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  • August 3, 2007 at 5:20 PM #9700
    Drew
    Participant

    Our current lease just lapsed and we’ve been looking for a place in the Bay Park area for the past 2 months. Luckily we just found one in an ideal location at a reasonable price and we’re moving in within the next few weeks.

    During the 2 months of browsing, I was amazed at the number of rentals on the market that were obvious investment/distress properties where the owner was making an effort to float all or a portion of their monthly mortgage payment by renting out the home. Keep in mind that I am making an assumption that these are properties that are underwater, because I’m looking at the last sales price listed on Zillow, so I’m unaware of the amount down, loan type, etc. That said, regardless of how much they put down, renting out a home that was purchased for $700k+ for $3000 per month is NOT a wise investment.

    Of the dozens of homes we looked at, I would say that nearly 50% were cash flow negative based on their monthly rate. Many of them had the two following characteristics:

    – Their monthly asking price was WELL under what the mortgage would be based on their “last sale” price on Zillow.com

    – Their monthly asking price was WAY too high due to the fact that the owner was obviously trying to float their entire mortgage payment. These properties sat on the market for a long time, then disappeared (not sure if they rented or not.)

    The reason I mention this is because I did the same thing last year, just after we sold our house and were looking for a nice rental home. There were nowhere near the number of cash-flow negative properties up for rent. So based on my observations “from the street”, something is starting to hit the fan with regards to the financial desperation of some home owners.

    Also, as an aside, after dropping off my 30 notice with my landlord, she mentioned that they’ve noticed a significant rise in “looky-loos” with her properties, as well as people with poor credit applying. She owns 10 properties and is cash-flow positive on all of them, even with her very reasonable monthly rates. At this point, she is attributing this to the rising rent that landlords are asking.

    Anyone else noticing this?

    August 3, 2007 at 6:04 PM #70095
    stansd
    Participant

    I’m noticing the same thing…in the Rancho Bernardo area, I’m seeing lots of houses get listed for sale, and then they’ll wind up on Craiglist or the MLS a couple months later as rentals. Unless rents are up over 10% in the last year, the asking rental rates are often too high by a couple hundred a month as well…I think being a landlord is going to get tough…will be easy to find people looking for rentals, but very tough to find folks with good credit.

    The house I’m living in is going to be an interesting case study…owner has to sell by next November or face 70K in Capital gains tax…he’s staring into the teeth of a very, very ugly market, though and is going to have trouble rationalizing that the house he had on the market for 600K 2 years ago can only sell at 450K (which incidentally is what I offered him 6 months ago to buy it).

    Stan

    August 3, 2007 at 6:04 PM #70172
    stansd
    Participant

    I’m noticing the same thing…in the Rancho Bernardo area, I’m seeing lots of houses get listed for sale, and then they’ll wind up on Craiglist or the MLS a couple months later as rentals. Unless rents are up over 10% in the last year, the asking rental rates are often too high by a couple hundred a month as well…I think being a landlord is going to get tough…will be easy to find people looking for rentals, but very tough to find folks with good credit.

    The house I’m living in is going to be an interesting case study…owner has to sell by next November or face 70K in Capital gains tax…he’s staring into the teeth of a very, very ugly market, though and is going to have trouble rationalizing that the house he had on the market for 600K 2 years ago can only sell at 450K (which incidentally is what I offered him 6 months ago to buy it).

    Stan

    August 3, 2007 at 6:08 PM #70097
    bsrsharma
    Participant

    “owner has to sell by next November or face 70K in Capital gains tax.”

    Can you explain that?

    August 3, 2007 at 6:08 PM #70174
    bsrsharma
    Participant

    “owner has to sell by next November or face 70K in Capital gains tax.”

    Can you explain that?

    August 3, 2007 at 7:27 PM #70117
    Reality
    Participant

    he’s staring into the teeth of a very, very ugly market, though and is going to have trouble rationalizing that the house he had on the market for 600K 2 years ago can only sell at 450K (which incidentally is what I offered him 6 months ago to buy it).

    Next time offer him a lot less and snicker while doing so.

    August 3, 2007 at 7:27 PM #70193
    Reality
    Participant

    he’s staring into the teeth of a very, very ugly market, though and is going to have trouble rationalizing that the house he had on the market for 600K 2 years ago can only sell at 450K (which incidentally is what I offered him 6 months ago to buy it).

    Next time offer him a lot less and snicker while doing so.

    August 3, 2007 at 7:53 PM #70123
    one_muggle
    Participant

    I’ve seen a significant increase in the number of rental signs and for sale signs, sometimes both 8^), in the LA foothills.

    I’ve also seen a few really high asking-rents, one of which recently foreclosed (hehe).

    -one muggle

    August 3, 2007 at 7:53 PM #70199
    one_muggle
    Participant

    I’ve seen a significant increase in the number of rental signs and for sale signs, sometimes both 8^), in the LA foothills.

    I’ve also seen a few really high asking-rents, one of which recently foreclosed (hehe).

    -one muggle

    August 3, 2007 at 9:03 PM #70129
    stansd
    Participant

    I’m just going on what he told me…he bought another residence, and said that he had 3 years from the purchase of the other residence to sell-I presume it’s related to whether or not you are rolling the gain into a new residence. did a quick web search and found the following:

    “If you live in your home for 2 years out of the last 5 years before you sell it, you will qualify for the personal residence exclusion”

    I presume after he’s been out for 3 years, he’s no longer in the 2/5 club, and he’d have to pay capital gains on the sale.

    Stan

    August 3, 2007 at 9:03 PM #70206
    stansd
    Participant

    I’m just going on what he told me…he bought another residence, and said that he had 3 years from the purchase of the other residence to sell-I presume it’s related to whether or not you are rolling the gain into a new residence. did a quick web search and found the following:

    “If you live in your home for 2 years out of the last 5 years before you sell it, you will qualify for the personal residence exclusion”

    I presume after he’s been out for 3 years, he’s no longer in the 2/5 club, and he’d have to pay capital gains on the sale.

    Stan

    August 3, 2007 at 10:01 PM #70141
    kw3393
    Participant

    Don’t get me wrong, I’m sure there are plenty of “sophisticated” real estate investors out there.

    But in this current environment, there are way too many unsophisticated investors who’ve tried to create wealth by simply buying properties and renting them out.

    Let’s face the REALITY. 80% of all of us can’t or aren’t even planning or prepared for retirement. A lot of these property owners are about to face some serious consequences. They “think” they know, but they don’t.

    August 3, 2007 at 10:01 PM #70217
    kw3393
    Participant

    Don’t get me wrong, I’m sure there are plenty of “sophisticated” real estate investors out there.

    But in this current environment, there are way too many unsophisticated investors who’ve tried to create wealth by simply buying properties and renting them out.

    Let’s face the REALITY. 80% of all of us can’t or aren’t even planning or prepared for retirement. A lot of these property owners are about to face some serious consequences. They “think” they know, but they don’t.

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