There are more renters in the market than ever before, property managers are reporting, and that could mean good things for the real estate market.
University of Central Florida economist Sean Snaith warns that a real turnaround in the market will not happen until the unemployment rate — hovering just below 12 percent in Orlando — goes down, but because demand for rentals has increased, more property investors are getting back in the game.
Instead of flipping a property — a trend reminiscent of the most recent real estate boom — investors are purchasing low-priced properties and renting them. With condominiums and town homes selling as low as $20,000, Jennifer King of Kelly Price and Co. said many investors can make their money back in less than two years.
“I think it’s a great thing,” she said.
There are several reasons more people are looking to rent. First, banks are tighter with their cash, making it hard to get a mortgage. Second, many people have credit records tarnished with short sales or foreclosures. And third, people are still too wary of the market.
King even encourages house hunters to rent if they’re not planning on being in the home for at least three to five years — the time it takes to get a return on their investment.
“There are more people looking for rental properties than ever before,” she said. “The high demand for rental properties is driving rental prices up. It’s simple supply and demand.”
And more people are willing to drop big bucks on a rental house because they want a certain lifestyle, but do not have the credit to own it.
“A home renting for $5,000 is much more attainable than buying it for $1.5 million and not knowing if the market will stabilize or not. It’s quite frankly becoming the new American dream.”
The plight of the boom-time investor
Of course, it’s not all a pretty picture out there. Investors who bought in the boom are struggling to keep their property while staying competitive with other rentals.
Val Scott has been on both sides of the foreclosure issue.
She has been unable to make full payments to her lender ever since the tenants in her investment property stopped paying the rent.
The East Orlando woman bought a $175,000 duplex home in Pine Hills during the tail end of the housing boom.
“The prices were running away, and I figured I needed to buy now,” she said of the purchase. “Everything was going well, the properties were being rented, but then my tenants became unemployed,” she said.
She had to evict those tenants but two more sets of renters came and went without paying a dime — they’d pay a deposit, move in, the check would bounce and Scott would have to spend her time and money evicting them. This summer, she applied for a loan modification with her bank to reduce her monthly payments.
To qualify for the modification, she said her bank told her to stop making payments. She did, and three months later, in August, she received a foreclosure notice in the mail. This was devastating news, considering the mother of two was counting on the property as an investment for her retirement.
“I always paid bills on time, I had good credit and the fact that this house went into foreclosure made my credit go down the drain, and I’m in turmoil,” she said. “It’s a very bad feeling.”
Of course, it’s not just the owners of a defaulting home who are affected by foreclosure. Ray Wofford, owner and broker for Archer Crown Residential Management, said he is seeing more clients coming to him after being evicted from a rental house that, unannounced to them, was in foreclosure.
However, he is noticing an emerging trend of renters who are doing their homework before moving in. Many of them know the tell tale signs of foreclosure — records from the property appraiser or tax collectors — and avoid those properties.
When a bank takes over a home, it cuts out the property manager. This has hurt many companies, including Archer Crown. But he said the strong showing of investors getting back into the market has helped considerably.
“Those properties are coming back to us. It’s a 360-degree circle there,” Wofford said.
The short end of the short sale
It’s rare to see prices as low as those attached to the short sale or bank-owned property. But often times, especially with short sales, there are strings attached.
The job of the real estate agent has changed drastically since the recession took hold of the real estate market. Whereas sales between the owner and seller of a property were clean cut, short sales can be a sloppy, drawn-out process that keeps realtors, buyers and sellers guessing.
“There’s never a guarantee with a short sale,” said Keller Williams Realtor Brenda Kolbrich, who works mostly in Avalon Park.
And the Orlando area is chock-full of these types of sales, according to Matt Englett of Kel Attorneys, which is currently handling more than 6,500 foreclosure clients in Central Florida.
Englett said the majority of foreclosures are happening in areas like East Orlando, which experienced great growth and price inflation during the boom. More established areas like Winter Park and Maitland, where fewer new properties were built and prices increased steadily, were not hit as hard.
Bank-owned homes are easier to deal with, Kolbrich said, because the banks want to unload the property quickly. But with short sales, the seller, buyer and banks must all agree on a price, then the bank will ask the seller for a payment smaller than the gap between the loan and the selling price to settle the deal. This is when a lot of sellers walk, sending months of work down the drain.
But still, many realtors are embracing the task since the market has become saturated with these types of sales. The Orlando Regional Realtor Association even has a short sale class for realtors.
“It’s been going on for three years, and the procedures are getting more defined and short sales are going through faster, but there is still no guarantee,” Kolbrich said. “Hopefully we won’t have to deal with it for a long time. I see about two years, depending on what the federal government does too.”