In addition, Fannie Mae is putting in place policies to monitor and then pursue borrows who are in default. This was stated in the announcement – “Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.” 

So what option does an owner who needs to sell but can’t have? They are going to think long and hard about the ramifications of their decisions. If they can work with their mortgage holders through a loan modification, a short sale, or even deed-in-lieu, they may be able to reduce the time down to three years instead of seven.   

The question then becomes how does Fannie Mae determine who has the capacity to pay? It will be interesting to see how this plays out in the marketplace over the next couple of years. I would be interested to know your thoughts on this new development and how you think it will impact the current housing crises, so add a comment and I will publish them. 

To read the full announcement, you can go to Fannie Mae’s site.

Often times after being with loved ones, we are reminded of the real meaning of life. Which really isn’t about the money you make, the status you have achieved, or the house or car your own. It is about making a difference in the world. Impacting the world in a positive way leaves a legacy for you that can make life much more meaningful. 

So what does this have to do with landlording and investing? Well, when Mark and I got started in the business, we had a mission to provide affordable quality housing. At that time in the market, the places that were renting in the price point that we wanted to serve were all dilapidated dumps. There was no pride; there was no quality; only poor people living in rundown shacks with neglectful landlords. Mark and I wanted to change the reality of that. Consequently, we had an investing model that provided for small houses that anyone could afford that were the nicest in town. 

We treated the tenants respectfully and provided flexibility on deposits to assist the tenants in the transition to our properties. We provided them with a little more than they were expecting. We had and still have a significant impact on the community. 

It was the basis of our investing strategy that has provided for our children’s education, a retirement plan for Mark and I, and impacted our community. So, as you think about your investment goals for the next year, I would encourage you to think about not only what you are doing in terms of helping yourself, but how your investing strategy can serve the community as well. What kind of impact do you want to have?

It is no surprise that there are a lot of homes that are upside down with the mortgage being more than the house is worth. Underwater mortgages as they are called are becoming increasingly more common.

Real estate research firm Zillow says that 23% of mortgages are now underwater. This number could easily increase to 30% a year from now. One of the major reasons for the trouble is that home values fell 12.1% Nationally year-over-year in Q2, resulting in a total 22.3% drop in value since the market peaked in mid-2006. Of course regional figures will very quite a bit, but in Atlanta, I would say those numbers are fairly accurate. Twenty-two percent of all transactions in June were foreclosures. This is an indication that people are not willing to fight to save their houses.

So what does this have to do with renting my house via lease option? Well, a lot. The whole premise of the rent to own or lease option strategy was to get top dollar for your home because you were taking advantage of someone with less than perfect credit and providing them a guarantee to purchase the home with set price of the home. This allowed for market appreciation to provide some built in equity for the tenant and worked well for all parties.

Since the market today is not appreciating, but rather depreciating, there is no built in equity for the tenant. Tenants are afraid to get locked into buying a home when in fact the home may be worth less in the future and not more. They are also more concerned about their employment stability as well as paying a fee with no guarantee that the owner won’t go into foreclosure and walk away with their option money and then they can’t recover the loss.

Another issue is credit requirements are changing rapidly. As of January 2010, FHA credit requirements will be raised to a minimum 693 FICO score. This will eliminate a lot of the potential borrower’s ability to qualify. So even if you could find a willing tenant, their odds of qualifying will be significantly reduced.

From the owner’s perspective, unless you have had the house more than 8 years, more than likely, the house value may be less than the mortgage currently on the house. So how can the lease with option strategy work unless the owner wants to take a significant loss? Taking a loss really doesn’t make sense if it can be in rental service which should be covering the payment at least and hopefully providing some cash flow.

To further complicate the matters, currently it is near impossible to determine the future value of a home. The market is way too volatile. If you had a tenant who was willing to proceed and pay for the option to purchase, determining the future price of the home would be a challenge. There would need to be some additional language that stated that the owner would sell for 5% below appraised value in order to provide enough incentive for the tenant to move forward.

So at this time, Solid Source Property Management, is not recommending to proceed with this type of arrangement as it isn’t serving either party. We are sharing with both that once there has been a successful lease term, we believe that the owner would consider an incentive for buying the property, but we would have to evaluate payment history, credit, and the market at that time. We feel that this is the better solution for this volatile market.

News of Georgia’s unemployment being over 10% is a very alarming. I have provided a link for you to view the historical data for your reference.  This means that 1 on every 10 households has someone who is unemployed. This is tremendous and will have a significant impact on the rental market as well as the foreclosure market.

Not surprisingly, over the past 2 months the number of foreclosures have also spiked up. If people are being laid off, they aren’t able to afford their homes. Currently, there are over 4,000 advertised foreclosures for August and that is only for 3 of the metro area counties. Now some of those will be able to be negotiated with the lender, but others will certainly go back to the bank. When that happens, it will put a strain on the eviction process which delays us in getting our evictions for non-paying tenants.

Clark Howard, popular local radio personality whose theme is “Save more, spend less and avoid rip-offs” dedicated a whole hour of his radio show this week to asking your landlord for rental concessions and lowering your rental amount due to the increase in vacancies. Click to read more about this show.

While we at Solid Source Property Management have seen an increase in the properties that are being rented, there are still a lot of vacancies over the metro area. We have been working hard to shorten the vacancy times and have gotten creative with our clients to do what we can to improve results.

In July, we have more than doubled the number of inquires over what was reported in June. Now we know some of that is seasonal, but part of it is also our aggressive advertising and specials.

We also found that those owners who did as we advised and either added staging items in the home or paid a higher referral fees did get their properties rented faster than those who didn’t. Only 10% of the owners who had a vacancy last month actually acted on these services, but each one that did is now occupied. So, my point is our recommendations are actually working.

I know that I have shared a lot of news with you today. The market is going to take a while to get better. Therefore, we will have to figure out how to best function with the situation as it is. While I am hopeful that it will get better sooner, we are bracing for the long term. Please know that if we can help you in any way – we are happy to do so. Contact us.

While I have not received new vacancy rates for metro Atlanta, the rate was 6.3 in an article I read from April 2009. I would guess that number has increased. So what does this mean for you and me? It means that because the competition is at the highest rate we have seen in decades, we have to get smart and aggressive with our marketing efforts.

At this time, none of our 2 bedroom homes nor condos are getting rented. Why should they when people are giving away 3 bedrooms for what 2 bedrooms used to cost? If you have a 2 bedroom like I personally do, then I recommend that you lower the rate and have it in great condition. We personally will be renting a two bedroom house less than our cost just so that we don’t have to pay for a vacancy insurance policy, utilities, and risk damage due to vandalism. Some cash coming in is better than no cash coming in.

I have been saying for a while that if you currently have a vacancy, you need to consider what you can do to as far as concessions. Also, if you currently have a tenant in the property and the lease is coming due, be prepared to make rental concessions to keep them in the property. The reality is your neighbor who has a vacancy is probably willing to give them concessions if you aren’t. We are seeing a lot of move in specials, rent reductions, free rent and other incentives out there in the market.  

We have had success with offering discounts if paid before the first. We have not had as much success with offering incentives like free stuff (flat screen TV, etc) with rental.

Raising the co-op to another agent has worked some as well. We have some investors that agree to raise the co-op. The great part about that is you only pay that if the tenant was brought by another agent, but we have seen viewings increase when that happens. While it will not make someone rent your property if they don’t like it –the increase in showings means that you have more opportunity to rent your home faster. As more and more agents are not having as much success selling house, they are turning to rentals to keep their business going. Two years ago, agents would not have wasted their time showing a rental, but today a large majority of our calls are from agents looking to place someone for some fairly quick and easy income.

All this to say, if Solid Source PM manages your property and you have a vacancy, evaluate your bi-weekly activity report. If you are not receiving 3-5 showings, then the price needs to be corrected to increase the traffic. If you are getting showings, but we aren’t getting applications, we need to find out what we can do to increase the conversions to applications. Is there something that we can fix with the home? Are we getting applicants, but they aren’t qualifying. Some of these issues we can fix, others we can’t but lets work together to see what we can do to get these filled.

The good news is that people are looking. The bad news is that they are pickier than ever. (If you missed my last update, read my June 17^th post for more about the market.) So make sure that you have your properties in order – clean, mowed, and in great shape!

I was looking over the reports of our advertising results for the last 2 month’s. As a comparison between the two months, it struck me that while the amount of potential tenant requests have remained fairly consistent between May & June, the number of viewings and actual rental contracts have dramatically increased. (Unfortunately this is a new report, so I wasn’t able to view May versus April, but I would expect that April would have shown less requests. I am looking forward to watching these trends over the next few months and will report trends as they develop.)

More interesting to me about this report was the time of day that information requests are made. In the 8:00 evening hour, there are more than 3 times the average number of requests- followed by a tie for 6 & 4 pm and then 10:00 pm. The 5, 7, & 9 evening hours see a significant drop in requests. I wonder why? In any event, this tells me that when our office is closed and we are not able to respond personally, our marketing presence is still working strong and we are capturing information that allows us to follow up with those people who are interested in our properties.

When you have rental property, having a marketing plan and system is extremely important, especially in today’s market. We need to maximize every lead and opportunity. So at Solid Source Property Management, we have several ways to get information about our properties to the public. In addition to the extensive on-line advertising that we do, we also provide 24 hour information messages for each vacant property through a sign in the yard. The prospective tenant can listen about the property and then patch through to Karen if they want to view it. We also answer our phones with a live person. A lot our competitors don’t, their calls just go to voicemail.

We call and follow up with people who have seen our properties and request feedback and information. This allows us to address any concerns quickly as well as provides us with an opportunity to try and find them another property that they might not have known about if the first property doesn’t fit their needs.

We also pay a high referral fee to other agents who show our properties which is about 2-3 times more than our competitors. Each of these steps means that we are positioned to get the most out of every request and in turn are able to fill our client’s properties as quickly as possible.

All properties need to be in excellent condition & priced correctly to rent quickly. We are recommending that owner’s update any dated fixtures/lighting, make it look and smell its best, as well as provide incentives for on-time payment. We are also suggesting that owners consider putting some inexpensive staging items in the home like colored shower curtains with matching towels and candles. This increases the emotional response and seems to have a significant impact for approximately $30-45.

As the rental market is very volatile, we are constantly evaluating our rental rates. Unfortunately with reduced on-line advertising alternatives (Rentals.com has bought out most of the smaller more cost effective sites here in GA), we are finding rental comps to be more and more challenging and not as consistent as they once were. In addition, on-line advertising costs has significantly increased, while traffic has decreased. All of this has impacted our ability to attract higher numbers of inquiries.

On a positive note, the applicants that we are getting are slightly better candidates than those of a year ago. We are easily getting double deposit for more risky tenants. It appears that one of the reason for the increase in demand for larger houses is we are finding more and more multi-generational families are applying together. It will be interesting to see how long this trend continues.

For the smaller homes, the competition has always been apartments. Below is an excerpt from another real estate agent that specializes in Multi-Family dwellings – Dale Henson.

“At the end of 2008 average occupancy in all garden apartments in the 11-county market area was 8.6%, down 250 basis points from 91.1% at the end of 2007.”

“The fundamentals of the Atlanta apartment market will very likely not begin a positive turn before mid-2010 or early-2011”

“[The large number of new apartments coming on the market that were started in 2007 & 2008] coupled with a decline in demand due to economic conditions, will push occupancy down to 87% at best by the end of 2009.”

What this means for you and me as investors/owners is that it is going to take some time for the market to turn. Rents will continue to be soft and we will have to become very aggressive in our approach to this issue.

The main reward of investing in pre foreclosures is that you can often obtain the properties at well below market value. Owners of these homes are usually motivated to sell them quickly to avoid foreclosure. They will often be willing to entertain low purchase offers so they can simply get out from under the home’s mortgage and start over.

Buying a pre foreclosure for substantially less than market value gives you the opportunity to sell the property at a large profit. You’ll need to figure in repair costs to determine if an investment is profitable, because most owners in pre foreclosure don’t have the funds to properly maintain their properties. However, the owner should allow you to inspect the home before purchase, so you can make a reasonable estimate of the repair costs before you commit to the investment.

One of the main difficulties of buying pre foreclosures is that it can be difficult to contact the property owner, particularly since you will have a lot of competition. Having a marketing system and a pre-qualifying strategy will help reduce the time spent and increase your odds of spending time on properties that meet your criteria. Since you will have to conduct quite a bit of title and lien research before pursuing a pre foreclosure, you risk wasting that time if you are unable to meet with the property owner to discuss the sale so having them contact you will help increase your odds.

Be prepared if you cannot sell the home quickly, you will want to make sure that you have alternate strategies. You may need to be prepared to incur the costs of renovating and owning the property for an extended time. It’s a good idea to have a backup plan, such as renting the property to tenants, if the home does not sell as quickly as anticipated.

This was a home that we helped our investor find and purchase in January. It was a filthy mess. We cleaned up the house, repainted, replaced the flooring, changed a lot of the light fixture, and put the home in rental service.

We have found a great opportunity for people who want tax relief by purchasing investments in the GO-Zone. We have turn key solutions including new homes, property management, builder lease backs and more.

If you want some additional information – contact Mark at 404-886-8789.