The housing market isn't what the government wants us to think it is...

[zeitgeist]

If I had the money, I would be buying rentals - affordable for me but also affordable for renter. Around here, a 3 br apartment in a nice area is going to be within a hundred or two of $1000, depending on amenities. I think if you can buy houses that are competitive to a nice apartment,  renters with kids would prefer a house. ,

Several years ago I ran across an older guy who owned a couple houses in the neighborhood as rentals which he said were his retirement income.  I would guess he has been doing this for at least twenty plus years.  His tenants usually only stay a couple years sometimes they have kids other times he has rented to groups of singles.  In any event last I knew he was getting around $14-1600 for a three bedroom on 1/8 acre lot and I suspect that is without utilities (I know one place is propane the other may be oil).  These properties would probably currently be valued in the 190-230k range but had an initial purchase cost between 20-60k (25+ years ago). They have had normal maintenance, maybe a furnace or roof, that type stuff but certainly no fancy designer kitchens or spa tub stuff.

I had a rental close to ten years with the same tenant.  Before I sold the house I made the tenant a good offer to purchase it.  They didn't want the maintenance or ownership hassle.  It was a four bedroom in fine shape with a landscaped acre lot and went for around 130K around 2000. My accountant was marvelous at taking care of the financial end as I had made improvements, taken depreciation, and bought the house as part of my divorce settlement (which obviously changed the cost basis). There are a lot of things to consider in the rental / ownership business which I suspect a lot of people may be unaware. I finally got sick of having the headache of maintaining two places, one of which was a forty five minute drive away.   

You can only defer income for so long on rental property if I remember correctly.  Perhaps someone more familiar can speak to that aspect. I do know that I rented the property at about break even and was able to make profit on the increase in value over time after all tax considerations. I have never really done an analysis to see if I could have beaten the rate of return in the market.   Even the best tenants can get to be a drag after a while and never, ever, ever rent to friends or relatives.  It is a sure fire recipe for problems. 

[obumazombie]

The best way to rent a house is to live in it first for 5 years the way I understand it.

[debk]

This came in an industry email today...

RealtyTrac reported an increase in foreclosures filed in recent months, and many agents are reporting that they're seeing more REO inventory coming out in their neighborhoods.   Although REO activity has dropped from the peak in 2010, we are still "54 percent above the historical average prior to the housing crisis", according to RealtyTrac.  Ever since home values began to stabilize, banks have been repositioning and starting to dump their shadow inventory

I know I have been busier this last quarter.

[Lacarnut]

Several years ago I ran across an older guy who owned a couple houses in the neighborhood as rentals which he said were his retirement income.  I would guess he has been doing this for at least twenty plus years.  His tenants usually only stay a couple years sometimes they have kids other times he has rented to groups of singles.  In any event last I knew he was getting around $14-1600 for a three bedroom on 1/8 acre lot and I suspect that is without utilities (I know one place is propane the other may be oil).  These properties would probably currently be valued in the 190-230k range but had an initial purchase cost between 20-60k (25+ years ago). They have had normal maintenance, maybe a furnace or roof, that type stuff but certainly no fancy designer kitchens or spa tub stuff.

I had a rental close to ten years with the same tenant.  Before I sold the house I made the tenant a good offer to purchase it.  They didn't want the maintenance or ownership hassle.  It was a four bedroom in fine shape with a landscaped acre lot and went for around 130K around 2000. My accountant was marvelous at taking care of the financial end as I had made improvements, taken depreciation, and bought the house as part of my divorce settlement (which obviously changed the cost basis). There are a lot of things to consider in the rental / ownership business which I suspect a lot of people may be unaware. I finally got sick of having the headache of maintaining two places, one of which was a forty five minute drive away.   

You can only defer income for so long on rental property if I remember correctly.  Perhaps someone more familiar can speak to that aspect. I do know that I rented the property at about break even and was able to make profit on the increase in value over time after all tax considerations. I have never really done an analysis to see if I could have beaten the rate of return in the market.   Even the best tenants can get to be a drag after a while and never, ever, ever rent to friends or relatives.  It is a sure fire recipe for problems. 

My parents had 3 rental houses at one time. I had to paint, fix them up and collect the rent. I was a happy camper when they sold the last one. Their capital gain taxes were lowered by selling the house in installment payments over a 5 year period. In LA taxes are low even without the homestead exemption. That is something to consider along with insurance costs on rental property.

Last year my net cash flow on my beach condo was 5% after all expenses, insurance and taxes were taken out. It rented approximately 85% of the time on a weekly basis. I combined business with pleasure with 5 trips last year. Made sure the business portion doing repairs and maint. was greater than the pleasure part so that I could take mileage and meals on my 500+ mile round trips. Taxes and insurance is much higher in Florida than where I live. Purchased a new car this year so I can take an extra $10k bonus depreciation plus mileage at .55 per mile for vehicles where the usage is for business. Another benefit of rental property is a 1031 IRS exemption transfer that allows you to sell a rental property and buy another of equal value or high value. You must have a lawyer or financial agent to do the transfer in order to be valid.

I have a great manager who lives close to my condo and oversees it when renters leave. I lucked up in that regard cause she has been renting mine and one of hers for many years. However, renting is not all gravy if you do not get your ducks in a row. 

.   

[debk]

Just got this in an email from a lender friend. She does Wells Fargo mortgages.

There are a few areas of concern that will have an immediate impact on our daily business. 

 

The IRS has suspended all 4506T processing.  With no guidance from investors or the agencies on this topic we are basically in a holding pattern and following current procedures that state we cannot close a loan with verification of the W2 or tax returns used in the file.

USDA commitments  will cease this morning and any USDA loan in the system without a commitment issued will not be able to close.

FHA/VA will continue to insure and guarantee loan files, however any manual request (example: requesting a case number be cancelled to allow a new case to be processed) will not be processed.  Currently both the VA Portal and FHA Connection are up and running so we can order case numbers, however if either system goes down it may take an extended period to get back on line.

For existing and new customers who are government employees, verifications of employment may be delayed or impossible to obtain during the shutdown.  Those government employees who are furloughed will not be able to close on a mortgage until the government is up and running again.
 

As additional issues arise over the next few hours and days, we will be sure to keep you up to date.