Saturday, November 19, 2011

A third option, offering foreclosed homes in rent-to-own deals.

Real Estate: Why Home Prices Won't Bottom Out
By John Wasik | Reuters – Fri, Nov 18, 2011 1:10 PM EST

Watching the U.S. home market struggle to rebound is like listening to children in the back of a car. No, we're not there yet.

The National Association of Realtors reported that ten real estate markets are "leading the nation toward a general recovery and stability of the housing sector," but myriad problems are going to weigh down the housing market for months to come.

The lingering malaise in the economy has triggered a new wave of defaults and foreclosures. After five straight quarterly drops, foreclosures nationwide shot up 14 percent from the second to third quarter this year, according to data released by Realtytrac, the foreclosure information service, in October.

While RealtyTrac doesn't foresee that the latest foreclosure wave will equal the severity of the 2007-2010 pattern -- in which three million borrowers lost their homes -- it's going to slam on the brakes where areas are getting hit the hardest.

In theory, it should be a good time to buy a home. In the worst-hit areas, properties have lost more than half their value.

Yet as the average 30-year mortgage rate has slipped below 4 percent, the combination of employment insecurity and unusually tight standards for lending are discouraging buyers en masse. Lenders are asking for extensive income verification and tax returns. One lender I contacted for refinancing even wanted me to get an accountant to certify that I wasn't lying to the IRS.

Here are some of the biggest roadblocks:

--Even in bruised cities where price appreciation is evident, unemployment is still too high. Six out of 10 of the "top turnaround towns" listed by Realtor.com for the third quarter had jobless rates above 10 percent. People can't buy homes if they're not working or soon to lose their jobs. Those cities, which include four of the largest cities in Florida, still have a long way to go to recover from the housing bust.

--Although at a record low, the home mortgage rate may still be high relative to home prices. This may sound counterintuitive, but research from the Leuthold Group in their November newsletter shows that a "real" mortgage rate -- which factors in the falling market value of the home prices -- is 8 percent. Leuthold says that real cost of buying must include the 4 percent interest rate and the 3.9 percent average home prices decline over the past 12 months. That cost is still scaring away buyers.

--The combination of unemployment, high housing inventory and foreclosures is hurting places where there wasn't an excessive price run-up. Realtor.com found that the largest year-over year median listing price decreases through October were in cities like Chicago, Detroit and Atlanta. This three-punch combination will continue to ravage markets where there's a sluggish economy

Possible solutions to the housing blockage range from the radical to the necessary. A group called Remortgage America is calling for the government to loan Americans mortgages at 1 percent to finance a new or existing residence.

Others would like to see Fannie Mae and Freddie Mac take the foreclosed homes they own and either auction them off or offer them in a huge fire sale.

The seized mortgage agencies account for up to one-third of foreclosed homes -- about 250,000. American taxpayers are pouring tens of billions into propping up these two wards of the state, which were taken over by the U.S. Treasury in late 2008. The Obama Administration has yet to announce what it wants to do with the companies. Will they be restructured, liquidated or privatized?

A third option, which may have the least impact on a battered market, is to offer foreclosed homes in rent-to-own deals. Prospective homeowners get a place to live under reasonable leases and can build equity toward a purchase.

It's estimated that some 3.4 million foreclosed homes will be on the books of banks and mortgage companies by the end of this year. As regulators, banks, mortgage companies and state attorneys general move sheepishly to unblock mortgage modifications, refinancings and resales, only one certainty prevails: The open market will not be able to properly price every property until all government restrictions are lifted on their sales and re-financing.

Arizona Property Management and Investments
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Tuesday, November 1, 2011

Renters are running out of cash reserve to rent homes.

Payam Raouf
Owner/Associate Broker
Arizona Property Management and Investments
Toll Free: (888)777.6664
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Renters are running out of cash reserve to rent homes.

In the past few months we have seen an increasing number of potential rental applicants having difficulty coming up with required deposits to rent a single-family home.

Traditionally when you rent a single family home, owners require an amount equal to the first month’s rent as the security deposit. In some cases when potential rental applicants have less than prefect credit, owners could ask for up to one and a half times of that amount.

In addition to the security deposit, some homeowners may require additional upfront fees for pets, cleaning and re-keying of the property.

Also, leasing agencies require an up front application fee which could run up to $50 per adult applicant to offset their cost of finding a qualified tenant for their clients. Potential tenants must meet certain guidelines set by the homeowners to be considered, which may include, running nationwide credit, criminal, eviction, sex offender and FBI most wanted searches, and the verification of their employments and rental history.

To defray the cost of lease administration, conducting tenant's orientation and setting up tenant's account, leasing agencies charges tenants between a $100 to $300 non refundable up front lease administration fee. In the past this cost was paid by the homeowner, but as more rental agencies have entered the market in the past twelve-month competing for homeowners’ business, this charge has been passed on to the tenants.

The following is an example of what a married couple with less than perfect credit with two children and one pet has to come up with to lease a home renting for $1,000.

Credit Application fee: $45X2= $90
First month’s rent: $1,000
Security Deposit: $1,500
Pet Deposit: $250
Cleaning Deposit: $300
Re-key fee: $100
Lease Administration fee: $200
TOTAL: $3,440
Average Moving Cost: $1,000
Total Cost: $4,440.

Now let’s review the situation. Most applicants in this situation make somewhere between $3000 to $4000 per month. They have already depleted most of their cash/credit reserve and are either losing their own home to foreclosure, or the one they are renting is being foreclosed on. They have to move, but don’t have the money to rent a new place. What are their options?

Many are moving in with the other family members to save money to eventually rent their own. Some are moving into apartments where they do not require as much deposits. Many others settle for a home in less desirable areas where homeowners are willing to take less deposits. Others, who cannot afford facing the consequences of, for example, taking their children out of schools in the middle of the school year, may borrow the money. Some take “cash for keys”, and others stay in the property for as long as permitted by law. However, they can exercise other options which will be elaborated on throughout this article.

Landlord

There are ten types of landlords in the market, but not necessarily in this order as the market keeps changing:

1) Owners who are upside down in their mortgages. There are 4 groups:
a) Owners with good jobs and income who can afford to keep their property long enough to sell it when the market turns around,
b) Business owners who need to maintain their good credit rating for their suppliers,
c) Owners facing near-term foreclosures who are unable to hang on to their property much longer, hoping for the best by renting it out.
d) Those moving out of the area.

2) Small to mid size speculators taking advantage of historically lower home prices in Arizona, hedging against inflation and hoping to cash out with substantial gains in 5 to 10 years.

3) Foreign investors, such as Canadians and Australians taking advantage of week weak dollar, low home prices and higher rent in Arizona who have been buying thousands of homes in the valley for the past three years. This group is also fading away from the market as the dollar is strengthening.

4) Institutional investors entered the market more aggressively about a year ago and since have purchased thousands of single-family rental homes at the trustee auctions resulting in a substantial artificial increase in home prices. Many now are directly negotiating with financial institutions, buying them in bulk. Fannie Mae is planning to liquidate most of their toxic assets through this process.

5) Individuals self-managing their own IRAs. A new group of investors has recently emerged as the result of the stock market volatility and are buying rental homes instead.

6) Out of state retirees who are planning to retire soon and want to move to Arizona. They pay end-user prices and rent them for less than the market value to well qualified tenants who are going to take a better care of their property till they decide to move into it themselves.

7) Fannie Mae has also recently joined the group of landlords by renting back to tenants whose rental houses have gone to foreclosure. They do not require any deposits, but the tenants are in danger of getting booted out when the house is sold.

8) Investors buying to flip to end users are stuck with some of their purchases and are now putting them on the market for rent hoping to sell them to another investor with a tenant in place.

9) Handyman and contractors who bought at the height of the market competing with institutional investors at the trustee auctions are forced to rent them out to pay off their high interest loans. The number of e-flyers sent to Realtors has increased ten folds recently offering such properties for rent at a higher percentage commission rates.

10) Slumlords: Investors buying older run-down houses in less desirable areas to rent them to less qualified renters at a much higher than average prices or leasing them to them with an option to buy, thereby avoiding much required repairs.

Rental Inventory

The 5,000 single family homes advertised monthly on Realtor Multiple Listing Services (MLS) is a fraction of what is really available for rent in the valley. It could be as high as three times that amount. Not every rental agency advertises their homes on MLS. Additionally there are thousands of apartments for rent valley-wide at any given time.

In addition to MLS, a good look at Rentals.com, Rent.com, Craigslist and Rental Agencies’ own web sites would provide a better indication of how many homes are for rent in the valley.

Leasing Agents

It used to be a common practice that a leasing agent would list and rent a house for 6% of the gross lease amount or an amount equal to one months rent. As the cost of marketing has increased along with demand for better customer service leasing agencies have centralized their efforts and are now listing the homes for rent themselves and are hiring either their own leasing agents or paying a referral fee to other agents to lease them out for them. This reduces the cost of marketing as well as a huge liability for the homeowners. As a result, leasing agents make less money when leasing a house now than in the traditional way.

Renters demand to be treated like buyers. They want to evaluate all their options before making a move. It is not easy to move every year. They want to make sure they find the home they really like and that it suits all their wants and needs at an affordable price. At the same time, they want to deal with a reputable leasing agency that will still be in business to take care of them while they are are there.

on the other hand, finding a qualified applicant that homeowners approve is a tedious, time consuming and at times a frustrating job for the leasing agents. Quite often, prospective tenants fall in love with a home they may not qualify for. At times it takes several weeks to find a home they would approve and qualify for. Leasing agents invest an enormous amount of time and money in the process.

Conclusion:


Times are tough for everyone including Landlords, tenants and leasing agents. Homeowners must realize that not everyone has perfect credit or has a ton of surplus cash to give them for deposits. Tenants must put themselves in place of the homeowners and ask themselves this question: If I were the homeowner, would I rent this house to a tenant with my credit and background history, employment and financial situation?

There are solutions, where a prospective tenant with less than perfect credit who does not have all the deposits can rent a home they like. Your leasing agent must prepare an offer along with a complete credit application and a good letter of explanation to present it to the homeowner. Just like as if you were applying for a loan and making an offer to purchase a house. Most often owners will come to terms with the prospective tenant provided they earn their confidence.

One way to negotiate a lower deposit is to offer a higher monthly rent amount equal to or a slightly greater than the deficiency in deposit for a period of twelve months. If the tenants have a pets and the owner requires a pet deposit, they can offer $25/$50 more per month which is less expensive than boarding pet in a pet motel for a single night.

Tenants, who are working with a leasing agent who has been working hard for them should give them a chance if they find a home on their own. 2/3 of the rental homes on the market are not listed on MLS, so your agent has no way of knowing if that property is available for rent. If you give them the information, they can represent and make the offer for you.

Leasing agencies must make it more affordable for tenants to submit an application for rent and be open to offers submitted by prospective tenants. If the tenants can not afford the lease administration fee, either ask the owners to pay for it or split it with the homeowners.

In conclusion, the housing market has changed. Accepting that, is like piloting a sailing vessel at sea. When the winds change, you have to adjust your sails to stay on course and ensure all personnel and cargo on board have a safe and enjoyable trip so that they to achieve their goals upon arrival to at their charted destination.

Arizona Property Management & Investments is a leader, highly renowned and recognized as a Real Estate Industry Benchmark; with recent confirmation coming in the form of being awarded the highly coveted and prestigious Best of Phoenix Award, in the Property Management category, by the United States Commerce Association. Our primary focus and specialization is in Residential Real Estate Acquisitions, Sales, Property Management and Leasing of single family properties throughout the valleys and Phoenix Metropolitan areas; serving our clients professionally and conveniently from our three locations.

If you are interested in receiving a free quote for our property management services,
please CONTACT US.