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.
Bio:
Mike is a focused, aggressive real estate investor, who takes pride in avoiding
banks to buy investment property.
Mike realized early on he MUST have a strong foundation to grow quickly and
safely. Mike has reviewed many property management software programs only to
discover they fell short of what he needed. Mike has spent thousands of hours
tweaking and researching Quicken and QuickBooks Pro. His method is getting the
results that he needs.
In May 2002, Mike was invited to be a featured speaker at a regional conference
of CPAs and the rest is history. His simple laid-back street level teaching
style is easy to understand and benefits all levels of investors, from the
beginner to seasoned veteran.
Successful investing utilizing tenant tracking and effective property management
and bookkeeping techniques enabled Mike to retire in March 2000 after 13 years
as a Louisville Police Detective.
He was featured in Money magazine, June 2001, in the article “Can Real Estate
Make You Rich?”. Mike Butler is a Kentucky licensed real estate broker, a
realtor, member of KREE, and a charter member of NARPM.