Developers Say, "If You Build Them, They Will Rent Them"

Hi Folks,
   Hope you had a great July 4th, and if you were lucky enough to snare a 5-day weekend, then good for you !

   It always amazes me to see the things people do to adapt to the financial environment, but when you start looking at what large companies do to adapt, you quite often will see a slower response, as the inner mechanics all need to line up, however, that is not always true!

   With the bump in May building permits spanning both single and multi-family (apartment), this indicator of future construction made it to the best levels seen in about 4 years. With this market direction, a large number of Developers are building single family homes as rentals, per a recent article on CNBC.com, titled, "More Builders Are Turning to New Market: Rentals".

   The interesting point, the article says, is that, "Historically, builders did this largely in low-income, government-subsidized housing projects", but goes on to say that the "market is quite different today." One such developer mentioned was Joe Petersen of Insight Real Estate Strategies in Texas, who said that "there are so many people with mortgage issues … and just recognizing these issues will not go away soon, we felt like how could we deliver high quality rental housing in a product that single family homeowners would appreciate?”. The answer: high-end homes built specifically as rentals, which takes all of the variables into account (mortgage industry, economy, etc).

   Petersen is clearing land and raising money to build single family homes just outside Ft. Worth, and does mention that a lot will be different in this type of construction, including the maintenance and business plan, but he "believes demand is strong enough for him to be able to charge premium rents"

   Petersen is banking on the fact that since rent homes are typically "not the nicest homes", that he will be able to offer people something different, "having a professional staff on site, maintaining and managing it", in which they can "offer a lifestyle very different from a part-time Realtor or a homeowner who’s renting it because he can’t sell".

   Now, back to those "rent homes". Per the CNBC.com article, Beazer Homes recently launched a “pre-owned” business, “for the purpose of acquiring, improving, renting and ultimately reselling previously owned homes within select communities and markets which we operate,” according to its recent 10-Q.

   Taking this a step further, Beazer is "buying foreclosed homes", "rehabbing them, then renting them with the intention to ultimately sell.", so in other words, Rent to Own. Petersen is also keen on the Rent-to-Own option. He intends to build up to 300 homes, and will use the rent-to-own option just as other builders have; "to alleviate a backlog of unsold homes and reduce carrying costs."

   What are your thoughts on this strategy?

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Have a Great Weekend, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #realestate #developer #buildingpermits #futureconstruction #builders #rentalhousing #renttoown #rent-to-own #foreclosedhomes #rehabbing #realtor #homeowner

Buy-to-Let Deals Are Fast-Tracking UK Recovery

Hi Folks,
   Glad to be here with you.

   Today, we are going to talk "Buy-To-Let". What is "Buy-to-Let"? It's a very popular type of Real Estate Investment in the United Kingdom (the "UK"), where a property is purchased solely for the purpose of renting it out. This is similar to our version, which is a non-owner-occupied property (which oftentimes can refer to "Rent to Own"). So, now that we tied this in with some familiar terms from this side of the Pond, let's discuss how popular this investment has become.

   "For many buy-to-let looks an attractive income investment in a time of low rates and stock market volatility. Lower house prices, rising rents and improving mortgage deals are tempting investors once more", says Simon Lambert in his article, "Ten tips for buy-to-let". We will return to his tips shortly.

   In terms of had figures, David Whittaker, managing director of buy-to-let specialist Mortgages For Business, recently commented in an article ("Buy-to-let lending 'propping up' mortgage market") on the UKs' LandlordToday website, and said that that the increases in both new mortgage and remortgage approvals could have been largely driven by property investors. "Whilst buy-to-let lending to individuals has been lumped in with the total figures, we all know that it’s most likely the professional investors who are making hay while the sun shines", says Whittaker, who adds that "the likelihood is that the lending market is being propped up by the residential investment sector particularly with so much uncertainty surrounding the economy and first-time buyers largely locked out the of market.”

   In the same article, David Brown, commercial director of LSL Property Services, agreed, and commented that "demand for buy-to-let has been a key driving force behind the improved lending picture".

   Not just for Real Estate Investors

   This surge in Buy-to-Let is not isolated to just the Real Estate Investors. In a different, yet aptly titled article on the same UK LandlordToday website ("Build to rent is 'next big thing', says UK's biggest landlord"), it stated that "Developers are to be encouraged to build new housing estates where all the properties will be for rent, not sale". The article says that this would "mark a fundamental shift in the structure of the UK housing market", and that "Institutions and property companies would own, and trade, these ‘build to rent’ developments". The idea has been floated after research by Grainger, the country’s largest listed residential landlord, highlighted the huge shift in public opinion over home ownership versus renting, and the Grainger chief executive, Andrew Cunningham, was quoted in the same article that "build to rent will be the ‘next big thing’".

   Now, back to those 10 tips from the article written by Lambert, to which he refers as "the ten essential things to consider for a successful buy-to-let investment". The list includes the following; Research the market, Choose a promising area, Do the math, Shop around, Think about your target tenant, Don't be over ambitious, Consider looking further afield, Haggle over price, Know the pitfalls, Consider how hands-on you want to be. Great tips!

   This is a big thing in the UK. One of the LandlordToday articles stated that "The Government is taking the issue seriously, looking at how to encourage Real Estate Investment Trusts (REITs) in the residential sector". This is sure to deepen the market for Buy-to-Let in the UK, and the demand for Buy-to-Let in the UK should only continue to increase.

   What do you think this means for the United States? Should we be pushing the Fed to get more involved in this? It looks like they are on the right path when discussing doing something similar with the Foreclosure homes and REOs. What are your thoughts?

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Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #buytolet #realestateinvestment #UK #foreclosure #REO #renttoown #risingrents #residential #mortgagemarket #London #England #buildtorent #developer

Are Homeowner Associations, or HOAs, Necessary?

Hi Folks,

   Hope you had a great weekend! Spring is coming, and many people are happy. I am personally a huge fan of cold weather, but that is rare...I know !

   Today we will explore a few sides of the HomeOwners Association, or HOA, debate. There are many folks who say that HOAs are not needed, and there are many others who strongly advocate HOAs. Let's take a step back from the drama of all of that, and see what an HOA is and see what are it's functions, advantages, and disadvantages.

   Let's start out by discussing the duties of an HOA, which, "serve some benefit such as the uniformity of appearance in a community, offering of amenities, and the maintenance of our landscaping.". says Deborah Haataja-Deratany, a Legal Liaison of an HOA. Kerri Fivecoat-Campbell, a homeowner and a blogger, expands on this and says that many HOAs, "put a limit on the size of homes that can be built in neighborhoods". John Paul Hanna, an Attorney, notes that, "California law requires that all common interest developments ("CID's) have a homeowners association, either incorporated or unincorporated. The main advantage of an HOA is that it has power to enforce".

   Sharon Van Buskirk, a Marketing Director, says that she lives in a designated Historic District in Dallas they, most definitely need" their HOA to serve as, "a concerted voice when the winds of City Hall blow afoul and threaten our unique neighborhood."

   This leads us to our next piece of the puzzle, which is the Structure and management of an HOA. "Overall, I feel that HOA's in the state of Florida are a disaster, particularly because of the intense legislative lobbying efforts from the lawyers and the insurance industry and the lack of accountability for developers, boards, and community association managers (CAM's). Boards of directors have incredible power. It is an abomination that Board members are often neophyte volunteers, charged with the significant fiduciary of being entrusted with millions of dollars in budgets, and hundred of millions of dollars in real estate, etc., often times with little or no experience in related fields", says Haataja-Deratany, who goes on to say that their, "expected or required standard of performance is minimal!". She also says that, "virtually, the only requirement is that they own property in the respective community."

   Haataja-Deratany suggests that in order to serve on an HOA board, one should be, "required to possess credentials related to this industry, much like other corporate boards in this country. Board members should also be required to have a stake in their performance on a Board (carrying E&O or comparable insurance of their own)."

   Michael Garard, with Garard Real Estate, says that where the HOAs get a, "bad rap" is from the attorneys who help oversee the board of directors. Garard says that the attorneys, "have the mind set of 'black and white' decisions, and once you let a small item get changed, then everyone else will follow the lead, so the attorneys advise to fight (very expensive to the HOA) and not to give an inch." He adds that most board of directors are typical homeowners who just want to, "help their community, they are not professional, just volunteers", and that the attorneys are paid hourly.

   Sharon Blanding, a former civil engineer who has worked on many "Planned Unit Developments", feels that any new community should be, "regulated more by HOA covenants than by city/county zoning laws.", and says that most people, "do not realize the extent of the controls and regulations most cities have on the books. Even small cities can have volumes of regulations. (I worked in San Diego and Seattle, and the controls are beyond believable. But even little towns on the outskirts could easily have 30 to 50 volumes of regulations.)". Blanding surmises that, "perhaps we could get rid of some of the excessive government controls this way. (Some of the people running HOAs are truly crazy though, and there does need to be constraints built into the original documents, similar to a constitution, that limits their powers.)"

   In regards to HOA fees, this will vary by community, and for example, Vinny Amatulli of the Foxhall Subdivision in Georgia, says that his HOA has "established a means to help with short-term and long-term budgeting process, eliminating the need for homeowner assessments. Our current dues is $600 per year and has only been raised three times in the past 16 years. I can only assume that fees vary by region, even within our local area."

   Garard points out that future resales in a community, "will come from buyers whose first impressions is of the 'look' of the subdivision, which is where the HOA and the covenants can keep up the look of the community."

   Is your home part of an HOA community? If so, did we miss out on anything that the HOA does or doesn't do? Do you think HOAs are necessary? We'd love to hear from you!

Have a Great Week, and Happy Rent-to-Owning !

Regards,
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

TAGS: #HOA #developer #developments

What Can Go Wrong With Rent to Own ?

Hi Folks,
   It's Friday ! Hope your week has been phenomenal.

   As our title suggests, today we will be looking at some issues that may arise when doing a Rent to Own Transaction, as well as a few solutions to help you out.

   A common problem in this economy is the steady decrease in home prices. This represents an overall problem for the market in general, but it has a specific effect on a Rent to Own deal. For example, Aaron Galvin, Managing Broker of Luxury Living Chicago, says that if a tenant has been renting a private condo or a home for the last year with a specific purchase price which was established at the beginning of the lease term, a decrease in property value will impact the decision of the tenant to buy the property. If the tenant was ready to buy the home, he obviously does not want to overpay.

   Galvin proposes the following solution; "Do not establish a purchase price when signing a lease. Instead, a tenant should disclose their desire to ultimately purchase the property at the end of the lease term and negotiate a percentage of rent back toward the final purchase price.", so, in other words, "No dollar amount should be set until the value of a home is determined at purchase time." This would, of course, be in writing, and agreed to by both parties.

   Gary Parkes, a Mortgage Lender with Acopia Home Loans, suggests some additional solutions, including a few proactive ones. Parkes says that using a realtor, and "having them thoroughly research the comparable properties will help minimize the likelihood of that happening.", however, if this advanced planning does not work and the "house appraises for lower than the agreed price you have a few possible solutions that can resolve this issue."

   Parkes says that, "in a majority of cases the seller will ask for a copy of the appraisal to review and will lower the agreed upon sales price to match the appraisal.", however, if the seller is, "unable or unwilling to do that, the next option would be to meet half way or pay the whole difference." He reminds us that you can decide to pay more that the appraised value, but, "the lender will base how much they lend you on the lower of the sales price or appraised value.". Fortunately, he points out that a situation like this typically is resolved and the purchase does occur.

   Another potential issue is due to potential human interactions, or "PHI", as I like to call it. Shuki Haiminis, President of Lofts.com, has presented an example of this type of issue. Haiminis brought a couple to see a loft development, which they loved so much, that instead of just renting it, they want to do a Rent to Own transaction. The developer hesitantly agreed, but the couple assured him that, "there was no way that they would not be buying the unit."

   Ultimately, the process went forward, and the developer, "put his own money and labor into customizing the space for them with their specific requests.", and Haiminis says that, "While he would probably have made some of the changes, in solely a rental deal he definitely would not have put in as much as he did."

   What was the end result? A Negative PHI...the couple split up! So, "not only did they not buy the Loft but they had to terminate the rental lease as well." Haiminis said that the developer, "should have required a small down payment maybe equal to one months rent to show good faith." This is a good point. Builders/Developers - pay attention to that one !

   Some other things that can happen along the way are issues with the down payment funds and with income statements, and Parkes, who experiences things from the buying aspect daily, and has examined each of these for us.

   Down Payment Money: Parkes says that, "Many people do not realize that they will have to explain where any non-payroll deposits came from and many people do not like having to answer these questions for privacy reasons". Lenders often look over the previous 2 months of bank statements, and they will need to know where the money came from. Parkes suggests that you, "have an account with the money sitting there already for 2 months.", so that you do not need to, "source all your deposits", and that, "Even if you are receiving a gift for a down payment, these same factors can be applied to the gift giver."

   Income: Parkes warns that if you are considering buying a home within the next few years, you need to, "be careful in the amount of write-offs you take on your tax returns", since, "Lenders use the tax returns to determine income in our current lending environment-even for those salaried borrowers such as teachers, non-commissioned employees, etc.". Additionally, he says that, "Yes, you will have to pay more in taxes but it will help you qualify for a loan. It is a tough pill to swallow, but by planning ahead you can prepare", since, "A lender will generally look at the previous two year tax returns in determining income."

   Ultimately, there are pros and cons with any type of real estate transaction. The pros of Rent to Own are being able to try a home before buying it, and being able to get into a home you might not normally be able to under your current circumstances. For a seller, being open to Rent to Own gives you an extra tool to help sell your home, and to have a serious tenant who could potentially own the home and will treat it as if it is already their own home.

Have a Great Weekend, and Happy Rent-to-Owning !