Good Landlord Roundup

I attended the bi-annual renewal of my Good Landlord certification.  Paul Smith from the Utah Apartment Association presented. 

Here are a couple interesting tid bits to come out of today's meeting:

Participation -   90% of Ogden rental units are participants in the Good Landlord Program.  Crime among those units is down 30% compared to non-GLP rental units.  Still, 10% of Ogden rental units are available to felons and other high risk tenant groups.  It's good for Ogden to have such a high percentage of participation in the program. 

Collections - Somewhere during last year's legislative session at the capitol, a law was passed that allows landlords to increase their outstanding balances due by the amount that collections agencies typically charge for the collection.  For example, if a tenant absconds and leaves $1000 in damages after the deposit is absorbed, and a collections agency charges 40% of outstanding balance in fees, Utah's new law allows the outstanding balance to be increased to $1,400 to help landlords recoup the majority of their loss.  However, this change needs to be stipulated in your lease agreement.

Daily Late Fees - The UAA is recommending that landlords begin to wean daily late fees from their leases.  Courts have typically frowned on them when challenged but they do smile upon lump sum late fees up to 10% of the monthly rent amount.   

These are some helpful business tips.  I also strongly recommend that you become a member of the UAA.  My membership has been a priceless resource.

Delightful Demographics: Weber County's Coming Population Explosion

Great news today reported by the Standard Examiner.  A report out by the Wasatch Front Regional Council shows population estimates for various cities in Weber County through 2040.  Without further delay, here is the breakdown:

Quite interesting statistics.  There are several important things to take away from this table:

1.  House prices cannot stay flat if the population doubles and no new houses are constructed.  The housing funk we find ourselves in as a nation will ebb locally.  There are two sources of new people: A. We are breeding. B. Folks immigrate to us from other states whose economies are flagging and whose tax rates become oppressive due to mismanaged state finances.  The bottom line: New houses must be built or house prices must increase geometrically.  Look for housing price increases first and then new construction to kick in.  Keep in mind, this is a 30 year outlook.  House prices could be flat for another 5-7 years which means that it's better to buy and hold now rather than in 25 years when everything is expensive.    

2.  Right now, with house prices flat and construction anemic, land prices are at rock bottom.  Where will all the new houses for all this new population be built?  Look at those cities with growth rates over 100%.  They have the most available land.  Land banking for a generation could be a profitable enterprise.  Land prices will not stay at rock bottom in communities that are quadrupling in size.

3.  Notice South Ogden, Washington Terrace, Roy, and Riverdale.  They are mostly built out and so will not have much new construction over the next several decades.  However, their homes are still new enough not to tear down.  That means that these communities will age and atrophy much like Ogden did from 1950 to 2002.  Look for these communities to increase their rental base and decline over the next generation.  Roy is already headed in this direction...especially east of 2700 West.

4.Notice that Ogden's percentage is still low.  Due to the life cycle of Ogden's housing, much of it will either be restored, or torn down for new construction.  Also, some of the spaces will be converted in use from single family housing to high density condos and other more urban friendly uses.  "Mixed Use" is an up and coming zone element in the city.  Since most of Ogden has been built out for decades, most of the population growth that you see there will likely come from renewal and revitalization.  If the numbers used to derive these population figures only include new construction as their base, than I imagine that Ogden's population will increase more than this projection due to the revitalization the city is now undergoing.     

Like Father Like Daughter

I was cleaning up a pile of stuff my girls left on our dining room table.  To my surprise, I found this laying among old homework papers:

My daughter Wynnie seems to be taking after her father and drawing up floorplans in her spare time.  This is supposed to be a blueprint of our home.  It looks like she needs to work on proper proportion (compare "our room" to "Mom and Dad's Room" and you would think we make our kids sleep in closets) and traffic flow but still not a bad start for a 7 year old. 

Good Bye Provo Tabernacle

Utah has lost a fine specimen of Victorian Architecture.

Built in 1883, it was one of Utah's oldest standing structures.  Here it is today:

I doubt the church will be able to save this building although I believe erecting a new replica-like structure would be a worthy pursuit.  It took 15 years to build the original tabernacle.

Real Value Vs. Sticker Price

I was having a discussion with a client the other day and he made this comment to me: "Prices are so low right now why am I buying and flipping houses?  I should be buying and holding everything I can get my hands on."

Intuitively, I agreed.  (And not just because I want to sell this guy a hundred homes.)

House prices are down about 10%-15% from market peaks in 2007.  Distressed sale homes are priced  yet another 20%-50% below today's retail (fixed up and ready for end-user) prices.  The last time we saw such deep discounts in abundance in Weber County was the state wide recession of 2002-2004.

So, lets study a couple homes to determine whether they are a better value today or the last time we had a price trough.

This home located at 487 Doxey sold this year for $25,000 cash.  It is a 2 bed 1 bath home.  In May of 2007, the market peak, it sold for $62,000.  This same home sold for $32,000 in March of 2002, our previous market trough. 

The home is cheaper today than it was in 2002 but due to inflation over that time the difference is even grater.  $25,000 today is the same as $20,000 in 2002.  So, in REAL TERMS, the lucky buyer of this home purchased it at a 37.5% discount below the previous bottom-of-the-barrel 2002 trough price!  What a steal!

Lets take a look at another example, 2815 Nordic Valley Way in Ogden Valley.  This home was sold in June 2003 for $187,500.  In December 2009 the home sold for $118,000 cash.  That amount today was the same as $99,000 in 2003.  So, in REAL TERMS, the lucky buyer of this home purchased it at 47.2% discount below its low 2003 price! 

Over the past 7 years not only have distressed home prices declined, but the value of the dollar has done so as well.  This makes real estate an extreme bargain.

If you want to see the charts, see Oil Press: Living Through the Big Squeeze.  The bottom line: NOW IS THE TIME TO BUY REAL ESTATE.   

JUST LISTED! Seller Finance Brick Triplex

I just listed this awesome property located at 570 23rd St. Ogden.  It sits less than two blocks from The Junction.  It is a brick triplex built in the early 20's.  Lots of style and charm in this building. List price $159,500.  The seller will finance.

The property consists of a side by side duplex which sits street side.  The units are 1 bedroom 1 bath but a 2nd bedroom is possible in the basement.  The other building is a 2 bedroom single family brick bungalow which is accessed via a right of way off of Jefferson Ave behind the Japanese Christian Church. Another bedroom is possible in the basement as well. Rents are currently $850 per month in the duplex building and the bungalow home will fetch about $600-$650/mo.

Again, the seller is willing to finance.  If you are interested in this property, give me a call at 801-390-1480 or email me. 

Shameless Self (ish) Interest

Today I had an amusing experience.  I had called an investor acquaintance who had complained about having money but no worth while projects to invest in.  I had been working with some other investors who had shown interest in a particular home but not been willing to move forward.  Since the home was just the type of project I am used to handling, I proposed that the acquaintance and I partner on the home.  He would provide the capital and I would provide the project management.  He called me back agreed that this would work.  Today I gave him the address and set up an appointment with the seller so he could make sure he was comfortable with the project.  When I called back this evening to see how the appointment went, he said it went great and that he had offered to buy the property for himself from the seller.  Whoa?!

He then said that he negotiated the price down so he wouldn't have to pay any realtor fees and told me "he knew I gave him the property address and connected him with this property because I knew he was an investor with capital that needed a property." Did you hear about my new investor charity program?

He then offered to partner with me on any OTHER property that I found.  Uh, right.  He then said he felt bad and thought that he might offer a finder's fee.  When I suggested the commission amount he had the poor taste to say "Well why don't I give that to you as a credit so you will just owe me back the next deal we do together." 

Unbelievable.  Needless to say, this person is now on the short list of folks I don't do business with.  

Fool me once shame on you, fool me twice....

Christmas Miracle! Ogden Lodge to Be Torn Down

The Standard Examiner reports this morning that the Ogden Lodge is being purchased by Property Reserve Inc., the real estate arm of the Church of Jesus Christ of Latter-Day-Saints.

This is a giant step forward for Downtown Ogden.  Frankly, I am speechless and I will try to do my best to explain why this is such great news.

For starters, there is a pecking order of housing in Ogden City.  As the quality of available housing stock decreases, the quality of tenants that demand such housing also decreases.

For instance, a renovated home with a garage usually attracts someone with a good job and a car.  A home that hasn't been fixed in 30 years will attract someone of less affluence than our previous example.  Then you have small apartments of varying conditions and then finally the Ogden Lodge.  It is a seedy motel. 

The Ogden Lodge has historically been a catch basin for those who won't or can't live in even the lowest income housing arrangements.  One of my properties had a pimp living in it.  He was evicted and I was there for the lockout.  Where did he go?  He walked down the street to the Ogden Lodge and set up camp there.  His story is not an exception.

The seedy-motel business is also a key profiteer in the Poverty Trap cycle.  The tenants are typically those who can afford the least kind of stable housing.  That transient nature comes with a price penalty in the marketplace.  A "studio" unit at the Ogden Lodge rents for about $650 per month.  That is the equivalent to a 3 bedroom apartment in a quiet part of the city.  Yet because tenants can rent it on a weekly basis rather than a monthly one, they pay week after week hoping to save up for a deposit to rent another place.  However, the rents are just sufficiently high enough to keep them from doing so and thus they stay trapped in an over priced housing predicament.  It's also worth mentioning that substance abuse is often the issue that perpetuates this Poverty Trap cycle.  

I found the Standard Examiner article particularly amusing as it tries to paint the church as a heartless Scrooge forcing helpless people into the streets:

Residents of the Ogden Lodge were scrambling to find a new place to live Thursday as The Church of Jesus Christ of Latter-day Saints finalized the purchase of it and plans to demolish the motel to pave the way for future development.

snip

"I don't think they treated us fairly," said Janes, adding he learned only last week that the Ogden Lodge would be closing. "They just dropped it on us."

Keep in mind that the lodge charges weekly and nightly rents.  A week's notice should be sufficient.  If anyone is worried about these tenants not having a place to stay, there are two other low-income hotels less than three blocks away.  I am sure the owners of those institutions will be glad to have the new business. 

Oil Press: Living Through the Big Squeeze

It has been some time since I updated the charts and graphs so I thought I would spend some time and do that for everyone's benefit.

The charts are a bag of mixed news.  If you are worried about your house depreciating in value, you don't have too much more to worry about.  However, if you are a Realtor, there is plenty more hand-wringing to do.

Let's talk good news first: 

The biggest question I get asked by folks is "How are home prices?"  This chart answers that question.  This data comes from FHFA and shows price appreciation year over year (per quarter) for the Weber-Davis market, the Salt Lake City market, and Utah County market.  When the line is above zero, house prices are going up, when they are below they are sinking.  As you can see, our appreciation rates exploded in 2005 and then collapsed in 2008.  It appears we have troughed out in 2010 and will come back to flat appreciation (zero) sometime in early 2011.  This is good news for home buyers and investors.  It is much easier to buy with confidence when you know your home or your investment will be worth what you paid for it moving forward.


To understand why house prices collapsed and retreated in price, lets look at our next chart:

This chart shows % unemployment in Weber County.  As you can see, there is a pretty tight correlation between people loosing their jobs and house prices decreasing.  Keep in mind that a high unemployment figure doesn't mean people are loosing their jobs, it means that have already lost them.  It's the relative change from a low to high unemployment number that affects house prices.  This chart shows that we are stabilizing at a high unemployment figure which jives with our previous chart showing that house prices are stabilizing toward neutral appreciation.

If you are an investor or a homeowner, you might be interested to see how our current downturn in the market compares to real estate values over the last 30 years:

If you purchased a home for $100,000 in 1979 (which would have been a nice home back then), that home today would be worth about $220,000.  You can see that it wasn't a straight line of appreciation that got us here but rather a series of valley's, dips, and surges that got us to this point.  With depreciation ending very soon, we will likely go through a valley period and then on to another surge sometime in the future.  NOTE:  You want to be buying investment real estate during dips and valleys (NOW) and not during surges. 

Now lets take a look at some very sobering news for Realtors:

This chart shows transaction volume, the barometer of Realtor health and wealth.  Focus your attention on the last couple of years.  The trendline shows a turn upward toward the last half of 2009.  Unfortunately, this was all artificial demand created by the Federal Tax Credit.  Real demand showed up in the last 5 months with anemic sales performance.  Our trendline is about the break below the 200 transaction per month barrier which hasn't happened since  early 1999.  Since peaking in 2006, we have wiped 12 years of sales growth off the table.  In January, I will do an update on my Starv-O-Meter for NWAOR members.  

And finally, here is a breakdown of sales per month as comparred to previous years.  As you can see, our sales peaked this year in April and quickly stagnated below 200 sales per month.  Typically sales only fall below the 200 mark during winter months like January and February.  So you could say that we are experiencing a Nuclear Winter of sorts after the Federal Tax Credit fireworks.

Adapting to survive in this marketplace is the key to success for Realtors. 

Vacancy: 6.6%

After two of my tenants decided not to renew their leases and left me with two surprise vacancies, I finally was able to get my last vacant unit rented last week.  The rental market still is busy with people looking for places to rent.  It's just more proof that the housing market is stressed by foreclosure and economic uncertainty.  Everyone needs a roof over their head, they are just less confident when buying a home and so they rent instead.  Regardless, I am grateful to have the tenants.

I wanted to know my annual vacancy rate for 2010...and then I got curious and ran the numbers for the last seven years that I have been tracking rents.  Here is my vacancy record:

As you can see, when you have one rental and you have one vacancy a year (which is normal and what you would expect with tenant turnover) it can put your vacancy rates pretty high.  However, if you can add units to your portfolio and manage your lease lengths appropriately, it is possible to keep that number down.  I had a large number of my tenants renew their leases this last year.  That helps keep your vacancy rate down significantly.

Keep in mind that every time a tenant moves out you have one-time expenses.  Re-keying, cleaning, maintenance, touch-up paint, and other tasks need to be performed to make sure your unit is ready for the marketplace.  These expenses need to be considered when putting together your rental strategy.