Market Conditions: Are the Accidental Landlords Going to Try and Get Out in 2014?
We’ve chattered a lot about the “accidental landlords” in Chicago, especially on 1/1 and 2/2 condos that they couldn’t sell for a profit during the bust so they decided to rent them out instead.
Crain’s is reporting that some of them might want out of the landlord game.
Condominium owners are getting the itch, too. Fulton Grace Realty, which leases and manages condominiums for owners who have moved, is getting more inquiries from clients who want to sell, said President T.J. Rubin. The firm leases about 600 condos.
So far this year, Mr. Rubin said, the owners of 15 percent to 20 percent of those condos “are looking into selling now,” and at least 50 percent have requested market analyses “to see if the market can support their price yet.” Both figures are double what they were a year ago, Mr. Rubin said.
“Each month we get 20 new units and lose five” to the for-sale market, Mr. Rubin said. “We weren’t shedding them like that until this year.”
Most of his clients were first-time condo owners who for a variety of reasons — job change, marriage, new baby — needed to move but owed more on their mortgages than their condos were worth or were otherwise unable to sell, Mr. Rubin said. Fulton Grace, based in Lakeview, also handles condo sales, although clients are free to list their units with another firm.
“If they say their goal is just to break even and get out of it, I advise them to sell, but if their goal is to sell when they can make 10 percent, I tell them they might as well keep it rented for a few more years,” Mr. Rubin said.
Yet being landlord carries costs, too, whether it’s a rising property tax bill or dealing with a difficult tenant who calls in the middle of the night to complain about a broken furnace. Factor in hassles like that, and selling is an easy decision for some.
Is this the year we will see a rush of condos come on the market to try and take advantage of higher prices?
And if they do, will this have any impact on pricing?
With home prices rising, accidental landlords consider selling [Crain’s Chicago Business, Dennis Rodkin, March 6, 2014]
“Is this the year we will see a rush of condos come on the market to try and take advantage of higher prices?”
Rush? No. More than last year? Yes.
“And if they do, will this have any impact on pricing?”
Yes. It will probably put a cap an any price increases (5%?). The +20% a year increases are gone.
“ARE THE ACCIDENTAL LANDLORDS GOING TO TRY AND GET OUT IN 2014?”
Icarus? Sometimes I feel as if Icarus only spent time here to try to drive traffic.
“Yet being landlord carries costs, too, whether it’s a rising property tax bill or dealing with a difficult tenant who calls in the middle of the night to complain about a broken furnace. Factor in hassles like that, and selling is an easy decision for some.”
Um, isn’t that *why* you use Fulton Grace? So that *they* get the middle of the night call? If you can rent it for PITI + management fee and not come out of pocket more than a few hundred per year (or even be up a couple bucks), I would just hold on to it. Inflation + Amortization is your friend.
Considering the low down payment, HOA dues and property taxes, are any of the accidental landlords even breaking even let alone making money?
“Um, isn’t that *why* you use Fulton Grace? So that *they* get the middle of the night call? If you can rent it for PITI + management fee and not come out of pocket more than a few hundred per year (or even be up a couple bucks), I would just hold on to it. Inflation + Amortization is your friend.”?
Exactly! With rents at record highs why would accidental landlords be selling now? They are probably ok if they didn’t cash out refi or heloc the crap out of their properties
“With rents at record highs why would accidental landlords be selling now? ”
Easier tax filing, easier loan applications, less mental ‘overhead’, etc. Most people don’t want to deal with that stuff for $1,000/year. Obv if the place were cashflowing $1k/month, that’s different, but also more likely that you could cash out net ahead in a sale.
Still, that’s your basic path from renter to mini-trump–start with something that makes a little money and use that to acquire more places that do the same and keep trading up.
Ah, good old 1400 LSD. Spent a summer in an alcove studio there. An inexpensive way to live in a great location, but from what I could tell the building has more than a few accidental landlords.
“Fulton Grace? So that *they* get the middle of the night call?”
I assumed such places must exist but interesting to see incl the pricing. Still, as you suggest, I’d need some significant upside to make it worthwhile even when someone else is managing.
“Considering the low down payment, HOA dues and property taxes, are any of the accidental landlords even breaking even let alone making money?”
I know someone with a 1-bedroom in the gold coast that is losing about $150 a month. If they sell, they are still underwater in terms of when they bought it. So that’s why they aren’t selling. They’d rather lose the $150 a month.
I’ve been getting more calls lately from accidental landlords. They are typically losing a little money each month. Basically if they would have to bring $10K to the table and are losing $100/ month they are effectively borrowing money at 12% interest. So there are 5 classes of landlords:
1) Those that aren’t losing that much relative to the cash required to sell so their effective borrowing cost is low and they don’t need to sell
2) Those who are effectively borrowing at a high rate but don’t have the cash to sell so they have no choice
3) Those that can’t do the math and don’t know what they are doing – a lot
4) Those borrowing at a high effective cost that have the cash and want out
5) Those that have the cash and don’t care about the math because it’s a PITA and who knows when something is going to need to be repaired or when home prices are going to head back down so they just want out.
Sadly, I understand these people who’d rather die by slow deterioration than experience the shock of the surgery that would cure them. It’s human nature. I’ve done the same thing before myself, both in matters financial and in other areas of life as well. And, often, people in this situation just don’t have the cash to bring to the table and will have to pay down a deficiency for years afterwards.
Your accidental landlords see hope in the rising prices of the past year and figure, why not wait another year and maybe rising prices will float my boat. And if they’re in Lincoln Park or the Gold Coast or some other super-prime location, that just may happen, even though when they calculate their carrying costs over their waiting period, they’d probably be better off just taking the small, final hit now, and getting on with their lives.
But elsewhere in the city, in moderate-income areas like Rogers Park, W Ridge, Galewood, and many others, they are just going down “the slope of hope”. I see many of the same properties on the market in Rogers Park, West Ridge, and Peterson Woods, to name a few areas, that have languished there since I was in the market last year. Only those that make steep adjustments in their prices, or are in absolutely perfect, rehabbed condition, are selling for improved prices, and those prices are still nowhere near the 2006 lunatic peak. I don’t expect they will be for a long time.
By the way, the beautiful house at 3007 W Hollywood, is still on the market at $899K. It’s empty now. I suspect the seller will have to make a pretty major adjustment in the price to get it sold.
“Those that can’t do the math and don’t know what they are doing – a lot”
” And, often, people in this situation just don’t have the cash to bring to the table and will have to pay down a deficiency for years afterwards.”
Regardless of income. I have learned that given 2 choices. 1 clearly better than the other on an NPV basis, but requires a cash outlay, or worse, one where there is an immediate receipt of cash for making the poorer decision, almost everyone will make the wrong decision. You can pound your head against the wall trying to explain it over and over and they will still make the wrong decision.
Eventually I learned to stop pounding my head… better energy spent seeing if u can play against them or trying to pound your head against something 18- 24 yrs old :-)… and leave them to go to HuffPo and complain about income inequality…
“I see many of the same properties on the market in Rogers Park, West Ridge, and Peterson Woods, to name a few areas, that have languished there since I was in the market last year. Only those that make steep adjustments in their prices, or are in absolutely perfect, rehabbed condition, are selling for improved prices, and those prices are still nowhere near the 2006 lunatic peak. I don’t expect they will be for a long time.”
This is the truth Laura. But this is also remarkably true even in Lincoln Park and Lakeview. There are a few upper bracket properties (houses and condos) that I have cribbed about for years. Just lower the price and be done with it! Can you even imagine having a property on the market for 4 or 5 years???
Last year was the hottest market since the boom (at least the first half of the year.) If you didn’t sell then, you basically missed out selling at what will likely be peak price for several years to come. No income growth plus rising mortgage rates doesn’t make for a great combination for sellers choosing to “wait it out” and “get back to breakeven.”
Although, I’m seeing some ambitious sellers in places like Norwood Park attempting to get MORE than the 2006 purchase price right now. If they get it, more power to them. But it’s hard to believe that prices are now higher than the peak bubble in those northwest neighborhoods.