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The Laurex Process: Investment
Management
Market Conditions
By Mike Butler
Understanding market conditions and having that “6th sense” of what is going
on, allows the successful investor to stay out in front and operate where
there is no competition. Just like the book “Who Moved The Cheese?”,
screening tenants for your rentals is critical now more than ever. We have
seen many small market indicators creep up on us over the last few years.
Although each condition by itself is not too bad, when combined all at the
same time, results in a major impact on our rental market including single
family homes.
These factors include the nightly news regular update of our bad economy,
high unemployment, more jobs leaving the USA, and homeownership at all time
highs. The nonstop new home construction. The new home construction rate far
exceeds the growth of our local household census over the past few years.
New apartment construction, availability of FREE money to first time
homebuyers (including our own long term tenants), continued all time low
interest rates, access to easy money from lenders, stock market jumpers who
“see the light” realizing real estate is the place to be and jump into the
real estate investing arena, have all contributed to putting us in a simple
but very challenging market of SUPPLY AND DEMAND. Too many houses and not
enough quality Tenants!
While surfing the net last month, I found a website devoted exclusively to
educating tenants on how to negotiate better terms with landlords and the
inside scoop on how to beat up and cause grief to your landlord. They even
sell T-Shirts “Kill the Landlord” promoting the same. This website harps on
market conditions of an abundance of available rental properties and
encourages tenants to go after 2-3 months FREE Rent. Locally, we have
apartment communities whose profitability is projected at a maximum 5%
vacancy rate and are now experiencing an average of 25% vacancy rate. We
have an apartment community locally with a 40% vacancy. These apartment
communities are offering blow out specials and low and FREE rent prices to
fill vacancies.
Last month my brother purchased a home I would rent to a tenant for $800.00.
His total piti (principal, interest, taxes, and insurance) payment is
$543.00. Be aware of how this can affect YOU! Mortgage brokers and lenders
are targeting our sometimes overlooked, but valued long time tenant and they
are pitching this exact same situation. They pound our tenant with “Why are
you paying $800 month rent making your landlord rich when you can buy a home
just like yours or bigger and better for $250.00 month less?” The sad
reality is we learn about this too late. We receive our tenant’s notice of
their intent to move because they are becoming a homeowner. (Perhaps you
would have sold your tenant the home they are renting from you)
Congratulations to tenants who become homeowners. Almost anyone who can
breathe can buy a home.. (think about who is left…an ugly, ugly thought)
Although they are excited about homeownership, we have seen many get zapped
with outrageous fees resulting in the tenant paying well over 100% for their
home. In addition to this mess, the tenant does not receive any financial
education on how to “run their household financially.” When the roof,
furnace, water heater, etc. breaks or needs replacing, the tenant, now
homeowner, will have to dig into their empty pocket to make repairs –
previously, a phone call to the Landlord resolved their problem. Now we are
in the beginning and perhaps the middle of a cycle eventually giving us
great rewards. Unfortunately, many will eventually go belly up and lose
their home and return to being a tenant. In the meantime, we are short a
boatload of quality tenants right now.
Some new investors have added to the current problems for investors. Poor
financial decisions from the recent bygone days of EZ Cash Out Re-Finances
have allowed some new investors to have the “good life” on borrowed money.
These types have now run out of cash and their rent income barely pays
mortgages, let alone repairs or lost rent from vacancies. These people are
going belly up by the dozens locally and lenders have shut all doors on
loans involving non-owner occupied property, including the seasoned veteran
cash heavy investor. The pendulum has swung the other way.
The investor with CASH is KING! If you do not have cash, you must have
resources to cash in order to stay active. The gravy train days of pay cash,
make it right, refinance and cash out, getting your money back on 30 year
fixed, to go do it again are almost gone. Focus and polish your education on
seller financing, negotiations, and develop your own network of private
lenders. Cash in on private lenders whose certificates of deposit are paying
two percent. Make it attractive to the private lender and you will always
have cash resources at your fingertips. Private lenders with cash network
with people with cash.
Article Provided by:
Mike Butler
Real
Estate Investor
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