Real Estate Investing

The escalating rate of home foreclosures is turning more homeowners into renters, but it’s also turning more renters out of their homes. One aspect of the foreclosures crisis addressed recently by USA Today is renter eviction because the landlord defaulted on the home loan. Many of these unfortunate renters recently went through the foreclosure process themselves, so this is doubly traumatic.

Rental units are at an all-time premium now, because demand is high and so are rental rates. So one can imagine how immensely difficult it must be to have the hard-won rental property yanked out from under foot. About 18 percent of foreclosures started in 2007 involved “non-owner-occupied homes,” USA Today reports, citing a Mortgage Bankers Association study.

Maryland Real Estate Blog points out that renters who have signed a lease-purchase agreement with higher deposits are in an even worse position than the typical renter.

“They are in the unenviable position ‘between a rock and a hard place’ — with a lease in place that requires them to stay and continue making payments to the landlord; unable to move to another property without losing their substantial security deposits.”

Although renters obviously aren’t accustomed to doing background checks on the landlord, some limited form of that may be a necessary thing nowadays. Checking whether the loan on the rental property is in default can save a lot of trouble and heartache down the road.

Homeowners who bought in with the impression that their new neighborhoods were elite are actually seeing more “For Rent” signs cropping up around their neighborhoods. Deluxe kids’ playgrounds and Mercedes are being replaced by yellowing lawns and dark windows. Newsweek had an amusing article about “Solitude Point Avenue” in Henderson, Nevada’s prestigious Black Mountain Vista community. Solitude Point is a street with former half-million-dollar duplexes, many of which now sit dark, empty and neglected. Quite an ironic street name, don’t you think?

In many cases, condos and luxury homes are going up for rent or auction, like concert promoter Jack Boyle’s McLean Mansion in the D.C. market. The $10.3 million, 25,000-square-foot home was auctioned in August for an undisclosed amount after Boyle tried unsuccessfully to sell it on the market. We’ve discussed the new home auction trend, but now it has spread to the unthinkable, pre-existing luxury homes.

Toll Brothers, one of the nation’s premier builders of luxury homes, is reporting a 36-percent revenue drop in its fourth quarter numbers. Toll Brothers has previously been able to keep its head above water by offering incentives. CEO Robert Toll accurately stated that decreasing prices only angers neighboring homeowners who bought previously at full price. Now, the company is looking at 417 cancelled contracts at an average of $788,000 each. The average value of the contracts that did not fall through was $557,000. One wonders whether Mr. Toll will change his perspective on price decreases.

So how are luxury homes faring? Not well. The picture is pretty bleak. Amongst endless speculations as to the cause and the cure, one thing’s for sure - this is going to be one fascinating train wreck to watch.

Plenty of landlords avoid renting to college students, envisioning drunken all-night boozefests, a rotating door of overnight guests and extensive property damage. But seriously, why overlook a perfectly good market because of a certain percentage of bad apples? College student housing is one of the most stable and reliable investments a person could hope for. The market is constantly being replenished with more demand so the availability of renters is never in question, no matter the condition of the housing market.

In some cases, there is simply nowhere near enough on-campus housing to meet demand and nowhere near enough money to build more. Colleges often encourage their older students to migrate off-campus, thus making room for incoming freshmen on campus. For instance, look at the University of Florida, where about 80 percent of the student body lives off campus. Nearby residential complexes can charge up to 30 percent higher rent than similar facilities farther away from campus. In fact, some parents in that area are plunking down anywhere from $125,000 to $500,000 to purchase condos for their college students, the Palm Beach Post reports. This from one area real estate agent, who gets 75 percent of his sales off student housing deals:

“I’ve shown parents a (smaller) condo, and they say, ‘My God, my child cannot share a bathroom!’ ” says Don Daley, a Coldwell Banker real-estate agent in Gainesville. “That just shows you (a change) from 30 years ago.”

The drawbacks to managing student housing: Rents can be harder to collect, students tend to be very transient and property wear and tear tends to be higher.

The bright side of managing student housing: Higher rents, property quality is less crucial and the investment is generally recession-proof.

Add to that the facts that the current generation of college students are staying in school longer and college enrollment is expected to increase 11 percent from 2003 to 2013, according to the Los Angeles Times. While it’s certainly not for the faint of heart or the exceedingly busy, student housing can be very lucrative. Be willing to invest the time needed to oversee property and protect your assets, and follow the general landlord rule of thumb - screen tenants, check backgrounds and follow your heart.