Friday, January 19, 2007

Sacramento Rents Continue to Buck Industry Predictions

From the Sacramento Bee:

Sacramento-area renters ruled the region's apartment complexes during 2006, seeing rents rise by only 2.3 percent compared with much larger hikes across the rest of California, a new [Novato-based RealFacts] survey shows.
...
The survey showed an average rent in the four counties of $948 in larger apartment communities during the fourth quarter of 2006. That was unchanged from summer. Capital-area rents have increased just 9 percent over the past four years.

The flat trend in Sacramento contradicts 2006 predictions by many in the apartment industry that supply and demand would cause rents to jump as the year proceeded.

Instead, analysts say rents have been held down by continuing oversupply of rental units after years of new apartment construction. Add to it the growing number of single-family homes now available to rent.

"A lot of people can't sell their homes, and they put them on the (rental) market," said Bruce Mills, owner of Sacramento-based M&M Properties, a rental manager. Some area condominium conversion projects also reverted to rentals in 2006 as condo sales slowed.

The bottom line for big apartment communities and smaller mom and pop-owned rentals: fierce competition and high vacancy rates. "There is a lot of inventory out there and a lot of choices for renters," said Cory Koehler, deputy director of the Rental Housing Association of the Sacramento Valley, a landlord group.

9 comments:

JR said...

I noticed a home in Lincoln for rent: 3500 sf, 6 bedrooms, for rent at $1695/month. Some flipper purchased it for $765,000 using 100% financing and now offers it at under $.50/SF/mon.

Now here is the interesting part, she also bought a house next door on the same day for $755,000. That is for rent too.

So this woman bought $1.5 million of real estate last month with 100% financing. Taxes, insurance, HOA and & bonds will run $1100/month/house. So she will earn about $1000/month total to make mortgage payments of $7500/mon on the $1,500,000! Hmm, negative cash flow of $6,500/mon. What lender approved those loans? Bear Stearns Mortgage did one. Axiom Fin'l Svcs did the other one. I bet they closed the same day, so each lender would not know about the other one.

Someone, please explain how this works? The only explanation is mortgage fraud. I venture she paid the builder $500,000 for the homes, pulled out $500,000 in fraudulent cash back. The builder has been advertising the same models for around $500,000 for 6 months.

Apartment owners, how are you going to compete with these rents and these fraudsters? Let's see, a tiny 3/2 with no garage for $1500/mon....or a huge 6/4, 3 car for $1695? Guess who loses?

Anonymous said...

Oooh, I smell some felonious prison time on this one....

Cmyst said...

I've been renting a really nice place that we love for about a year now. It was amazing the places that were for rent when I was looking, and how they contrasted with places I was looking to buy just a few weeks earlier. For less of a monthly payment, we were looking at easily 2 or 3 times the sf in areas of Roseville, Laguna and El Dorado Hills.
This house is so much nicer than the house I rented in 1998, with a larger yard, in a very good neighborhood, and for only about $300 more than I was paying back then. It is much nicer than the condo I lived in for 3 years and sold last year.
People generally prefer to rent a house when they can, to avoid noise and parking problems and all the problems that come with living in too-close proximity to people you aren't motivated by love or common interests to get along with.
It's a great market for rental homes right now, not to mention condo sales that aren't happening and will revert to apartments.

Happy Renter said...

jr,
Is bankruptcy the ultimate plan for some of these flippers? If I'm not mistaken California law limits liability to a corporation. One could start a company "Flipper properties, Inc." and acquire enormous amounts of debt, paying themselves as employees of the company.The "company" could declair bankruptcy with no consequence to the "employees." Wealth through bankruptcy from the "Donald Trump" School of Finance.

Perfect Storm said...

Happy Renter,

I doubt bankruptcy will help these flippers, first the bankruptcy laws have changed to make it harder and bankruptcy only delays a foreclosure, plus it ticks off the lender. For those underwater judical foreclosure could be in the cards where lender goes after other assets and future wages to pay for the difference between what the house foreclosed for and the debt owed.

Just enjoying the view looks like the market has a long way to tumble.

JR said...

H.R.

There is no strategy for someone buying two homes for $1,520,000 using 100% financing. Her purchase price is $400,000 over the market. Her payments with PITI + HOA + bonds + maintenance and management will total over $11,000/month. The gross rental income is $3,500/month.

She will have a $7,500/month negative cash flow. Yes, $90,000/year.

I think Anon 8:47 has it right...felony mortgage fraud. She may be a straw buyer for the builder or some criminal network. This is happening all over Sacramento in the last few months. There are some pretty motivated home builders.....

Anonymous said...

jr,
It makes no sense at all and must be mortgage fraud as usual.She has lots of reserve cash to make up for the loss in payments every month.Isn't that a great business model. Hopefully the market will continue to go down and flush them out. It is real obvious no one seems to enforce the crooked appraisal business.I wonder if she got kickbacks from other homeowners in the subdivsion since she raised the comps. Now everyone can go to the housing atm more, brilliant.

JR said...

Anon 3:11,

Kickbacks from the other homeowners? Are you kidding? These Flippers are all buried in their own mess and can't dump their houses. There are 5 in foreclosure on this street for average loans $100,000 UNDER what this lady paid. Ask her how she likes this plan in a year, when these houses are foreclosed and she has personal debt for of $300,000 for the second mortgages.

The best part of this "business model", as you call it, is all these fraudsters will go to jail and become tenants, instead of landlords.

It is a felony and the lenders are on to them. Just watch it all go down in the next few months. It will be the story of 2007 in Sacramento. You can't cheat Wall Street out of $100,000,000 and not pay the price. It only takes a few hundred home buyers playing this fraud game and I bet there are more than that in Rancho Cordova alone.

The gloves will come off soon enough.

Anonymous said...

Over the last 3-4 months, I have seen several young couple friends move out of apartment complexes and rent new/almost new homes. One couple is renting directly from the builder who was unable to sell the house. Seems like they've concluded that prices are going to continue to drop for the next few years and they might as well enjoy a yard/garage/privacy at less than half the cost of a monthly mortgage payment.