Naples

Buying a new home and renting out the old one

I picked up this article from an email that was sent to me, and thought it was very applicable to the Naples, Estero, Bonita Springs, and Fort Myers Markets.  It talks about what a lot of people are doing right now…Buying a new property and renting out the old one.  It even goes into the property management element.  Enjoy…

Buying a new home and renting out the old one

Plus, reverse mortgages and why they need to be FHA-approved

By Lew Sichelman Market Watch

Realty Q&A is a weekly column in which Lew Sichelman, a nationally syndicated columnist who has been covering the housing market for more than 35 years, responds to readers’ questions on real estate.

WASHINGTON (MarketWatch) — Question: I’m having trouble understanding the conventional wisdom that says you shouldn’t turn your existing home into a rental property when you buy a new house. The “experts” say if you want a rental, you should sell your house and buy the one next door. I understand the benefits of tax-free capital gains, but what about transaction costs and the ability to lock in a primary residence mortgage rate before you rent it?

My situation is that I have a house worth $260,000 and we owe $140,000 but would take about $50,000 of equity out for part of our down payment on the new home. The house is in a “hip” neighborhood and we could rent out for $1,500 to $1,700 and probably see appreciation. So the property would be cash-flow positive. Wouldn’t it make sense to keep our house as a rental? — Matt.

Answer: Sounds like a plan to me. The scenario you describe makes absolute sense. But the only way you can pull $50,000 out of your present abode is to refinance. And to do that, you’ll have to certify that you will occupy the place. So don’t let anyone in on your plan, especially your loan officer. And don’t buy your next house until the you have the money from the refi in hand.

By the way, I haven’t heard what you call “conventional wisdom” about selling your house and buying the one next door. But I assume that is someone’s answer to escaping places in which the owner owes more to the lender than the joint is worth. The tactic would be to buy the house next door at its sharply deflated value, and then send in the keys with a nice “see ya later” letter to the lender who holds the mortgage on your current house. The ploy will kill your credit, but at least you’ll be in your new, cheaper digs next door before that occurs.

I suppose it also would work in your case. Since you are not upside down on your loan and the house continues to appreciate in value, you could sell at a profit, use some of the proceeds to buy a new house and the rest to buy the place across the street. But if your house is appreciating, you’ve got to figure the one you have your eyes on for a rental is appreciating, too. So where’s the bargain, especially, as you rightfully point out, when you consider transaction costs, taxes and a somewhat higher mortgage rate on the new rental?

Question: Thank you so much for your response. Two different reverse-mortgage lenders told us that they would not be able to process an HECM because of the “condo” issue. If you have the name of a person or business that will help us with this, I would most appreciate the referral. —A.A.

Answer: I spoke with the folks at Generation Mortgage, another major home-equity conversion mortgage lender, and I think I know what the problem may be. The condominium in question probably isn’t on the Federal Housing Administration’s approved list. “Before an application can be taken for a reverse mortgage on a condominium project, a borrower must first find out if the project is on FHA’s approved list,” a Generation spokesperson reminded me. “A borrower can find out this information by contacting an-FHA approved lender or asking their homeowners association.”

If the project is on the list, I was assured there should be no problem. But even if it’s not, my source said, lenders “have approval processing options [that] they can exercise to gain FHA approval.”

Feedback

I like your column and read it regularly. However, you are wrong on the percentage that an agent charges for property management for rental property (residential). In your recent article “When renting out a home is the best option,” you made the following statement in answer to a question: “Hopefully, the house will throw off enough income, even after the agent’s 15% to 17% commission, to cover the mortgage payment. I’ve owned rental properties for 20 years, and have paid agents 10% to 15% to manage my property. You may want to make a comment to this effect to correct this error because the figures are way out of wack. —K.L.

Response: You’re right, sorta. I just threw those percentages out there because no one has any hard numbers on the typical commission. In truth, rental fees are all over the ballpark, and are usually whatever the traffic will bear.

Typically, ma and pa landlords pay agents a fee equal to one month’s rent to sign a tenant to a one-year lease. However, in many resort areas, rental agents ask for — and receive —something on the order of 17% to 20% or more if they have to watch the place when it is empty or have it cleaned and perform other management chores.

Naples

November 2010 FL Housing Trends

OK Everyone….Here are some home sale statistics for the state of Florida as of November 2010.  Stay tuned for additional info relating to Lee and Collier County Trends.  Naples, Fort Myers, Estero, and Bonita Springs real estate is selling and this season should be terrific…

ORLANDO, Fla. – Nov. 23, 2010 – Statewide year-to-date existing home sales in Florida showed positive momentum in October: 143,398 single-family existing homes sold for a 7 percent increase over the same period a year ago, though uncertainty over job growth, restrictive credit and foreclosure issues had a dampening effect on housing activity last month, according to industry analysts. The latest housing data released by Florida Realtors® also reported a 33 percent rise in statewide year-to-date condominium sales compared to a year ago, with a total of 59,966 units sold.

In the latest industry outlook from the National Association of Realtors® (NAR), Chief Economist Lawrence Yun said several factors are slowing the housing market’s recovery, including the recent foreclosure moratorium. “Nonetheless, there appears to be a pent-up demand that eventually will be unleashed as banks resolve their issues with foreclosures and the labor market improves,” he said. “However, tight credit and appraisals coming in below a negotiated price continue to constrain the market.” Yun called for a gradual rise in home sales as buyers respond to historically low mortgage interest rates and favorable affordability conditions.

A total of 5,147 existing condos sold statewide in October compared to 5,398 units sold during the same month a year earlier for a decrease of 5 percent. Nine of Florida’s metropolitan statistical areas (MSAs) reported higher existing condo sales last month, according to Florida Realtors. The statewide existing condo median sales price last month was $82,400; in October 2009 it was $105,200 for a 22 percent decrease. The national median existing condo price was $165,400 in September, according to NAR.

Meanwhile, in the year-to-year comparison for existing home sales, a total of 11,888 single-family existing homes sold statewide last month compared to 14,980 homes sold in October 2009 for a decrease of 21 percent. Florida’s median existing-home sales price in October was $136,600; a year earlier, it was $140,900 for a 3 percent decrease. The median is the midpoint; half the homes sold for more, half for less.

The national median sales price for existing single-family homes in September was $172,600, down 1.9 percent from a year earlier, NAR reported. In California, the statewide median resales price was $309,900 in September; in Massachusetts, it was $295,000; in Maryland, it was $243,134; and in New York, it was $229,102.

In October, the interest rate for a 30-year fixed-rate mortgage averaged 4.23 percent, significantly lower than the 4.95 percent average during the same month a year earlier, according to Freddie Mac. Florida Realtors’ sales figures reflect closings, which typically occur 30 to 90 days after sales contracts are written.

© 2010 Florida Realtors®