For Those of You out there renting…

[bmarum]

For those of you out there renting from individuals, are you at all concerned that your landlord may go belly up in the near future? Would it concern you if your landlord had an adjustable rate mortgage on the property you’re renting, especially if he purchased it within the last couple of years? What happens to you if he or she gets foreclosed on? Just curious how/whether renters think the current and future drops in prices will affect them — aside of course from allowing them to purchase property at a lower price than it is today. 🙂

[Carlsbadliving]

My landlord has owned our house since 1977. So no problems there. He thought about selling it this past spring but we talked him out of it and now he plans to sell next summer. He lives in Texas and is luckily not too in touch with the local market.

[La Jolla Renter]

Good point, this is going to be a BIG problem in the near future.

Renters should probably be more concerned with landlords putting the house/condo on the market for sale rather than getting foreclosed on.

I can speak from experience!!! Know your rights as a renter!!! The owner can sell their property at any time, but as a renter, you have rights to “peaceful enjoyment of the property”. The gray area during the sale… lock box? open house? caravans? etc. Most standard leases, including the one used by the California Realtors Association protect the rights of the landlord, not the renter.

If you are signing a lease, ask your landlord if they have intentions of selling during your lease. If they say no, put it in writing on your lease with addendums like: no lock box, no open house, no caravans and the key addendum… no showings without and accepted written offer. You can also specify a rent reduction if they put the house on the market. If they refuse these requests, then be leery.

[PD]

When we signed our lease, I was concerned that the house might be put up for sale. I negotiated with the landlord and will receive a free months rent the month I’m notified that the house is up for sale.

[desmond]

I believe if you signed a lease whomever takes control of the house would have to abide to the terms. Isn’t hard to kick renters out in CA? The fb next door had some deadbeats that were in the house 5-6 months without paying before they got evicted. I did see the fb drive away with the evicted tenents two jet skis.

[gecko]

I am currently renting a brand new 3000 sq ft home for less than half of what it would cost to own. I returned to San Diego after 8 yeras on the East Coast in 2004 and decided that the housing market was way out out whack for the fundamentals and renting would be my best option until the market corrected. BTW, I made a nice profit on a home on the East Coast so I had the option to buy here.

With this stated, I’d like to share my first RE purchase experience in San Diego back in 1983. I rented a SFH in Mt Helix from a private owner. After about 3 months in the house my wife answered a knock at the door while I was at work. A foreclosure notice was being posted as the owner was in default. This ‘owner’ it tunrs out had quite a history. The RE market was down at the time and he was taking over properties from owners that were desparate to sell by giving them a 2nd TD and taking over their 1st. Problem was, he had about 18 of these properties and he made his money by renting the homes out, collecting the rents and not paying on the 2nd or the 1st.

To make a long story short, we researched the loan history, found the original seller and holder of the 1st back in Maine and offered a buyout of the property. We purchased the 2400sq ft home for $126k with an appraisal and realsistic market value of $180k. I also remember quite well the market in the early 90’s. I lived in Alpine at the time and remember a beautiful development, Ranch Palo Verde, where about 50% of the brand new homes were REO’s for a number of years. I have no doubt we will soon see the return of REO’s in new developments with overgrown brown weeds in place of landscaping.

Moral of the story- there will always be opportunities in any market.

[PerryChase]

It’s amazing the kinds of risks investors would take to own rental property. Making sure one is cash flow positive is the only way to own rentals.

[speaker]

I am in the same position as Carlsbadliving:
The owner of my condo bought 20 years ago and their taxes are right on line with that timeframe.

My property management is kind of suspect but at least I know won’t be booted because the owner is in dire straits.

However, I do have one anecdote to share:
My good friend rents one of those giganta-normous homes in N. County and he is now being harrassed (sp.?) by the owner to either buy this place or be allowed to put it on the market so the owner can sell the place. good luck. This particular owner had no problem telling my friend that he owns multiple homes in Ca. and elsewhere and is losing money fast. On this particular home in question the owner is losing over 2200k/month because that is the difference between the rent and the mortgage. My friend signed an 18 month lease and he has another year on the lease.

I told my friend he better seek some legal advice as this situation is going to get dicey in the coming weeks.

“End of line.”

[PerryChase]

If you have a lease, there’s nothing much the owner can do until the lease expires. The owner can put a for sale sign but you don’t have to allow strangers into “your” home. With a lease the house is “your” home for the lease period. The owner can sell the house, but you can remain.
I’m sure that a real estate lawyer would confirm that. If I were a renter, I’d just sit tight.

[bmarum]

Some interesting stories here. I can’t believe that these owners are willing to so freely tell their tenants they’re losing money hand over fist. I would have thought that most people would keep that a bit closer to the vest.

[Diego Mamani]

Us renters will help prop up house prices in the near future. I’m talking about those of us who sold at the peak (2004-06) and now are renting and sitting on large piles of cash. I don’t think we are in the majority by any stretch of the imagination, but we’ll start buying at some point (the smart ones will wait more than only 3 or 5 years).

This is why it is said that speculators actually provide a public service by making markets less volatile… See, by selling at the peak we made the peak a little less, and by purchasing on the way down, we’ll make the trough less deep.

When we taught this in a microeconomics class in college, many kids were shocked: they had been taught that speculators are always evil people. The point is that markets work, and capitalism explains why some countries end up like Cuba or the late USSR, and why others end up super rich like the USA.

[no_such_reality]

He rolled the dice.

Frankly, I know how my landlord did it, he just took a fairly big calculated risked to do it.

I’m assuming he had an ARM with a low teaser when I moved in. I know he just refi-d about 3 months ago. Not sure if he did long term or another ARM – teaser.

Originally when I moved in, I knew purchase price, HOA and property tax (ah, the joy of public records). With then current long term rates, he was upside down, breaking even on a TEASER and showing a slight positive cash flow from the tax benefit of claiming the depreciation loss.

At current rates, just crunching them now, if he long term locked @6.5% he’s upside down after taking the loss and depreciation tax benefits, but only by $1000 or so a year.

If he was smart, he long term locked, pulled $100,000 of equity out and is sitting on a yearly negative cash flow of $4000. Which gives him 25 years to ride it out.

[tangouniform]

Heck, yea!

I’m renting from someone who quit his job so he could wheel-and-deal full time in the LA RE market as an agent and a loan officer. The place I’m in is heavily leveraged (an 80/20 no-down deal that was re-fi’d to get funds for other purchases) and my rent is only about 60% of the monthly PITI expense. He’s got four other properites like this and he bought a new construction SFR for about $1M last year. I know all this becasue his wife is a little too loose with her tounge when it comes to their dealings…I think that she thinks that she’s showing how smart he is.

Last year my rent checks cleared about 14 days after they were sent. Since May my rent checks have been clearing 1 or 2 days after they were sent…hmmmm.

But I’m not worried. He’s still making money hand over fist selling homes and doing re-fi’s, right?

I got out of the LA market and sold in summer 2003 when I saw that things were going crazy and I made 100K on the SFR I bought in 1997. Hindsight’s 20/20 but any profit’s better than no profit and I thought that things wouldn’t climb much higher back then.

[no_such_reality]

Argh, mental note, don’t fix typos after posting if it catches your eye. It moves the posting to new.

Anyway, I’m surprised too at how much risk “investors” would take. I laughed at many tri-plex/4plex sales that my agent sent me.

Literally, you couldn’t cover even cover the interest on a 1-year ARM with great teaser rate, let alone allow any vacancy loss, property taxes, maintenance or management fees.

Maybe I’m old school, but if my monthly rents won’t cover my PITI, maintenance and fees, it’s a no go. The profit comes from rents > costs being “tax free” since depreciation wipes the “profit” out.

[svferris]

I had these same concerns when my wife and I were looking for a place to rent just recently. The last thing I wanted to do was end up in a place where

1. The house would be foreclosed on
2. The owner would try to sell it while we’re living in it
3. The owner would be so desperate to make their payments that I’d see big increases in rent.

So, when we were looking, I used the public records information (via MLS) to find out when the places were bought, for how much, and how much was mortgaged.

My wife and I lucked out and found a great place in Torrey Highlands where the owner put up a large downpayment for the place. We’re paying under the comps for rent. I ran the numbers and it looks like after mortgage, HOAs, taxes, etc., he’s still profiting pretty well every month. And the previous tenants who were there for 2.5 years said he never raised the rent, and in fact, didn’t even raise it for us from what they were paying.

So, I’m definitely not worried. The owner did mention he may want to sell in a couple of years. Personally, I think he’ll change his mind when he sees that the value of his house is below his purchase price by that time.

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