Inheriting Tenants: To Boot or Not to Boot

I am working on a transaction right now for a family member who is purchasing a rental property.  I have agreed to manage the rental of the property while the owner continues to live out of state.

One of the caveats of property management is know what to do with tenants that you inherit from the previous owners of a property.  Unlike utilities, you cannot just stop service on a tenant that has a lease on the property.  The new owner is obligated to honor the existing lease, whatever that is, with the existing tenant.

In this particular case, the tenant is a relative of the seller.  There is also no written lease agreement.   We call this kind of circustance a Tenant At Will situation.  The law stipulates that the tenant is, in the absence of paperwork to demonstrate the contrary, on a month-to-month lease.  That is good because when we initiated the contract on the property, the listing agent gave notice to the tenant that they would need to vacate.  However, the tenant asked if we would be interested in renting to him moving forward.

There are a couple benefits to keeping an existing tenant:

1.  Any existing deferred maintenance (i.e. fresh paint, upgrades, ect.) and cleaning can be deferred to the end of the tenants desire/ability to rent the property.

2.  Rent revenues begin immediately.

This would seem on the surface like a win-win situation.  The tenant wants to stay and the owner would like to defer any cash expenses he might incur working to get the place rented.   

However, when the tenant called to discuss the situation our conversation went something like this:

Tenant:  Hi, I would like to stay.  It would be a real problem for me to move right now.

Me:  Ok, are you working?  How much do you make?

Tenant: Yes, I make $1600 a month.

Me: Ok, what do you pay in rent now?

Tenant: Well I havn't paid in a while...

Me:  Hmm...our rents would be around $550-$600...

Tenant: Oh we can do that, that will work for us.

Me: Ok, do you have any felonies on your record?

Tenant: Well, I do but it was in 2001.

Me: Ok, that is fine.  I believe in redemption so as long as you have a plan and are making your life better we should be just fine.

We then discussed the plan for me to get an application to him.  About an hour later I get a phone call again.

Tenant: So I just got off the phone with my attorney and I want to be totally honest with you.

Me: Uh, Ok

Tenant: Last month, I was really hungry and my girlfriend and kid were hungry so I put a sandwich in my pocket and walked out of the store.  They caught me so now we are trying to plead down to a misdemeanor.

Me: Hmmm.....

After discussing the situation with the buyer we determined that this tenant was much too high of a risk to rent to.  If he was truly employed like he said he was, stealing from local stores would not be necessary.  Also, paying rent to the current owners would not be a problem either.  We notified the tenant and the listing agent that we would not be continuing the lease and the tenant was to vacate prior to closing.

This story is not always the norm but property owners need to be prepared for these kinds of situations as they acquire new property.  

JUST SOLD! Eccles Historic District Turn of the Century Home

I just closed on the sale of this home.  The seller of this property was referred to me by some mutual friends. The home had previously been for sale at the $119,900 price point and had not sold.  After doing a market analysis, we determined that the home was slightly overpriced and we put the home up for sale at $114,900.

We received an offer within two weeks and placed the property under contract.  The seller agreed to a $113,620 price while paying $4,500 in buyer's closing costs.  The home required minor FHA standard repairs and I coordinated with my subcontractors to get this done for the seller.  Except for some awkward gestures from the buyer's agent, the transaction went very smoothly for my client.

Congratulations to my seller!

If you are looking to sell your home, CONTACT ME, and lets get your home on the market.

Charts Show Housing Recovery In Weber County

Inclement weather this week gave me some time to do some market analysis this week.  The charts are always full of surprises and here are a few:

The Ogden Valley resort property market has finally stopped its avalanche down the slopes of price decline. Our one-year moving average indicates that homes are selling around $100/SQFT.  One thing to consider in this figure though is how land is accounted for in sales.  The MLS doesn't give $/acre data on home sales so this trendline you see is here just a helpful benchmark.  Lots sizes vary widely in Ogden Valley and thus the $/SQFT will be specific to each property.  Nevertheless, our trendline does indicate the direction of prices are moving up, not down.  This is good news.  

Our next chart shows Ogden's East Bench Neighborhoods which are east of Harrison Blvd. and occupy the space between 20th and 36th Streets.  As you can see here, there is a very nice looking recovery going on in house prices.  House prices are approximately back to late 2010 levels.  This neighborhood is characterized by a high concentration of owner-occupied homes and above average household incomes.  

Finally we turn our attention to Ogden's Historic Core (aka. The Trolley District) which encompasses the vintage neighborhoods between Washington Blvd. and Harrison Blvd. and 20th Streets and 30th Streets.  As you can see, there has been a long and steady decline since 2008 with a sudden and sharp increase over the past year.  Part of this increase may be due to huge capital expenditures going on within this neighborhood to restore, rebuild, and redevelop this part of the city. 

The market is healing and the real estate business is returning to a "normal" state of affairs.  If you are considering buying or selling a home in today's market, CONTACT ME, and lets see what opportunity the market has in store for you.

Presentation: Retire On Real Estate

I recently held a seminar for real estate investors in Northern Utah.  We meet at the Historic Ben Lomond Hotel.  The topic of our discussion was how to retire on an income based in real estate ownership.

If you wanted to attend but couldn't here is a video of our presentation:



We will be holding another meeting in April.  If you are interested in attending, please CONTACT ME.

What About Condos?

I have a few clients who are trying to sell condominiums or townhomes.  In light of that, I thought I would do some research into the market and see how inventories are shaping up.

Queue chart please...

This chart contrasts the inventory levels of 2 bedroom condos and 3 bedroom condos for various zip codes in Weber County.

As you can see, with the exception of 84405 (S. Ogden/Riverdale/Washington Terrace) the differences are quite remarkable.  This indicates that overall demand for 2 bedroom condos is still quite low.

Also 84403 (S. Ogden/WSU Area) and 84404 (Ogden north of 12th Street) both have elevated inventory levels for each category of condo.  Anything above 6 months is normally considered a buyer's market. 

The three areas that can no longer be considered buyer's markets are 3 bedroom condos in 84405, 84414 (North Ogden), and 84401 (Downtown Ogden/West Haven).

Condos have some unique qualities that can cause problems getting them sold.  The first is the HOA.  If it isn't FHA approved, that can cause the whole complex to be unmarketable to FHA buyers.  The second consideration is HOA dues which are an added expense not associated with single family homes.  Sometimes the numbers work for a purchase price but don't work for buyers after HOA dues are factored in.

Despite this, I have closed a number of condo transactions this past year using seller financing.  It is a very fast way to sell condo and has tax benefits as well.

If you are looking to sell a condo, CONTACT ME, and let's see if the market is right to sell your property.   

Boomerang Buyers Back From Foreclosure

There has been a sense in the housing market that things are improving.  While incomes are not increasing wildly, people have been holding jobs and credit has been steadily improving.  Since the housing crash is now almost four years behind us here in Utah, it is interesting to see what time has done for folks who went through foreclosure.

In many people's minds, foreclosure was the end of the world.  It held a social stigma as well as carried a significant financial penalty for anyone who experienced it.  Making payments on your home was just something that you did as an act of decency and honor.  So, when the economy turned on it's head and forced many borrowers into the uncomfortable reality that they could no longer afford their homes, it sent a significant portion of the homeowners into the emotional and credit "penalty box".   

Well, time heals all wounds and foreclosure is not the end of the world.  So much time has passed now that borrowers who foreclosed can now qualify to buy homes again, and at today's low price and interest rate environment.  They could be termed "boomerang buyers". The Wall Street Journal has this interesting quote in a story today:

Using the three-year benchmark it takes to get an FHA-guaranteed loan, in this year's second quarter there were 729,000 households that were foreclosed upon during the bust that are now eligible to apply for an FHA mortgage, up from 285,000 in the second quarter of 2011, according to an analysis of foreclosure data by Moody's Analytics. The company projects that number will grow to 1.5 million by the first quarter of 2014.

An curious side note about this phenomena is the effect it has on the rental market.  These borrowers were all forced into rentals when they lost their homes.  As a landlord, some of my best tenants were former homeowners.  They took pride in their rental units and knew how to care for space.  If many of them return to homeownership, this will put downward pressure on the overall quality of the tenant pool and require more rigorous screening on the part of landlords.  I have already begun to see some of this in our rental market today.  The question that remains is how soon will these former homeowners return to the market to buy again.  Even though they have paid the credit penalty, the emotional penalty is one they will have to overcome at their own pace and in an unknown time frame.  Market psychology will play a big role here.     

The news is a mixed bag depending on your perspective.  It portends increasing house prices and property values which makes most property owners happy, yet it means a bit more work for them to preserve the condition and rent revenue as tenant quality weakens slightly.  Let's keep our eye on the market and see how this shift manifests itself.

Avenue or Boulevard? Which Pays More?

A recent Housingwire story caught  my eye as it discussed differences in house prices based on the name of the street the house resides at.  Trulia did some analysis on 10,000 homes across America to determine what road suffixes were the most desirable versus the least.  Here is the list:

I find this chart funny because in Weber County the Boulevards are definitely NOT the places you want to live.  Washington Blvd. and Harrison Blvd. are some of the cheapest housing you can find due to their 5 to 7 lanes of high speed traffic. 

It is interesting to see how other cities have chosen to name their streets and how that has correlated to their value.

Summer Sales Robust

The summer is nearly over and it's time to take a look at how sales shaped up. 

This year is shaping up to be the best selling season since 2009.  The sales figures have been consistent which is refreshing.  The past several years have been marred by awkard policy gimmicks and economic trauma.  Based on the trendline, it appears the worst of the sales volume doldrums is behind us.  

Here is the chart stacking monthly sales against each other.  This chart helps us see through the seasonal cycle and compare sales for the same months in different years. 

As you can see, we are still below 2008 sales volume (which was deflating from 2007's stratospheric sales), but our trend is in the opposite direction now. 

The bottom line is that the fundamentals are better than they have been in a long time.  In light of the good news, it will be interesting to see how clouds on the horizon impact sales the first several months of 2013.  We shall see.  In the meantime, the trends and numbers look very encouraging.     

Real Estate Market Forecast: Winter Storm Advisory

Over the past several years, I have been watching real estate market sentiment ebb and flow.  Some seasons, my phone rings off the hook, and others, it sits there idle and I wonder why I bother paying such a large cell phone bill.  It is interesting to see how an over arching cosmic vibe affects market activity from day to day.  For instance, on days that the DOW plunges 1% or more, my phone does not ring with client calls.

One of the big events that affected call volume and market activity was the S&P debt ratings down grade of U.S. issued debt.  For two months, the market was nearly vacant of buyers.  I could hear crickets. 

Since that time, I found an index that correlates with my experience of high and low market activity.  The chart is the Gallup Economic Confidence poll.  Here is the chart (click to enlarge) going back to last summer:

 I have circled the period that occurred around the debt downgrade and the national debt ceiling debate.  As you can see, the sentiment drop was quite precipitous.  It took the market almost 6 months just to return to pre-downgrade levels of confidence.  In recent months, confidence has ebbed slightly but nothing incredibly noteworthy.

The reason I bring this up is that we may be in for some choppy consumer confidence conditions starting toward the end of this year.  There are several things that may make for an extra cold market this winter:

Debt Ceiling Debate Redux

According to the Wall Street Journal,  we should be at our maximum debt limit as a nation again by around December 20th.  What a wonderful Christmas present.  Congress will likely be contentiously debating the issue in January to pass another extension.  We can likely anticipate yet another downgrade as a result.  Consumer confidence is likely to suffer as it did last time.

Arrival at The FIscal Cliff

Due to the inability of Congress and the Executive Branch to come up with a solid budget reduction proposal last year, we have The Fiscal Cliff which we are scheduled to cascade over automatically unless Congress and the Executive branch take action to avoid it.  What is it?  It is an automatic income tax increase (cancellation of G.W. Bush's tax reductions from yesterdecade) and the simultaneous cut in Federal spending.  I am all for the spending cuts.  The tax increase will be painful.  Therefore, expect a big hit to consumer confidence in the wake of an over arching tax increase on the population.  Interestingly, economists expect the issue to be dealt with before the year is out.  Yet, the public is not likely to react well as the debate can only produce anxiety while a solution is forged. 

Geopolitical Stress

This may seem way off the radar of for local real estate issues but geopolitical stress can affect consumer confidence as well.  This is especially true when it affect prices at the gas pump.  Currently, the Middle East is a tinderbox and becoming more unstable by the month.  There may be war drums beating and military action in the Middle East after our November election that, if it occurs, will certainly affect oil and gas prices here at home.  Expect consumer confidence to react accordingly.

We live in a turbulent world.  Markets react accordingly.  I anticipate that after experiencing a pleasant chapter of moderation over the last 6 months and for still several more, we may enter a rather choppy period just as we enter the Holiday season.  It is my hope though we will be through the worst of it just in time for the Spring selling season.   

The Housing Bust Is Over

Interesting article from the Wall Street Journal this morning titled Housing Passes A Milestone.  Here are some excerpts:

 Nearly seven years after the housing bubble burst, most indexes of house prices are bending up. "We finally saw some rising home prices," S&P's David Blitzer said a few weeks ago as he reported the first monthly increase in the slow-moving S&P/Case-Shiller house-price data after seven months of declines.

-snip -

In something of a surprise, the inventory of existing homes for sale has fallen close to the normal level of six months' worth despite all the foreclosed homes that lenders own. The fraction of homes that are vacant is at its lowest level since 2006.

The article also has some interesting charts showing just have far we have fallen and stopped falling.  The key is the "stopped falling" part.  It's tough to make confident business decisions involving real estate when prices are in freefall.   

I  suggested that Utah was at an inflection point last November when I wrote We're On the Cusp: Charts Show Prices to Rise or Massive Over Correction. The WSJ article also cites increases in sales year over year nationally.  You can see Utah's figures in RECOVERY! Housing Market Awakens From Coma.

Here is to light at the end of the tunnel!

Seminar: Strategies for Growing Wealth 2012

Yesterday, I held a seminar at the Historic Ben Lomond Hotel for real estate investors.  We had a good turn out and I thought we all walked away from the event a little more enlightened after 90 minutes of conversation.  Here is the .pdf of the power point presentation I shared with the group.  I will be holding another meeting in June.  If you want notice of that event, be sure to contact me.
Strategies for Growing Wealth 2012

JUST SOLD! Updated South Ogden Breadbox Bargain

I just closed on this home with a buyer.

Located in South Ogden, his home was listed in early January for $139,900.  We placed on offer on the home for $130,000 and asked for $3,900 in seller paid closing costs.  The sellers counter offered at $135,500 and agreed to pay for my clients closing costs.  We placed the home under contract.

That is when our bizarre odyssey began with an appraiser who did not perform his duties well.  I will go into detail on his malpractice in another post.  Nevertheless, the appraisal came in at $126,000 even though surrounding homes supported a price closer to our agreed upon sale price.  Our formal dispute of the appraisal yielded a final value of $127,000.  We were forced to change the sales price and my client was compelled to pay for his own closing costs.  

The irony of the appraisal drama is that my client got an even greater deal on this home.  It is in superior condition and a great location.  Congratulations on a fine purchase.

The drawback to this situation is that the free market was not able to operate properly while this appraiser was involved.  Instead of the transaction being a freely negotiated win-win between the buyer and seller, it became a win-lose with the seller eating the loss.  Fortunately, there is some recourse to prevent this from happening again in the future.  Stay tuned for more of the story...

In the meantime, if you or anyone you know is looking to purchase or sell a home, contact me and let's look at the market in your neighborhood and put a plan together to meet your needs.

Lessons for Landlords: Aesop's Advice

I was reading through Aesop's Fables recently and fell upon this poignant story:

 The Farmer and the Snake 

ONE WINTER a Farmer found a Snake stiff and frozen with cold. He had compassion on it, and taking it up, placed it in his bosom. The Snake was quickly revived by the warmth, and resuming its natural instincts, bit its benefactor, inflicting on him a mortal wound. “Oh,” cried the Farmer with his last breath, “I am rightly served for pitying a scoundrel.” The greatest kindness will not bind the ungrateful.

 When screening tenants, I use objective criteria that I apply equally across all applicants.  I have found that this has prevented me from finding myself in the position of "pitying a scoundrel" and suffering the consequences of lost rents and damaged property as a result.  Truly, kindness does not bind the ungrateful.  As one of my investor friends once said, "No good deed goes unpunished."

So, as rental season kicks into high gear, make sure you stick to your established criteria.  Prospective tenants will feel they have been treated fairly and your business will be better off in the long run.

TRENDS: The Changing Complexion of Utah's Population

I attended the 2012 WFRC Consortium on urban planning, transportation, and housing trends that are facing Utah.  Today's demographic trends will mean that policymakers and market participants will need to adapt to significant changes that are happening.  To set the stage for this, here are charts from the first presentation we heard from U of U economist Pam S. Perlich:
Consortium WFRC 2012 Data Slides

The meeting was informative but provided few answers to some of the compelling questions that this data poses.  Utah's housing market is built largely around the suburban model which is crafted around the automobile and large lots to accommodate large families.  This historically has been due to a cultural phenomena related to the predominant faith in the State.  Soon though, that will also be due in part to the cultural dispositions of immigrant families.  

So, with that in mind, can urban options be created that meet these needs?  Will market participants adapt to provide for this change?  Suburban consumers change their minds on urban living and move into the city?  Will developers innovate and pioneer new product to meet this need? Or, will city living simply change the size of families being formed?  How will low wage earning immigrants fit into this mix when urban real estate typically costs more than suburban space? This is the riddle that has to be solved.

Utah's population is getting older and more diverse.  By 2040 Utah's white population will be the minority.  We need to prepare for a seismic shift in how we have been planning and developing our communities.

I enjoy living in the urban center of Ogden.  Our family enjoys the amenities and walkability of our community.  For the future's sake, let us hope that more people find merit in these qualities as well.

JUST SOLD! Landed West Point Rambler

Today I closed on a home in West Point with a buyer. 

With the husband wanting land and the wife wanting a house, this home was our compromise.  The house is 3380 SQFT and sits on 2.7 acres.  There is also a significant workshop sitting on the property as well.

The home was purchased in 2007 for $423,000.  Then in April 2010, the property sold as a short sale for $288,000 to the most recent sellers.  The owners experienced a job transfer abroad and the home went up on the market in September 2011 for $339,900.  Through negotiations, I was able to get my clients a price of $310,000 on the home and we closed at that price today.

Congratulations to my buyers on their new home! 

If you are looking for a home, contact me and we'll find the one that is right for you.

RadarLogic: For House Prices, It's All Up From Here!

It's all up from here!  At least that is the findings from RadarLogic's RPX index which is tied to housing prices nationwide. The index is traded on the Chicago Board Options Exchange and as many indexes has a futures variation as well.  Here is a description of the RPX:

First introduced in 2006, RPX converts public source data on completed home sales into a single daily price per square foot (ppsf) representing a true surrogate for point of sale values. RPX represents the best available surrogate for a spot price for the residential real estate market.

For those of you interested in learning more about this, you can find it HERE.

Anyway, what does the futures market for RPX tell us about future house prices?  Queue chart please (click to enlarge):

It appears that we are bottoming out at this very moment and prices will move gently upward over the next few years with acceleration after 2015.  While this is upward movement, the improvements could best be described as "flat" in the near term.  That is still better than the slight sagging the market has experienced since 2009.  It also means that housing will continue to be a solid investment in real terms.

Hopefully, the index is right and we can enter a new phase of price stability in the housing market.  That should make things better when it comes to getting quality appraisal work done. 

Weber County Inventory Snapshot: March 2012

Last October, I posted about Weber County housing inventory levels to see where the hot spots in the markets were. Since that time, it appears that the winter season has caused inventory levels to decline while sales have been fairly consistent over the same period. 

Here is a table of Weber County cities ranked lowest to highest on the Months of Inventory available.

This is a loose measure of where "healthy" markets exist.  We typically like to see inventory levels below 6 months.  Anything above that could be considered a "buyers" market. 

Granted, there are some things that could distort these figures.  This chart doesn't reflect distressed sales as opposed to retail sales.  Nevertheless, it is still a good measuring tool.  It will be interesting to watch the sales unfold this Spring.

Sales Up! February Posts 16% Increase Over Last Year

It appears that the sales recovery continues.  Here is a chart showing sales changes over the same month the preceding year.  Comparing months year-over-year is an excellent way to read past the normal seasonal changes that occur in sales volume in the real estate market.

 

 
As you can see, after a relative dip in sales early in 2011, the market appears to be rebounding and stabilizing with some sales growth.  You can see the actual sales volume and the moving average HERE.  The market appears to be thawing.  If you need to buy or sell a home, contact me.

Multi-Unit Market Update

It has been a while since I ran the numbers on the multi-unit market.  Here is a look at the numbers through the end of 2011:

First, lets look at sales volume.  Clearly we can see that a volume trough occurred in 2009.  That was the most pessimistic year of the multi-unit market.   In contrast, last year put sales volume nearly with par of sales in 2001.  It appears we are improving in sales.  However, to understand what is driving the market, lets take a look at sales according the the financing style of each transaction:

This chart is intriguing.  A whopping 44% of ALL transactions are done in cash.  That is up from 35% last year.  That speaks of a tremendous amount of distress still in the market in 2011.  Notably, seller finance and FHA/VA transactions were on the decline as a proportion of sales.  Also, conventional transactions seemed to be increasing though not significantly.

Overall, I believe 2012 will be a transition year.  Look for conventional financing to improve and the number of cash transactions to decrease from where they were in 2011.  If those two things occur, it will be the mark of an improving investment property market.  Nevertheless, those that are buying right now are making a killing in return-on-investment. 

If you want to explore purchasing a great bargain on multi-unit property, contact me and we can put a plan together that is right for you.

Real Estate Regulation and De-Regulation from The Hill

This year was an interesting and exciting Legislative season.  While working on my committee, I saw several real estate related bills come through for discussion and debate.  There were several more that were debated on the House Floor.  Here is a summary of some of the Real Estate related legislation that will become law this year:

Window Egress and Zoning Enforcement

HB383 - This was a bill that I ran which dovetailed with SB178 that I reported on last year.  My bill puts teeth into the law which prevents building officials from requiring owners of rental property to cut into the foundation of their properties in order to enlarge existing egress windows.  The State Fire Marshall wrote the language for the bill and testified in its behalf at committee.  This should bring an end to most of the egress window non-sense where owners have been forced to endanger their properties by cutting into old and fragile foundations.

Short Sales and Deficiency Collections

SB42 - This bill brings deficiency collection for short sales in line with those for foreclosure.  Before this law passed, lenders had 6 YEARS to file a deficiency judgement against the seller of a property.  Most lenders don't file these judgements because the financial status of the sellers makes the action pointless.  However, in some cases, the lenders do file.  If they do, they now have 3 MONTHS from the time of the short sale closing to do so.  This should increase the number of short sales being worked in the marketplace and help us churn through our distressed inventory faster.  That, in turn, should help us accelerate toward a full market recovery.  


Property Tax Reductions for Urban Farms

SB122 - This bill allows parcels of land of 2 acres or greater that are zoned for uses other than agriculture in urban areas to be taxed at an agricultural rate when they are dedicated to that purpose. The bill closely follows greenbelt statute and allows the property to have reduced taxes as long as the property is in use for agriculture production.  When the property is sold, the seller must pay up to 10 years of the difference between the taxes they paid and what they would have paid had it been taxed the full rate through that time.  This should do two things.  First, it should increase the number of viable agricultural operations in urban settings; second, it should create an incentive for the properties to stay in agricultural use over longer periods due to the lump tax due at time of sale.

Mortgage Fraud Prosecution

SB281 - This bill funds the Mortgage and Financial Fraud Unit of the State Attorney General's Office.  The unit has been in hibernation for several years due to budget constraints.  The funds were available this year to restart the unit and begin investigating bad actors in the market.  

Good Landlord Program Changes

SB216 - This bill makes some changes to Good Landlord programs across the state.  It creates reciprocity for certification between cities who have a GL program.  It also restricts the fees that cities can charge for a business license to be no more than the actual cost of providing the license.  Ogden landlords have nothing to worry about.  The city charges $83 for a non-GL and $13 for a GL license when the actual cost to the city is $108.  Ogden has been an excellent example of how to run a GL program. The bill also provides an appeal process in the even that a landlord is kicked off the program.

Zoning Enforcement

HB302 - This bill requires cities to issue notices to owners and property managers, if desired, when giving notice of zoning violations.  It also requires that a notice be issued for each instance of a violation.  This will likely affect owners in Ogden regarding mowing of yards.  The city policy prior to this bill has been to send a notice once in the year and then move strait to issuing fines if the violation occurs again later in the same calendar year.  This will require a notice for each instance of the violation.