This is a real estate market that many Atlanta sellers often turn to their listing agents and ask for advice. More often than not these are sellers that aren't as motivated as others, and are in denial on price. Their bet is that they did a half ass job o selling the home, did not want to make any of the improvements the listing agents suggested, and have come up with a novel way to avoid the pain of making a real decision. These are sellers that have an aversion for pain and risk. There solution? "What if we rented the home until the market comes back?" My answer would be..."that depends!" "depends on what?" the seller will ask. My answer, "If you are a gambler or not!"
The gamble in this real estate market will home and real estate prices hold or continue a gradual slide? No one really has an answer, but one thing for sure if you have your money in hand, you are ahead of the game. If you rent the property and rent it for more than two years and it was your primary residence you may lose your homestead exemption, US Tax exemption, and more. Also in many states like Georgia if you move out of state and rent your property for more than 2 years you are now subject to A non residency tax. The state will withhold 3% addition proceeds at closing for taxes. (Check with your tax advisor!)
The last portion of this is value. Suppose it takes you several months to find a tenent, and then finally secure a lease of up to two years...what happens to your investment if real estate values continue to fall? In the last few months of Atlanta real estate statistics home prices are now starting to fall.
The average price of Atlanta homes are dropping with the average price of condos & town homes in April '08 down 7.8% from April 2007's $ 8.2% for year-to-date, January-April 08. The average price drop in price for Atlanta single family detached homes are down 9.0% from April 2007 and 10.1% for year-to-date.*
Most new agents in the Atlanta area cannot bring themselves to be the bearers of bad news, but that is their job. In some areas the numbers are not bad at all, but there are plenty of statistics to back up the data. Sellers need to be realistic, and look only at most recent data from the last three months.
*Source FMLS statistics 4/2008
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Jim, unless you are forced financially to do so, my advice to anyone is to never lease out the property you are leaving unless you wanted to be a landlord all along. If not, don't do it. Thanks for such accurate updates on the Atlanta market.
Gary Woltal - REALTOR® Dallas Ft. Worth (Keller Williams Realty) Thanks Gary. The other down side to leasing is the damage, sometimes the trashing of a property and the amount that has to be spent to get the property up to snuff again. I have often been called into list a property that has been a rental. Sometimes it can takes months for the work to be arranged to prep the home for market.
Jim - You said it all in the first paragraph. Sometimes seller's do everything wrong, don't listen to their realtor's advice, then somehow think that the "solution" is to take on the responsiblity of being a landlord, which they are most likely completely unprepared to do..
Jim I have 2 buyers here that both have a home to sell. One from GA and one from FL... both have their homes on the market and are now willing to rent them out... We are getting closer to bottom...
I hope that you and yours have a grand Memorial Day!
Jim,
The only problem we have is if they rent it out to save the home from going into foreclosure due to the fact they can't keep up with the bills and hope that the market picks up. The end up taking a loss because they can't command enough rent to cover the nut and still take a loss.
My neighbor is renting his 4 BR home for 2900 yet his bills are 3600 and he is going to rent out a smaller place for I imagine a minimum of 800-1000 you have to figure. So if that's the case then it doesn't make sense...he should just stay where he is. I don't get it.
Michael Mackey (R) ABR, CRS, GRI (CENTURY 21 All Islands) The biggest mistake I've seen is a person that thinks they can be an out-of-state landlord, and they have no idea what to do in an emergency.
Charles McDonald / Your Trusted Agent for Charlottesville Real Estate (RE/MAX Assured Properties) Thanks. The problem is that everyone else is thinking the same thing. Many will not be able to rent the home. IN Atlanta I am hearing that desperate home owners waive deposits. That is suicide.
Neal Bloom-Realtor ® Assoc.-CRS-Weston FL (RE/MAX Premier Associates) Ouch! A few hundred dollars negative cash flow is one thing. When folks used 30 year fixed rate notes, they could plot out a plan. The owners today are all in the wrong loans, and even the wealthy wouldn't live with that uncertainty of escalating payments.
Jim...
In our market, sometimes it might be better to rent the property until things pick up a bit, but you're right, it is a HUGE risk!
Richard Weisser, Associate Broker, E-Pro ERA United Realty, Auctioneer, CE Author (Coweta Fayette Real Estate, Inc. ERA United Realty) There is a risk that no one can calculate at this moment.You are so right.
New agents won't be in the business long if they don't learn how to deliver this news. Without the right price, it won't sell.
Heitland, Associate Broker, CRS, GRI , ABR ~ Flagstaff Real Estate/Community (Team Heitland at RE/MAX Peak Properties) It takes guts to tell the seller the truth. I remember the first few times I did this years ago I thought I had developed a stammer. It was so hard for the words to come out.
Jim, seeing a lot of rentals in our area, good way to defray the expenses for the time being.
Duane Marlink, Rate A Home (Rate A Home) But is renting a good idea if home prices fall? I hear some homes in CA fell in value 5-7K a month...Suppose the homes could be rented for 4K a month. At the end of a year and a half you have a 70K loss and have not even break even with the 4K a month rent. Treading water may not prevent the home from going into foreclosure, or running a monthly loss. The cumulative loss, may never equal potential future gain in property value for years to come.
Jim - As always, great advice for homeowners. It is a gamble, if they would just price it right and complete the necessary repairs/maintenance they would be in good shape.
Jim, true on the falling value, plus renters in some cases won't take care of the home as if it were their own. Then the owner has expense of remodeling to add to your number.
Debbie Summers, Licensed Real Estate Professional (RE/MAX Central Realty Lake Mary, FL) A bird in teh hand is worht two in the bus. We do not know tomorrow's prices. Deal withe today's facts instead of wishing what things will be 2 years from now.
Duane Marlink, Rate A Home (Rate A Home) I've seen so many investors say never again.
Jim, I agree, they only need on bad apple to get them thinking that way.
Duane Marlink, Rate A Home (Rate A Home) Yep. When a home is trashed, it takes a lot of money to get it back into sellable shape.
Jim, I went on a listing appointment yesterday and the owner is a young, engaged teacher who owns a condo. Cutest condo ever. She bought it in August 2005, from someone else and she is probably $40,000 upside down on it. She burst into tears and balled the entire time I was with her, bless her heart. I kept telling her she needed to rent the condo, I would help her and she would be okay. Never had that reaction before, even though sometimes I feel like doing it myself!
Audrey June-Forshey, GRI, Gaithersburg, MD (RE/MAX Realty Group) It is a very common scenario.