Median rents rose 2 percent from February 2011 to February 2012, but home values continued to fall, declining 4.5 percent during that period, according to the February Zillow® Real Estate Market Reports.The Zillow Rent Index (ZRI) showed year-over-year gains for nearly 68 percent of metropolitan areas covered by the ZRI. By contrast, only 8 percent of metro areas covered by the Zillow Home Value Index saw home values rise.The rental market remains strong, especially in areas that continue to experience consistent home value declines. Chicago metro rents, for example, increased 8.6 percent over the past year, in comparison to an 11 percent fall in home values over the same period. In the Philadelphia metro, rents are up 14.8 percent annually while home values have fallen 5.4 percent year-over-year.Foreclosures continue to be a key driver in keeping home values down. Foreclosure re-sales made up 20.3 percent of all sales in February, slightly higher than their previous peak of 20.2 percent of all sales in March 2011. Foreclosure re-sales made up 19.1 percent of all sales in February 2011.Foreclosure re-sales are strongly affected by seasonality, and January and February are typically months with high percentages of foreclosure re-sales.“We have made it through the worst of the housing recession with a bottom on the horizon, but the deep backlog of foreclosures, elevated negative equity and high unemployment are all still obstacles on the road to recovery,” said Zillow Senior Economist Svenja Gudell. “The rental market remains a bright spot in the housing market, where many markets, especially hard hit ones, are experiencing significant annual rent appreciation and drawing the attention of investors. Converting distressed and vacant properties into rental units will reduce the oversupply of homes and speed up the recovery process.”In the short term, national monthly rents declined slightly from January to February, falling 0.5 percent to $1,212. Home values fell 0.5 percent during the same period to $145,400.The full national report, in its interactive format, is available at www.zillow.com/local-info.
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Video: Chattanooga beats the housing bubble.
Local real estate experts discuss whether investing in Chattanooga properties is a sound move.
Read the story Here By Christian Bruce.
Best Bang-For-The-Buck Cities
Francesca Levy, 11.30.09, 06:00 PM EST
Solid housing markets, relatively stable
employment, enviable cost of living and quick commutes make these metros among
the country's most affordable to live.
Click here to read full article
Full List: Best Bang-For-The-Buck Cities
Locating a desirable spot to settle down means something quite
different today than it did just three years ago. That's when Americans flocked
to coastal and Sun Belt cities like Orlando, Fla., and Las Vegas, where
properties were easy to acquire and home values were expected to noticeably
Now, with home prices nationwide down 29% from their 2006 peak,
according to Case Schiller, areas that were left behind during the home-building
and home-buying craze suddenly look more attractive. Buying an affordable home
in a city with a stable housing market, among other pluses like reasonable
property taxes and minimal travel time to work, is the new definition of bang
for the buck.
Take Des Moines, Iowa. With low unemployment, at 6%, few vacancies
and a promising home price forecast, the real estate market shows fresh signs
of robustness. And its home prices make it possible for budget-conscious home
buyers to get in the door--it scores above average for home price
Like it, most of the large metro areas that we found to offer
housing bargains were somewhat insulated from the overzealous issuance of
subprime loans and subsequent wave of foreclosures, making their job and home
price outlook modestly better than cities in the rest of the country.
Cities from McAllen, Texas (No. 7), to Greenville, S.C (No. 20),
and Chattanooga, Tenn. (No. 8), that have faced a host of economic problems,
are now seeing a silver lining: Housing speculation stayed in check in these
areas because there was little to draw buyers in the first place. As a result,
housing is relatively stable, affordable, and positive employment trends hold
promise for the future.
"These are sleepy little markets that have fallen under the
radar screen in terms of turbulence in housing," says Kermit Baker, a
senior researcher at Harvard University's Joint Center for Housing Studies.
"They didn't go through much of a boom or bust."
While rent rates will continue to fall in the short term, long-term demographic and the labor market trends remain favorable and the point to opportunities for the apartment industry in the coming years, according to Marcus & Millichap Research Services' National Apartment Outlook for January 2010.
The firm predicts that employers will add approximately 1 million jobs nationwide in 2010, primarily in the second half, with a more vigorous rate of growth expected in 2011 and 2012. Vacancy will edge lower to high 7 percent range, but asking rents will recede 1.7 percent, accompanied by a 3 percent drop in effective rents. The report attributes the decrease in rents to continuing weakness in metro areas hardest-hit by the housing crash. Significant rent growth will not resume in most markets until early 2011 as improvements in demand accelerate.
Falling NOIs and property prices have made new development economically impractical in many markets--development is expected to drop to 65,00 units in 2010, the lowest level since 1995, according to the report.The decrease in development could be a boon to existing apartments as a population surge over the next three years will drive vacancies lower and offer the opportunity to raise rents. In 2010, only one apartment will be built for every 15 people entering the prime renter demographic, aged 20 to 34, compared with an average ratio of 2.6 people for every new apartment in the first half of this decade. Adding to the strength, recession-stalled households that would have been created in 2008 and 2009 will begin to form in 2011 and 2012 as the economy builds momentum.
Source: Marcus & Millichap Research Services Apartment Outlook
Freddie Mac Reports that the multifamily housing sector is experiencing record vacancy rates because of two primary factors--- rising unemployment and low household formation. Indeed, high jobless rates among teenagers (27 percent) and 20 to 24-year olds is forcing many to postpone household formation or to move back with their parents or friends laments Freddie Mack chief economist Frank Nothaft.
Additionally, apartment vacancy rates have moved up in many markets as federal tax credits for first-time home-buyers have encouraged more renters to become homeowners. A recent Census Bureau study showed that the vacancy rate on communities with 10 or more apartments was 13.5 percent as of the end of Q3 2009. For apartments-built since 2000, Nothaft adds that the vacancy rate is 23.2 percent "reflecting in part the slow rental rate of newly built dwellings."
The economist went on to quote a National Council of Real Estate Fiduciaries report, stating that multifamily property values have declined 29 percent from their mid-2008 peak. Finally, the FDIC states that the number of multifamily housing loans 90 days or more past due have doubled since 2008, topping 3.6 percent in 2009's July- through-September period---the highest since 1993.
Source: Structured Finance News
During the past two years several of our clients have lost property to foreclosure. Often they don’t notify us or consult with us about their circumstances. They just decide one day that they are no longer willing to carry a property with a negative cash flow so they stop making payments. But there may be significant tax consequences for the client that loses the property thru foreclosure or a short sale. The investor may still owe Capital Gains Tax, tax on Cancellation of Debt (COD), and/or tax on the recapture of depreciation deductions taken on the property. What is Cancellation of Debt? (From IRS.gov) If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt. Here’s a very simplified example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you. Here are two examples to illustrate the problem: Scenario 1 – An investor buys a rental house in 2005 for $160,000 and gets a $152,000 mortgage (we saw several deals like this in our market back then). Now the investor is experiencing a negative cash flow of about -$300 per month. So the investor stops making payments on the property. The lender forecloses and the property is bid in at the courthouse steps by the lender for the mortgage balance of $150,000. Since it “sold” for the amount of the mortgage, there is no cancellation of debt. The investor depreciated the property over 5 years for a total of $27,000. Now the investor will owe the tax (25% Federal) on recapturing those depreciation deductions which would be approximately $6,750. Scenario 2 – An investor buys a rental house in 2005 for $160,000 and gets a $152,000 mortgage. Now the investor is experiencing a negative cash flow of about -$300 per month. So the investor stops making payments on the property. The lender forecloses but since the property is now worth much less today it is sold on the courthouse steps for $130,000. The investor’s outstanding loan balance at the time of sale is %150,000. So the investor has a $20,000 cancellation of debt which could be taxed as ordinary income. The investor depreciated the property over 5 years for a total of $27,000. Now the investor will owe the tax (25% Federal) on recapturing those depreciation deductions. The investor’s total tax obligation may be as much as $11,700 for just Federal tax. Then there are other ramifications due to the negative impact the foreclosure has on the investor’s credit. This could lead to higher interest rates from lenders or being denied some types of financing. All to get away from a $300 per month negative cash flow. Based on the above examples, it may well be cheaper to “tough it out” for the next 2 – 3 years then sell the property as the market gets a little stronger. Do the math first – not once it is too late. Mike Nelson, GRI, RMP, MPM is the managing broker of Excalibur Home Management, LLC which currently represent over 1100 rental houses in the Metro Atlanta area.
Now Your Question is Repair or Replace? Staying with our new EPA rules topics this week, we will now look at a new movement to save our ozone. This year the EPA has begun phasing out the production of R-22 and has banned the production of HVAC equipment that uses R-22 in compliance with Title VI of the Clean Air Act. The most common refrigerant that the new systems will use is R-410A. The EPA defines R-410A as an HFC refrigerant blend with common trade names such as GENETRON AZ-20®, SUVA 410A®, Forane® 410A, and Puron®. R-22 will be manufactured on a limited basis after this year and will no longer be manufactured after 2020. As it is difficult to predict how long supplies will last, the EPA is encouraging contractors to recycle and rescue as much R-22 to be used to continue to service units that use the refrigerant. One of the more common questions is can you just replace R-22 with R-410A in my current system and the answer is no. R-410A requires more pressure to cool therefore requiring a new compressor and piping. Both the outside and inside unit must be replaced and current piping (if it is the correct size) would need to be flushed with a special chemical. The use of R-410A, as opposed to R-22, does not affect the HVAC unit’s energy efficiency. The energy efficiency is determined by a system’s SEER (Seasonal Energy Efficiency Ratio). As of 2006, the minimum SEER rating allowed to be manufactured in the U.S. is a 13 which is 30% more efficient than a 10 rating. To receive the ENERGY STAR, a system must have a minimum 14 SEER rating. Currently, you can find a residential split-system with a SEER rating of 20 or more, but at a substantial cost over the standard SEER 13 units. A notable point to make regarding the use of systems with R-22 is that as the manufacturing of the product is reduced, the supply will become harder to find. The price of R-22 will then surely rise. While the continued use of existing appliances with R-22 is not banned nor is the EPA mandating all R-22 equipment be converted, that is a factor that a homeowner should take into consideration when faced with repairing or replacing their system. Some other factors to take into consideration along with cost is energy efficiency, reliability, and performance. The life span of the outside condensing unit is usually around 15 years and the furnace around 20 years. If your current system is around 10 years old it may be a good idea to look into replacing your system this year for a couple of reasons. One, replacing your current system with a new system that has a higher SEER rating will usually see a return on investment in about 5 years. Two, the tax credit (capped at $1500) for switching to a more energy-efficient system ends this year. Here is a link that may help answer some of your questions: http://www.epa.gov/Ozone/title6/downloads/homeownerbrochure.pdf
This is a question we hear quite a bit. And the answer is NO. As a licensed management company that operates for a fee we must abide by the Tennessee Landlord/Tenant Law and the Georgia Landlord/Tenant Law. Landlord Tenant laws defines security deposit as: “money or any other form of security given after July 1, 1976, by a tenant to a landlord which shall be held by the landlord on behalf of a tenant by virtue of a residential rental agreement and shall include, but not be limited to, damage deposits, advance rent deposits, and pet deposits. The term "security deposit" does not include earnest money or pet fees which are not to be returned to the tenant under the terms of the residential rental agreement.” State laws are different when it comes to collection and disbursements of any security deposit.· Third Party Managers are required to hold the tenant’s security deposit in a specific escrow account set up for that particular purpose. Landlords and Owners must· inform the tenant of the location of the account that is to hold their deposit. Upon termination notification, there are specific time lines, state specific, that must be adhered to in order to conduct a move out inspection. Certain notifications must be received from tenants, prior to vacating, should they request a mutual inspection. Any damage disputes must be received, in writing, specifying their dispute. In the event a tenant does not notify the Landlord/Owner of any dispute, the tenant then forfeits their right to receive any compensation for damage charges, regardless of the validity. A security deposit can be withheld for non-payment of rent, arrearages, late fees, damages, utilities, repair charges, and abandonment of the property. Each state is different as to the time frame in which a deposit must be returned and proper procedures must be adhered to when filling out the necessary paperwork and delivery of any notification concerning the deposit. Under no circumstances can any portion of a deposit be withheld for what is to be considered “normal wear and tear” to a property. The Landlord/Owner can be fined (upwards of three times the sum of the deposit plus legal fees) and forced to return the deposit, in its entirety, if improperly withheld or protocol not having been met. The importance of using a responsible management company is to ensure proper procedures are being followed in order to protect the property owner. The laws have recently changed and can be quite costly if Owners and or third party managers are not up to date.
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River City Property Management317 Sylvan StreetChattanooga, Tennessee 37405