oct 07 is the end of this extension.

Update:
I just received their letter indicating that they will be placing the house on the market at the end of our lease extension. In a magnanimous tone they also gave us first opportunity to place an offer on the house. (Am I wrong for not feeling grateful?) I politely declined their offer and wish them well with the sale.

Now, while I could have predicted this letter, I did not expect them to give me this much advanced notice. If I can end this lease extension early, I’m gone. Rentals are popping up as fast as For Sale signs, and we’re looking for a rental that comes with some choice amenities, for a reasonable (much lower) price. As we peruse rental adds, we are seeing much more house offered for much less rent, everyday.

But we have found definite signs of distress. One rental listing we drove by had a For Sale sign planted in the lawn, a lock box on the door knob and packing tape over the front door windows. Rent desired is $1850, for sale asking price $510,000, (price reduced.)

I guess the new paradigm at this stage of the bubble deflation is
"Renter beware!"

3   DennisN   @   2007 Jul 17, 5:59am  

Since Patrick's away today, try this story on for size:
http://biz.yahoo.com/ap/070717/housing_outlook.html?.v=2

"The National Association of Home Builders/Wells Fargo housing market index, which tracks builders' perceptions of current market conditions and expectations for home sales over the next six months, fell to 24 this month, the lowest reading since January 1991, the NAHB said.

Wall Street economists had expected a reading of 27..."

So indicators are still coming in substantially below what wallystreeters think.

4   DennisN   @   2007 Jul 17, 6:13am  

Rents in Boise have actually stabilized over the past year. When I moved here in April 06, there was something like a 20% vacancy rate. It's now down to more like 8%. The high vacancy rate was due to out-of-state flippers buying up all the new homes: 1/3 of all 2005 home sales here were to out-of-state investors.

5   Glen   @   2007 Jul 17, 7:45am  

In this new world of F'd owners and cash-heavy renters, maybe it makes sense for renters to change the way they think about real estate.

I will gladly enter into a 5 year lease to rent a home (if I can find one in my area which is way below the cost of ownership) IF I can get the lender to subordinate their deed of trust to my lease. Might be worth it for a lender who is looking at a pending foreclosure...especially if I pay my rent checks directly to the lender. THe FB will continue paying the difference between the rent and the mortgage cost until they are completely tapped out. Then, wHen the FB inevitably goes into foreclosure, the bank would have a stream of income in place until the property can be sold off to another investor (at a much lower price)--with a tenant already in place.

6   sfbubblebuyer   @   2007 Jul 17, 8:44am  

Okay, Bears Sterns just said their two funds are basically worthless. The highly leveraged fund is worth ZERO cents on the dollar, and the less leveraged one worth 9% of its april valuation. Since the large one was valued at $920 million, it's now worth less than 90 million. At least 830 million lost there, and that's the fund Bear Sterns loaned 1.6 BILLION to less than a month ago. Link : http://tinyurl.com/2czm4x

The amount of money vaporized by these two funds has got to be several billion.

So... as a hedge fund manager, what if you're holding similar products in your portfolio? Good thing you're not required to disclose what you've bought, right?

7   Paul189   @   2007 Jul 17, 10:39am  

Idea for Hollywood remake-

"It's a Wonderful Life Again!"

A company named BS is busy foreclosing on homes in Rylandville. Meanwhile, word gets out that the BS companies everyone invested in have little or no net liquidating value so they line up at the local office demanding repayment of their investment. Alas, there are no funds in the vault only promises to pay by people with no jobs or assets.

BS begins to rent out all of the properties in their portfolio at below market rates just to get some sort of income.

Meanwhile, our friend George is seen shopping these many wonderful choice properties for rent and decides on a beautiful house at a nominal rent. When George reflects on selling his house a couple of years ago and putting the proceeds into CDs of which the interest is now more than paying his rent, he exclaims "it truely is a wonderful life, again!"

8   Vicente   @   2007 Jul 17, 11:51am  

Glen, I'm not sure what you concern is? If it's simple worry over being evicted by a new owner, I though that any lease must be honored by next owners? Not really sure though.

9   PermaRenter   @   2007 Jul 17, 11:54am  

Yahoo Finance Poll:

What will deliver the greatest returns in the next 12 months?

U.S. Stocks 32%
International Stocks 50%
Cash 7%
Bonds 5%
Real estate 7%

56358 Votes to date

Please note that cash is now equivalent to real estate

10   Malcolm   @   2007 Jul 17, 11:56am  

"Black explained that 80 percent to 85 percent is the break-even point for apartment owners. He said owners do not start kicking off serious profits until occupancy passes 90 percent."

If people in California had the same expectation maybe the bubble wouldn't have gone quite so crazy. A few years ago I was looking at an 8 unit building which was well over a million dollars, and would have had a negative cash flow at 100% occupancy. The agent acted like I was from a different planet when I said, don't mean to question the pricing, but why would I put 200K down on something to then have a monthly loss when I can just make $20,000 per year on it in interest. I have never figured out why investors buy properties that have a loss. The value of an investment property should only be derived from the income stream.

11   Malcolm   @   2007 Jul 17, 12:02pm  

Glen Says:
July 17th, 2007 at 2:45 pm
"I will gladly enter into a 5 year lease to rent a home (if I can find one in my area which is way below the cost of ownership) IF I can get the lender to subordinate their deed of trust to my lease. "

I like the creativity but this can't happen. You might be able to find a lender who is renting out their foreclosures, I've actually heard of that happening, though in reality your best bet would be to find an FB, and let him subsidize your monthly rent with the false hope that he can buy enough time for things to improve. Make sure the lease contains actual damages that you will be owed by the owner if the owner loses the house.

12   DennisN   @   2007 Jul 17, 12:05pm  

Interesting thought...I forget my old property law class here. But I'm sure that the lease should be recorded at the country office for it to survive title transfer. If the lease isn't recorded, the new purchaser may be held to be a "bone fide purchaser" who takes title not subject to the lease. Anybody practice real property law here?

13   HARM   @   2007 Jul 17, 12:33pm  

FYI: Aaron Krowne (of Mortgage Lender Implode-O-Meter fame) is being sued by one of the scumbag lenders he reported on. Basically, this is a de facto "gag" attempt to silence a website that is throwing light on people who do not want their shady business practices and true financial status known publicly.

If you can afford it, please drop by and make a quick Paypal donation. Thanks!

14   SQT57   @   2007 Jul 17, 12:43pm  

Ha! The owner of my house just dropped my rent!

We've actually been paying very low rent already. The house is paid off so they just use it for cash flow. I guess he just wants to make sure he hangs on to good renters.

15   PermaRenter   @   2007 Jul 17, 1:02pm  

>> BS. The interest on CDs is close to 0 after “government inflation”.

I am now reading Crash Proof by Peter Schiff.

Inflation is around 8-9% he says and I believe him.
I am becoming a client of http://www.europac.net/ with initial funding of US$ 50,000.00

16   Paul189   @   2007 Jul 17, 1:38pm  

@ ptiemann & PermaRenter:

Why would George care about inflation and the price of the Euro when he lives in the USA and pays rent in USD?

The point is that the interest pays his rent!

I'm as bearish the USD as the next guy but geeszh!?!

17   skibum   @   2007 Jul 17, 1:56pm  

June DQ stats are out for SoCal:

http://dqnews.com/RRSCA0707.shtm

It looks REALLY bad in the Inland Empire...

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