Friday, April 06, 2007

Floplords

From the Modesto Bee:

Kenneth Spencer hadn't planned on being a landlord. He and a partner thought they would make a tidy profit buying an older Modesto home, fixing it up, then quickly reselling. "But we bought at the wrong time," lamented Spencer, who lives in Martinez. "We put a lot of money and a lot of time into that house."

After spending $309,000 for the Elm Avenue home in 2005, plus $80,000 more remodeling it in 2006, they haven't been able to sell it for enough to break even. So they're trying to rent it for $1,650 a month. Even if they get that price, they'll still be short $1,000 a month on their mortgage payment. "It's all about trying to survive on the mortgage right now," Spencer said.
...
Many people are trying to hold onto houses they purchased as investments by becoming landlords. That has flooded the Northern San Joaquin Valley rental market with houses, pushing down rents and forcing landlords to compete for tenants.

Many rental properties originally were bought by speculators who got caught in the real estate downturn, explained Paula Leffler Zagaris, whose Liberty Property Management company manages 1,500 rental houses.

"They were gambling," Zagaris said of investors who intended to quickly sell — or "flip" — houses to cash in on rising property values. "Anybody who did that before October 2005 was a genius and made a lot of money. … But if they bought after that, they're stuck."
...
Many good-quality homes are on the rental market now, said Deborah Naylor, owner of Parkside Management Co., which manages 300 rental houses. "Tenants can really rent very nice houses for really nice prices," Naylor said.
...
"Owners are just so desperate because they can't stand to take that mortgage hit every month (without renting to cover part of their cost)," Naylor said. Often, owners ask her to seek higher rents, say $2,000 a month, but Naylor tells them, "We're not miracle workers." Zagaris agreed an owner's costs have no bearing on what they can recoup in rent.
...
"My house has been empty for four months," [landlord Darrell] Bye said. "I've been renting out houses since the 1970s, and this is the worst I've seen the market. I've even lowered the rent $200 … but I haven't found tenants I'd rent the house to."

6 comments:

Patient Renter said...

Anyone else feel sorry for them. What the hell, let's bail them out!

Rob Dawg said...

Fliptards trying to take their lumps on a time repayment schedule.

"...[$389,000 cost basis] trying to rent it for $1,650 a month.

Anyone else out there got an extra $2000/mo after having just made the original expenditure?

Mathematical certainty: the crush at the rental counter will within months become 1) a crush at the real estate exits and 2) a crowd at the window as people have to stand in line to jump without a chute.

peterbob said...

Looks like these people will get a valuable lesson in Supply and Demand. It's not just what landlords are willing to rent for, it's also what renters are willing to pay for rent that sets the market rental price.

Perfect Storm said...

"My house has been empty for four months," [landlord Darrell] Bye said. "I've been renting out houses since the 1970s, and this is the worst I've seen the market. I've even lowered the rent $200 … but I haven't found tenants I'd rent the house to."

Once again it is the price lower the rent and take the loss or sell the house by lowering the price and take the loss. It is a lose lose situiation.

Jeff said...

I was up at Hilltop Circle again in Lincoln today....6 rentals and 8 for sale. I'd hate to be the one making those mortgage payments on a huge empty house.

Sittin' Out This One said...

Fifty seven homes were added to the Rancho Cordova Craigslist in the last 4 days. Houses are just sitting or months. Stuck flippers have lowered prices $500/mon and still can not fill them.

One guy took $50,000 cash back from from the builder six months ago. He was so happy he made such a smart deal. Discounted price, huge rebate!

He is now the latest of a long chain of FB's created by this crafty seller.

The buyer thought would get $2200/mon. It is now advertised at $1630 (2650 SF). Expenses including taxes, bonds, HOA, insurance, management and $500/year for maintainence, he will total $1155/mon.

He paid $560,000 for the place! He will be lucky to have $475/mon left over to service his 100% 80/20 subprime loan. Guess what, with 50% vacancy (last 6 months unrented) he just used up half of the $50,000 the builder rebated to him. How long do you think he will keep this place before he walks on the lender?

Now multiply this 4 more times because his immediate family bought four more just like it.

Amazing idiocy. It is going to be trouble