As foreclosures rise, so do apartments and tax delinquencies. Post 52

TENNESSEAN.COM

Friday, 08/31/07     By Noelle Knox

Rentals boom as American dream fades

As mortgage rates rise, demand for apartments swells

USA Today / Chris Ervin is renewing his lease at the Kirkway Apartments outside Detroit. Even if he and his wife, Rachel, wanted to buy a home, Ervin doesn’t think they could qualify for a loan now that so many mortgage lenders have raised interest rates, tightened their standards and axed loans for people with bruised credit.

“There’s a whole segment of the market right now that can’t buy. People are pretty much being forced to rent,” Ervin said. “Our credit is not the greatest; we’d probably be in that segment right now.”

But there’s another segment of the market that’s increasingly being forced to rent:  people who are losing their homes through foreclosure.

Tougher times ahead

During the real estate boom, a record number of renters bought homes as interest rates fell and lenders eased their standards. Now, the reverse is true. If the home-ownership rate falls over the next two years from 68.2 percent back to its 2002 level of 67.9 percent, Nadji estimates, it’ll translate into 2.3 million households entering or re-entering the rental market.

Renters will suffer less in some markets than in others. Apartments should be widely available, for example, in parts of Florida, where the explosion of condos swamped demand. Many of those units are becoming rentals. The vacancy rate in Tampa Bay is up to 10 percent from 6 percent a few years ago.

Rental demand to rise

The units that are returning to the rental market, though, tend to be pricey. …One out of four of the nation’s 33 million renters spent more than half their income on rent in 2005…up from one in five in 1997.

Over the next five years, the demand for apartments is expected to swell to 430,000 units a year …That projection exceeds the expected construction of 250,000 new apartment and condo units a year, according to Marcus & Millichap.

Good time for landlords

It’s a good time, he said, to be a landlord: “Occupancy has gone up several points, and concessions have burned off. The rental market is again looking good now and for the long term.”

Part of the reason, Donges agrees, is that people who are losing homes in foreclosure are signing apartment leases.

Nearly 2 million Americans were behind on their mortgages at the end of March, 2007…Also at risk: Millions of homeowners who aren’t building equity in their homes because their mortgages allow them temporarily to pay only interest, not principal, at a time when home values are falling.

For the entire article goto:  http://www.tennessean.com/apps/pbcs.dll/article?AID=/20070831/BUSINESS01/708310393

************************************

Coach Mitch’s REFLECTIONS

Disaster Awaits

Lots of foreclosures have happened and many, many more are on the horizon. This bodes poorly for people who did take a chance, and lost, and for those who did not plan. I fear that there could be blood in the streets. This could be very serious for our economy for a long time. Remember, a foreclosure is one of the worst things that can be on a credit report.

Foreclosures will remain high

So said Alan Greenspan, just the other day, and he should know. When the policy of the Federal Reserve is to have easy money, then banks lend, lend, lend. However, when the monetary policy changes to tighten the money supply, then banks raise interest rates and they increase the standards needed to get a mortgage.  The credit standard that the bank ignored yesterday, is the point upon which you are turned down today.

It is anticipated that another two million foreclosures could hit the marketplace in the coming year. Almost none of the homes will have any equity build up.

Banks are protected to 80% of the mortgage because of the mandated PMI, Private Mortgage Insurance, which will cover the first 20% of the mortgage. That is, for as long as the PMI companies can cover the losses. Expect PMI costs to rise in the future, just as property taxes rise after a hurricane.

Apartments rise

With tight money, regular mortgages are hard to get. Therefore, it is logical that people will go back into the apartment marketplace. First, rents will stabilize; then, rents will rise as more foreclosures occur.

Commerce does not end

Some people need to sell their real estate. These folks will recognize the reality of the current mortgage situation and make a difficult choice:  either they will rent or lease/option the home themselves or they will sell the home, probably Subject To The Existing Financing and hold a 2nd mortgage for any profit or they will do a Wrap-Around mortgage.

During the high interest rate period of the early 80’s people made private deals because they had to sell. During the mortgage slowdown of the early 90’s, people made private deals because they had to sell. Commercial activity has always been this way. I have heard that 80% of all commercial transactions have some amount of private financing involved to make the deal happen.

Tax delinquencies follow foreclosures

Get ready. There will be a marked increase in the number of tax delinquencies. Remember, all the folks behind in their mortgage, also do not pay their taxes. Most often the banks holding the mortgage will pay the taxes, so buying the tax lien certificates on significant houses is a tried and true method of creating safe passive income.

As the TLC investor, you pay the taxes on someone’s property; you get the TLC, Tax Lien Certificate and a 1st lien on the property. The bank eventually pays the taxes and you collect a handsome interest rate of return.

Sometimes there is an error and the paperwork gets mixed up because of the number of times the mortgage notes are sold between banks. The house goes through the tax deed auction and the owner and occupant is noticed that he must vacate his own home even though he has been paying the mortgage with the taxes all along.

A bonanza

As the investor who purchased this home at the tax deed auction sale, you are in a very strong position to help the bank to not become embroiled in a major law suit. You can demand and get a sizable reward for selling the home back to the bank. The bank will then restore the home to the owners and hope the owners will forgive and forget the banks mistake.

This happens regularly. So much so that Country Wide has a department of six people whose task it is to recover these homes which were taken and sold in error.

Sad state of affairs

As foreclosures rise, so do apartments and so do tax delinquencies. It is not your fault that many people did not plan their finances well, however you can benefit your finances by understanding this phenomena and planning for it. If you own property that you want to be out of, probably your best chance to sell is now – while banks are still lending – somewhat.

See Coach Mitch’s “Ridiculously Simple System…” ™ for details.

Make smart decisions,