When rents don't keep up - Posted by Dan (NC)


#1

Posted by Laura Newman on November 05, 1998 at 21:31:44:

There are over 200 apartment complex plans on the drawing board in Wake County, waiting approval. There’s a growing glut of rental housing. I personally look for older homes that need rehab. They’re selling for under $50 per square foot, whereas new construction in Ral is now $105 per square foot. Once you rehab the old home, it will cost you about $65 per square foot for total rehab and you can still get $85 - $90 per square foot on the retail market.
Then there are the bird dogs out there who do nothing but find deals for those of us who are too busy to search. They’ll assign the deal to you for a referral fee. Then it’s all yours.
Then, there are other ideas…


#2

When rents don’t keep up - Posted by Dan (NC)

Posted by Dan (NC) on November 05, 1998 at 08:10:29:

Here’s our local situation: Raleigh’s housing market is still booming, with prices going out of sight. Everything sells fast, even the junkers, for nearly full market value, or above. It’s depressing what people are paying for dumps. The problem is rents aren’t keeping up. A 140K house brings in around $1050 in rent, a 90K house around $600. I drool when I read what investors in other markets are getting. No one here is too interested in L/O’s because they don’t need them to sell their homes. Twenty percent down and a new loan should do it, thank you very much. And people with no equity are willing to have someone assume their loan through a land trust, but it almost always means a negative cash flow. A typical HUD property (we don’t have many) recently was listed at 107K. After about 20K in fix-up it would be worth 145K. It sold quickly for 115K. Some investors have pulled out of the market and are just waiting for a meltdown. But in the meantime, are there any strategies to cope with this market? I’ll keep investing in MH’s, but would like some longer term holdings for diversity. Thanks in advance.


#3

Re: When rents don’t keep up - Posted by Bill Gatten

Posted by Bill Gatten on November 08, 1998 at 19:34:47:

Dan,

Great question! I’m ready to move to NC! This is great for me.

Here’s what I do (forgive me for constantly harping on the land trusts, if you’re following any of my other posts; but in all candor, it truly is as close to magic as anything I’ve seen):

SFR (houses, condos, twnhses and PUD’s) property owners who want more rent, need merely: A) Sell their tax write-off to their tenants (e.g. if your tax deduction has a cash value of $300, sell it for $350). If they want even higher rent, they B) sell a portion of the equity build-up in their mortgage; if they even MORE rent, they sell the tenant a potion of the future appreciation (could be worth a lot in a market like yours).

  1. Its owner places the rental property into a title-holding trust

  2. The tenant is made a beneficiary of the trust

  3. The lease agreement is redrawn to include payment for all principal, interest, property tax, insurance homeowner’s dues, PMI and everything else, including a positive cash flow to the owner.

  4. The agreement between parties is that this arrangement will continue for a specified period of time until the tenant can re-fi or get a new loan and take the owner off the existing financing.

In this scenario, the “landlord” can completely eliminate the burden of maintenance, management, vacancies and negative cash-flow without giving up anything that is not replaced by something better. And best of all, remember that anything “given away” in the form of future appreciation and/or equity-build up (principal reduction in the loan) is more than made up for in the increased payments and freedom from management, vacancies and maintenance, whether the house goes up or down in value.

The key: People who are renting pay (without knowing it) 150% of their rent in income tax. In other words, if you pay $1,000 per month for rent, you have to earn an additional $500 per month over and above that amount, in order to pay the government income tax on the money you pay your landlord. For example, if you rent for $1,000, you have to earn $1,500 each month so that you can pay the government 1/3rd ($500) and have enough left over to pay your landlord $1,000. If, on the other hand, you pay $1250 per-month to own the same house, there is no tax on interest and property tax. And you just reduced your “rent” by $250 per- month, while increasing the landlord’s income by the same amount: not to mention the money that will be made by sharing in the future appreciation and equity build-upon in the property (in exchange for taking over all maintenance and signing a long-term lease).

Good luck

Bill


#4

Re: When rents don’t keep up - Posted by Kev_NC

Posted by Kev_NC on November 05, 1998 at 17:34:03:

North Raleigh and Cary are difficult markets for 2 reasons, high sales prices and too many rental units. You have to look hard for the motivated sellers. I have the best luck with job transfers and divorcees. Otherwise I suggest you shift your focus to other areas. There are a lot of values in Wake Forest and Knightdale. Durham is tricky but could be good if you know the area.


#5

Re: When rents don’t keep up - Posted by Bud Branstetter

Posted by Bud Branstetter on November 05, 1998 at 12:17:04:

Even in your sellers market I would expect there are houses that have very little equity. Not enough for the realtor to list and pay conventional closing costs. Those people still get divorces and have job transfers. Farm the newer subdivisions with flyers or door hangers, even direct mail.

Remember they are not renting, they are deferring their purchase. Appeal to those people that don’t have that 20% down payment for a higher than rent payment and a nicer house.


#6

Re: When rents don’t keep up - Posted by Jim_NC

Posted by Jim_NC on November 05, 1998 at 11:37:42:

Dan,

I am in Charlotte and the market is the same way except for the rent. I have had no problem getting $1200-1400 per month for rent. One thing you might want to look at is L/O houses from motivated sellers for their current house payment. That way you are below the market rent in most cases. I recently l/o a $140,000 house from a seller who was transfered out of state for $1000 per month (their house pmt is $960 PITI) and I am renting it out for $1400. I am beginning to realize also that people will pay a higher rent if they are L/O the home verses just RENTING it. Just look for motivated sellers. I agree with all the gurus that in any market, no matter how good the market is, there is still people that are in a position that they must do something quickly and will L/O their home. You just have to get out there and dig for them. Don’t listen to other people. I have been doing this for a short time and if I listened to other people’s negative attitudes I would not have done a deal yet.

Good luck


#7

Re: When rents don’t keep up - Posted by John(NH)

Posted by John(NH) on November 05, 1998 at 09:36:22:

How about purchasing 12-month income streams from
landlords at a 20% discount? With a down payment and
not much cash flow, some people might be motivated for
some quick cash - at their expense of course.

-John