Image courtesy Photomatt28

Indeed, the main stream media has been reporting for quite a while now that there is a growing demand for rental properties as a result of the high number of foreclosures. But given that mortgages are still, for the most part, cheaper than rents in Atlanta, does it really follow that everyone who could not afford their mortgage will plan to rent a house instead? I’m not so sure about that. My observations and the general data seem to paint another picture.

In recent months I’ve been noticing quite a few “for rent” signs in front of houses in various parts of the metro area. Many of them are in nicer neighborhoods where it is unusual to see these properties used as rentals. And I also work with real estate investors who are out on the streets in various parts of the metro area. On the east side of metro Atlanta, I’m getting reports of lots of vacant houses that are not on the market. There is evidence to suggest that there is still a large amount of “shadow inventory” in some areas.

I decided to take a look at some of the “for rent” listings around the metro area, to see if there is any apparent evidence of a shortage of rental properties. And frankly, I just don’t see it.

The Atlanta Housing Authority, AHA.org, has always been a good barometer of rental property demand inside the city of Atlanta. Back before the real estate investing boom began here, it was not unusual to have a very short list of rental properties available in the government subsidized, (section 8), housing program. But I’ve seen this list of available properties grow steadily since the housing boom years.

A few years back, the section 8 program actually began reducing the amount that they paid to landlords. Before the boom years, they paid higher than market rents to attract landlords with good quality properties. During the housing boom, renting to section 8 tenants became a very popular investing strategy. The glut of available rentals resulted in a drastic cut in rent rates paid to landlords.

This week I found 1049 properties available for rent within the city limits of Atlanta on georgiahousingsearch.org which handles the rental property listings for the Atlanta Housing Authority, along with other housing groups in the metro Atlanta counties.

Properties listed on this website include apartment complexes for low income renters as well as single family houses that are owned by real estate investors, investment companies and private owners who have qualified under the AHA guidelines.
There were a total of 4260 properties available in greater metro Atlanta on georgiahousingsearch.org. The highest rent rate listed is $1,100 per month, depending on location and size. The tenants pay a share of that rent, and the housing authority pays the remainder. The total rent paid to the landlord is based on a rate classification that is given to your property by the AHA inspectors.

Here is where most of the demand seems to be: Instead of vacancies, there is a waiting list for apartments on the low end of the rent rate scale. Government subsidized apartments rent from zero cost, (rent paid by the government for tenants who qualify), to around $500 per month, depending on income.

From Griffin, GA, over an hour south of downtown Atlanta, to Woodstock, about 30 minutes north of downtown Atlanta, there is a waiting list for dozens of apartment complexes, that offer subsidized rent for tenants who qualify based on income. It is clear that most of the tenant demand is on the very low end of the scale.

To get an idea of the general rental market activity, that would not be included in the subsidized rent listings, I did a search of the FMLS rental listings that included only Cobb, Fulton, Dekalb, Clayton and Gwinnett counties – five of the primary counties, out of 20 or so counties that make up the greater Atlanta metropolitan area. I found 3227 matches, and got an error that said “too many matches to display map”. To narrow it down a bit, I searched exclusively for 3 bedroom, 2 bath rentals in those same 5 counties, and turned up 1026 active listings along with another error saying “too many matches to display map”.

And though the foreclosures are primarily single family homes being converted into rental properties, there are also plenty of new apartments being built as well. It was just a few years ago that we had a glut of upscale apartments that went begging for tenants. It was not unusual to see an apartment complex offering free rent or other perks to attract new tenants. I’m not seeing as much of those signs at this point. It seems that apartments are doing better, while single family houses may be reaching a point where there are more houses than tenants who can afford them.

Until the job market picks up significantly in metro Atlanta, my gut feeling is that we may be reaching a tipping point with single family rentals in those areas that have seen lots of foreclosure buying from big investment companies. Only time will tell, but rental rates in metro Atlanta are lower now than they were 10 years ago in many areas. During a recent speaking engagement at a local Atlanta investor association, I asked the group how many landlords had reduced their rent rate to keep a tenant or to fill a property that was not renting fast enough. Fully 80% of the group raised their hand. In my area, north of Atlanta, a 3 bedroom, 2 bath single family property is renting on average for about $850 per month. Back in the late 90′s those same properties rented for around $1200 a month.

I can remember back in the 1980′s, when the manufacturing base was still thriving here; before GM and Ford began closing their auto plants; before the mills closed, and interest rates were so high that no one could afford a mortgage. That was a golden era for landlords. You had to get to a property the same day the ad came out in the paper if you wanted to have a chance at renting it. Today the fundamentals have flipped-flopped. Interest rates are at all time lows, the unemployment rate is high, and the stock of available rental properties continues to grow.
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Donna S. Robinson is a real estate investor and residential investment consultant located in Atlanta, GA. Follow her on twitter at donnaconsults, Facebook.com/RealtyBizConsulting and watch her videos on youtube. Her latest book, Basics of Real Estate Investing, is now available for Kindle on Amazon.com

© Dmitry Sunagatov – Fotolia.com

Note that I did not say “what you should charge”, but rather what your tenants likely can afford. Affordability is going to be a huge issue going forward, as renters fight the headwinds of increasing payroll taxes, inflation of food and energy costs, the new health insurance mandate, and stagnant incomes.

One of the challenges most landlords are facing today is the dwindling buying power of most of their tenants. Though not all tenants are in this situation, US Census data shows that the vast majority of wage earners in the U.S. are not making very much money…

Here are some facts it’s helpful to know:

1. According to Social Security wage data, 50% of all wage earners made less than $27,000 in 2011.
2. An additional 16% of all wage earners make less than $42,000 per year.

This means that fully 66% of all wage earners make less than $42,000, with three-fourths of them below $27,000 per year.

As a rule of thumb for lower income renters or buyers, allocate no more than 36% of net take home pay, and that is what the typical tenant should be able to afford in rent. Of course this depends on other debts such as car payments, credit cards, and such, but generally, 36% is a commonly used percentage for calculating how much of a mortgage payment a buyer can afford. The same rule of thumb can be applied to a tenant.

Real estate agents and lenders commonly use the gross income number and calculate from that, but I prefer to keep things rooted in reality, so I strongly recommend using net take home pay for this calculation, because clearly, tenants or buyers cannot make use of income that will be deducted for payroll taxes. You are not doing yourself or a prospective tenant any favors if you try to stretch what a tenant can afford beyond what is realistic.

When looking at a prospective rental property you are considering buying, I recommend using the above rule of thumb to help estimate your likely positive cash flow on the property. Search online to find out what the median income is in the immediate neighborhood where your subject property is located, and calculate an affordable rent rate for the subject property.

For example, let’s say that your property is located Albany, Georgia, a typical, midsized city in the south western section of the state of Georgia. According to the detailed Census Data that is available online here, Albany has a median income of $17,424, well below the average of $25,383 that is shown for the entire state.

Multiply $17,424 by .36 and you’ll get $6272.64 – This is the amount that a person with the median income in Albany, GA can allocate to pay rent for an entire year. Taking $6272.64 and dividing by 12 months, I get $522.72 per month. This is what a single person earning median income should be able to reasonably afford in rent each month.

And conversely, if you are using the 1% rule as a guide for making an offer on a property to be used for rental, you could assume that a 1-2 bedroom unit might be worth $52,272. (The “one percent rule” states that a property should rent for 1% of it’s value, or conversely, a rental property is worth it’s monthly rental amount times ten.)

A three bedroom home rented to two adults, each earning median income, could be estimated to gross $522.72 X 2 or $1045.44 per month. Using the 1% rule as our guide, this property is worth approximately $104,544.

Knowing what your tenants can afford helps you insure that you do not pay too much for a rental property going in, and also helps insure that your tenants will be able to pay on time every month. And when tenants can afford their rent, they are likely to stay longer, which reduces your vacancy and turnover costs.

This is merely a way to work with the fundamentals in your market, because real estate investing strategies work best when your strategy is in line with the general market fundamentals in your area.
Donna S. Robinson is a real estate investor, author and market analyst located in Atlanta, GA. Follow her on twitter at donnaconsults. Her book, “Basics of Real Estate Investing” is now available on Amazon.com for Kindle Readers.

Image by Seth W. via flickr.com

For various reasons, the home is not being actively offered for sale. Instead it sits vacant. Many neighborhoods have one or more homes that are part of the shadow inventory problem. There has been ongoing speculation that banks are holding many foreclosed homes off of the market because of low home prices.

Banks that have been left holding a large number of foreclosed properties since 2008 are hoping that the housing market will eventually turn so that the value of those foreclosed homes can start going back up. They realize that dumping millions of distressed properties on the market would reduce home values even further. This would lead to more losses for banks, something that they desperately want to avoid.

But it appears that perhaps we have finally reached some equilibrium between home sales and foreclosure numbers. This in turn could be the reason why shadow inventory seems to have stabilized at 2.3 million units.

Institutional investor activity has grown to unprecedented levels in the single family market. This has resulted in a surprising price increase of some 4% from 2011 levels and is increasing demand for foreclosed properties. At the same time, foreclosures remain elevated to near record levels, as new FHA 30 and 60 day delinquencies have increased to some 17% of their insured mortgages. The investors are spending tens of millions of dollars buying up individual houses at courthouse auctions, especially in places like Georgia, Florida, Texas, California and Michigan, where foreclosure activity is still at very high levels.

This has resulted in a housing market that remains soft due to new foreclosures and rising delinquencies, even as investor buyer activity ramps up to record levels. The buying is putting upward pressure on prices with more demand for better quality homes in better locations. Fortunately the result is an offset that has helped stabilize home prices to some extent. The downside is that it also masks what is essentially a housing market that is fundamentally very weak at it’s core, and is not really expanding.

Notably all of this is leading to a tectonic shift in the housing industry. Ownership has dropped back from a high of around 68% at the market peak to about 65.5% today, which is a historical average that dates back to the 1960′s. In spite of the federal government’s 34 year effort to foster home ownership through various programs and policies that helped lead to the housing crash, little to no long term results have been achieved. When you consider this point, it stands to reason that we’ve got a significant percentage of vacant homes but no actual end user buyers available to buy them. The 65% that can afford to own a home will, and the other 35% are going to end up renting no matter what government policy is in place.

Without investor buyers, and particularly the institutional buyers, home prices likely would still be falling. Shadow inventory would be growing at a much faster rate, especially in the states with the most foreclosure activity. The large amount of inventory being picked up by well funded Wall-Street-connected investment companies is helping reduce the total amount of vacant inventory on the market, but it also speaks to the fact that fundamentally the market remains over supplied in the areas hardest hit by the foreclosure crisis.

The banks who are selling the foreclosures to the institutional investment companies are also lending them the money to buy those properties. In a sense the banks have helped create and fund companies to buy up their inventory. This is creating a sense of “recovery” but it’s not a fundamental recovery.

I believe that this underlying weakness could persist for years before we reach a true balance in housing. To do that we must increase the number of first time home buyers and therefore increase real end-user demand for housing. And it has to be genuine, natural demand created by a robust economy that has millions of new, good paying jobs. Until that happens we won’t have a sustainable housing recovery based on legitimate demand, but it will look like things are improving to some extent.
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Donna S. Robinson is a 17 year real estate industry veteran, author and housing market analyst located in Atlanta, GA. Follow her on twitter at donnaconsults and read her blog at www.RealtyBizConsulting.com

In Georgia, the foreclosure auctions all take place on the same day – the first Tuesday of each month. At each courthouse in each county, various foreclosing attorneys will “cry out” dozens to hundreds of homes each month. Since the foreclosure crisis began, metro Atlanta has seen the average number of monthly foreclosure auctions go from less than two thousand to more than five thousand in a single month.

Metro Atlanta is comprised of some 13 different counties, and is one of the largest metropolitan areas in the world in terms of total square miles. In short, there are a lot of foreclosed homes going on the auction block each month. The FHFA pool of 572 homes is just one small island in a sea of foreclosures.

The investment companies coming to Atlanta to buy up distressed and foreclosed homes have access to hundreds of millions of dollars, and in just one day, on the first Tuesday in September, two different investment companies, funded by big banks like Citigroup, and the Capital Fund Blackstone, spent some nine MILLION dollars at the foreclosure auctions in just two counties.

According to reports published in the Wall Street Journal, investment companies have raised some eight BILLION dollars earmarked for buying up foreclosed homes. This is an unprecedented level of activity for homes that are being purchased for investment, and represents a major shift in the single family investment property market in Atlanta.

Local investors have also noticed the increased competition, in even far flung reaches of the metro Atlanta area, some 50 miles outside downtown Atlanta. I’ve heard reports from locals who regularly bid on properties at foreclosure auctions indicating that they have been seeing more and more competition from the big companies.

FHFA indicated that they were still accepting bids on their bulk package in Atlanta, but those with the capital to qualify for the FHFA program have instead chosen to pick and choose the homes they’d like to bid on by attending the courthouse auctions instead, where they can bid on the properties that they would prefer to have, as opposed to being forced to bid on a package that is likely to contain a sizeable percentage of properties that are in less desirable locations and are subject to the resale restrictions that have been placed on the bulk package bidders.

Virtually all of the firms involved have been created for the purpose of taking advantage of the opportunity in foreclosed homes, and few if any, as far as I can tell, have any previous experience owning and managing single family homes. The websites of many of these firms indicate extensive experience in multi-family properties such as apartments, resorts and so forth, but nothing about single family investing, which is an entirely different animal.

The firms hope to generate a return of around 8 to 10 percent on their investment, which sounds do-able, but 400 single family homes is much more cumbersome to manage than one large property with 400 individual units. It will be a challenge that will be interesting to watch unfold.

I’m still concerned that there is not enough demand to take up all of this supply. In Atlanta in particular, that was the original problem that led to so many foreclosures. Overbuilding combined with lots of renovation and speculative activity by private investors created an over supply of homes in the Atlanta market that I would estimate to be somewhere around 30% of the supply of available homes. I’m just not seeing sustained buyer demand from real end users who want to own and occupy these homes. Atlanta has had a tough time with unemployment since the recession began, and while the northeast sector has a strong corporate and technology job base, the oversupply problem was still significant there as well.

The bottom line on this will be whether or not these homes will rent for the rates that the major investment firms have projected, (which are somewhat high by Atlanta standards) and whether there will be enough employed tenants or owner occupant buyers to enable these companies to generate their projected profit margins. Management and maintenance costs could be significantly higher than projected.
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Donna S. Robinson is a real estate investor, author and residential market analyst located in Atlanta, GA. Follow her on twitter at donnaconsults and read her blog at www.RealtyBizConsulting.com

Image courtesy: www.freedigitalphotos.net/

As one who has been both a real estate agent and a real estate investor, and sold properties in both markets, I’ve experienced both sides of the business. For purposes of this article, we’re going to discuss the thought process that goes into making money selling real estate as an investor.

Investors who are planning to sell a property themselves are usually working with one of two different kinds of buyers – investor buyers or owner occupant buyers. This is an important distinction.

Those who are attempting to “turn” a property very quickly with a minimum of work are usually selling to other real estate investors who are likely planning to rehab the property and hold it for rental. These investor buyers want the lowest possible price so that there is plenty of room to allow for positive cash flow after any necessary repairs or renovations are completed. Their objective is cash flow. If you want to successfully sell properties to this type of buyer, “the numbers” are everything. Location is also important, but at the end of the day, the numbers have to be right to attract an investor who will want the property.

Essential skill number one at this level is knowing how to negotiate great deals so that you can leave plenty of profit margin for your investor buyer.

Those who are planning to rehab a property and sell it to an owner-occupant buyer are not so concerned about the potential cash flow. When your buyer will be living in the property, the focus is on making the property attractive to the type of buyer that will want to live in that particular area. Location is also more of a factor when selling to owner-occupants.

Higher priced properties in better locations can expect buyers who are better educated, have higher incomes and more sophisticated tastes. Any updating or rehab work must be chosen and planned carefully for buyers with distinctive tastes and desires.

On the other hand, selling properties to owner-occupants in middle to lower income areas will tend to have more of a focus on affordability and perhaps creative financing techniques to help the buyer get in the home.

Entry level home owners with average incomes often have more difficulty qualifying through traditional channels, and may need the seller to take back a second mortgage so that the buyer can qualify for an 80% first mortgage. If the investor is smart enough to get in the deal with the right numbers, they can sell the house and make all their money back, plus some cash profit from the 80% LTV on the first, then hold a note for monthly income in the form of a 20% second mortgage. This is a selling skill that can yield an up front cash profit along with a sustained cash flow. As long as I am getting my costs back and making a decent net profit at closing, the risk of holding the second is much lower.

Lead generation for investor buyers or owner occupant buyers is relatively easy because buyers are trained to look for sellers. Getting buyers to call you can be as simple as running a classified ad, putting up a few bandit signs on the roadside near your property, (make them READABLE from the car, please), or putting up a simple website that says you have properties for sale. Photos are a must. Include flyers in the window of the property so that any potential buyer stopping by can see your price and terms clearly, along with contact info. Buyers will find you if you make it easy enough for them.

Selling skills for real estate investors are much more along the lines of creating a transaction that fits the type of property you have to sell, and the type of buyer you want to attract. Whether you wish to sell to other investors quickly for cash, or you wish to go for a higher potential cash profit by selling to owner occupants, the real objective is to understand the needs of your buyer and cater to those needs. Your buyers will reward you for it.
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Donna S. Robinson is a 17 year real estate industry veteran, investor and author located in Atlanta, GA. Follow her on twitter at donnaconsults and read her blog on www.RealtyBizConsulting.com

Obviously this is not a statistic that is going to have Georgians celebrating in the streets, but it will result in more of them being “on the street”.

Plagued by stubborn unemployment that has crept back up to almost 9% in May, Georgia was heavily dependent on the construction sector which tanked along with the housing market. This led to the loss of tens of thousands of jobs. This then set up a vicious cycle of foreclosures for workers who were connected to the housing market. A wide variety of small businesses from gutters to heating and air to furniture stores have suffered major cutbacks or gone out of business.

County governments and school systems have been forced to reduce staffing and cut back on some services due to the corresponding loss of property tax revenue. The housing market and employment have been very interdependent in Georgia.

Compounding the problem to some extent is the decision made by Governor Nathan Deal to divert Georgia’s $99 million dollar share of the foreclosure fraud bank settlement. Instead of using the funds for the original purpose – foreclosure mitigation, the state government has decided to use the funds to help attract new industries to the state. While this idea has merit, the job losses associated with higher unemployment and more foreclosures is easily outpacing the efforts to attract new jobs.

According to real estate data service Realty Trac, Georgia had one foreclosure filing for every 300 homes in the state. Fulton County, where the city of Atlanta is located, had 1,609 filings in May, Gwinnett County had 1,481, Dekalb had 1,303 and Cobb County had 850. In more normal times, the average was around 1700 foreclosure filings for the entire 10 county inner metro area. Today the filings are roughly 400% higher.

Douglas County had the highest foreclosure rate in the state and the entire nation in May, with 1 foreclosure filing for every 122 homes. In fact, for those who regularly view the foreclosure heat map of Georgia, you’ll probably notice that the map is beginning to show more and more counties with increasing foreclosure rates. The foreclosure problem, and I’d suppose the employment problems, are clearly spreading like a flu epidemic.

Since Georgia is also a “non-judicial” state, it is relatively quick and easy to foreclose. No court hearing is required. It is possible to foreclose in as little as 4 weeks.

Atlanta also has the largest pool of bulk REO’s with some 572 single family homes owned by Fannie Mae, that are in the process of being sold off by the Federal Housing Finance Authority. It was recently announced that a winning bid had been accepted, and that the transaction is expected to close in a couple of months. More bulk sales of REO properties are tentatively planned for Atlanta. And at least for now, there will be no problem finding a big supply of homes for the REO market.
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Donna S. Robinson is a real estate investor, author, speaker and housing market analyst who teaches real estate investing fundamentals and strategies. Her website is Realty Biz Consulting.

Image courtesy of Gerard Van der Leun via flickr.com

But when the Fulton county, GA tax commissioner auctioned a tax lien on Ms. James home to a real estate investment company, for non-payment of taxes, it was up to Ms. James to prove that the county had made a mistake.

In many states, tax liens are created by the county government when a property owner does not pay their property taxes on time. These liens can then be sold to the highest bidder. Bidders are often well funded investment companies who specialize in this little known form of real estate investing. Generally the idea is to buy the lien at an auction held by the taxing authority. The seller may have the right to “redeem” their property by paying the taxes due, plus interest. Investment companies buy these liens hoping to earn interest when the owner pays the back taxes. But if the owner does not pay, after a specific period of time, the lien holder has the right to claim ownership of the property.

This is essentially what happened to Ms. James. She actually did pay her tax bill that year, but the county made a mistake and sent her two property tax bills. One in her name and one with someone else’s first name. Since Ms. James did not recognize the name on the other tax bill, she paid the one in her name, and threw the erroneous one away. This small oversight almost cost Ms. James a home she had owned for nearly 50 years.

The investment company that bought the lien issued to the other name thought they had purchased a legitimate lien on the property. When it went unpaid, they went to court to make their claim to the property. It took Ms. James almost 18 years and a lot of stress and worry that never should have happened, but fortunately, a Georgia court finally recognized that the error had been made and denied the investment company’s claim to the property.

There are a couple of important lessons here, one for the property owner, who never should have been subjected to such treatment, and one for the investment company, who arrogantly assumed that they had a valid claim to a tax lien that was issued in error.

To clarify a fine point of property taxes and liens – In some states, unpaid taxes are collected by auctioning off “tax deeds” instead of “tax liens”.

A tax deed can actually convey ownership of a property to the buyer of the deed. These deeds are sold for the back taxes due. A tax lien does not convey a clear title, but gives the buyer the right to make a claim to the property, which is pursued through a legal process known as “quiet title”. (see the link above on tax deeds). Some states such as Georgia use tax liens. Other states use tax deeds.

Property owners must always be vigilant where property taxes are concerned. Fortunately incidents like this are not too common but if a mistake is made on your property tax bill, it’s important not to ignore the error. Act promptly to correct the error and make sure that the local tax commissioner knows that you have paid your property taxes.

Tax lien and tax deed sales can cause you to lose your property even if you own the property free and clear and have paid your mortgage in full. Remember that there are lots of buyers out there looking to use this method to obtain real estate investments at substantial discounts. It’s perfectly legal, and you can’t blame the investors. They are only doing what the government allows them to do. This is the government’s way of collecting those back taxes that the owners have refused to pay.

When it comes to real estate investing, there is often more expense to the tax lien and tax deed process than meets the eye. In Georgia, where Ms. James lives, the owner of the lien was required to file for “quiet title”. This is a lengthy legal process in which the lien buyer asserts a claim for ownership of the property. It can be quite lengthy and expensive to pursue a quiet title claim.

I used to buy houses from a company that bought up thousands of tax liens in Georgia and Florida. In one case, they spent more than the value of the house in legal fees and court costs, trying to obtain legal title to a property that we had under contract with them. We held the contract for two years waiting for them to get clear title so that we could close on it. During the course of those two years someone broke into the house and almost burned it to the ground. The company spent more than $20,000 getting title to the property, then sold it to me for $6000. After that they contacted me to tell me that they were pulling out of the Georgia market as it was too expensive to pursue the quiet title process.

Sometimes real estate investment opportunities such as this work out great, and sometimes they result in big losses. An old late night infomercial used to sing the praises of buying tax deeds until the FTC shut them down for misrepresentation. For investors it pays to understand what you are getting into. Tax liens and deeds can be a great investment vehicle, but real estate investing of this type is not for “sissies”.

Sometimes even “little old ladies” like Ms. James have a legitimate claim to their property and there’s just no point in wasting tens of thousands of dollars trying to convince a court otherwise.
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Donna S. Robinson is a real estate industry veteran who has authored several books and courses on real estate investing. Follow her on twitter at donnaconsults. Her website is Realty Biz Consulting.

Image courtesy of www.freedigitalphotos.net

Are things really improving, or do we still have our heads stuck in the sand?

This is hardly an improving housing market. But for years now we’ve been living through the worst housing market in the history of the U.S. in terms of overall value lost, so bad news that is less bad is considered an improvement. We’re all ready for some good news. Even if it’s just that the bad news is not quite as bad as it has been previously.

It’s been pretty good news for Phoenix, Arizona, which posted the best annual gain in prices, which have risen an average of 8.6% since April of last year. Other cities that are a bit better since last year include:

Miami, FL – a city with excellent oceanside location and a temperate climate, is a market that is finally looking better after years of struggling with over-supply. Up 3.2% since 2011, Miami has recently begun to rebound as buyers from out of state and out of the country have decided that prices are finally low enough to justify buying.

It’s about time. Miami and most of Florida have been in a severe downturn longer than much of the nation. After 4 major hurricanes in one season, back in 2004, Florida residents decided to pack up and head for other states that were not so hurricane prone. Between that and the fact that Florida was drastically over-built at the time, they began having major problems years ahead of the national collapse in 2008.

Dallas, TX is another metro area showing small but steady gains. This is likely due to the strong employment picture in Texas, and especially the Dallas area. Texas did not experience the big housing bubble the way that other southern states did. This was partly, (in my opinion), because Texas real estate law made it much more difficult to pursue some of the “shenanigans” that went on in the bubble states. So the strong showing here is not a surprise, and in fact, is nothing new.

Atlanta, GA continues it’s “reign” at the “top of the bottom” in terms of lost property value. Metro Atlanta was the only MSA in the entire 10 or 20 city composite to post yet another double-digit loss, and is down 17% since April of 2011.
Overall Atlanta is down some 40% from it’s peak highs.

Atlanta’s big problems today stem from it’s “advantage” during the housing boom. Lots of land and room to grow. Atlanta has the largest metropolitan area of any city in the U.S. and perhaps even the world. With a total of 13 counties, there is a lot of room to build here, and that is just what the builders did. There are literally hundreds, if not thousands of subdivisions around metro Atlanta with less than half of the homes that were intended to be built. Some subdivisions have only 4 or 5 occupied homes, surrounded by a sea of hundreds of lots that are still waiting for homes.

Georgia had no idea how dependent the state’s economy was on residential construction and property taxes. When home building ground to a stop, so did much of the state’s economy. Job losses and high unemployment continue to plague metro Atlanta. Foreclosures in the far flung metro counties are still running near record highs in the eastern, southern and western quadrants. The northern sector has the best of the technology and corporate employment. Though the losses have been big there too, they’ve rebounded faster than the other areas. In Atlanta it’s all about the employment or lack of it. Some areas are great and some are not good at all.

Overall, both composite indexes still showed an average loss, though the loss is getting smaller. Let’s hope this is a sign of improvement. But we already know that April 2012 job numbers looked like employment was improving, only to fall way back in May. A turn that was not expected. I hope that the downward trend in employment will not translate into more foreclosures, but we’ll have to wait another month to see. Right now, the idea of an “improving” housing market definitely depends on what your definition of “improvement” is.
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Donna S. Robinson is a 17 year veteran of the real estate industry, and a residential housing market analyst. She is a real estate investor as well as holding a real estate license. Her newsletter and blog are available at her website: Realty Biz Consulting.

Image credit © Wolfgang Cibura – Fotolia.com

Zillow's new Negative Equity Map

Viewing the national map, it’s obvious that the areas with the highest concentrations of negative equity are California, Florida, Georgia, Nevada, Arizona and southern Michigan, to name a few “hot spots”. While Michigan’s problems are more related to long term employment issues, The other crisis states are in the “sunbelt” and had the vast majority of the home building activity during the housing boom years.

Those states with little to no negative equity include South Dakota, Kansas, New Mexico and Idaho. These states saw little of the over-building and “irrational exuberance” of the housing boom.

What we really have here is a tale of two housing markets. But what is more unusual is the fact that these two housing markets exist side by side. For example, in Georgia, now the number 3 state for foreclosure activity in the nation, it’s the northwest sector of the state that is primarily impacted by negative equity. Paulding county, Georgia, a western suburb of Atlanta, shows that about 71% of it’s homeowners owe more than their homes are currently worth. This is among the worst in the nation. But Macintosh county, on the Georgia coast, shows only 4% of owners with negative equity, among the lowest in the nation, for a state on the “top ten” foreclosure list.

In Clark county, Nevada, the location of Las Vegas, a whopping 71% of home owners are under-water. In southern California, the interior counties such as Kern and San Bernardino are at 60% and 58% respectively. But heading to the coastal counties, LA County is at “only” 38%, and on up the coast, in Marin county, only 19% of homes are in a negative equity position.

The real lesson here is that the housing crisis is very much a local crisis, since some states have no major issues with negative equity, while other states will need years to recover the home values that existed prior to the crash.

It’s also interesting to note that many of the counties experiencing major problems with falling prices and negative equity are those located near large metropolitan areas. Buyers who are in the market for a home should use the Zillow Negative Equity Map and/or local data provided by their real estate agent to make sure that they understand the market conditions in the county in which they are shopping for a home.

Negative equity counties can yield some great deals for buyers, but buying “low” in those counties is essential because you can’t expect any significant appreciation any time soon.

You may also notice that even in “crisis” states, coastal counties near the ocean have much lower percentages of negative equity than those counties located farther inland, in the interior of the state.

Even in the midst of the largest housing crisis in the history of the United States, there are still many areas enjoying stable or even slightly increasing prices, while many other areas struggle to retain value or continue to lose value. At the end of the day, it all harkens back to the classic real estate mantra…the three most important factors in real estate are “location, location and location”.

When it comes to today’s housing market, this has never been more true. All real estate buyers are investors, simply because virtually no one ever buys a home with the intention of losing money. Regardless of what the over all market headlines are, the key to successful buying for personal use or investment is to be aware of what is happening with the local housing market in your specific area.
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Donna S. Robinson is a 16 year veteran of the real estate industry. She is a real estate market analyst who specializes in coaching and consulting services for real estate investors. Her website is www.RealtyBizConsulting.com

Image courtesy FreeDigitalPhotos.net

But for professional investors, who don’t want to bid against the public for those properties listed on the HUD website or the local MLS, the real secret to success is in finding those deals that are not listed or advertised, and there is usually not even a “for sale” sign in the front yard. In fact, as professional real estate investor Tony Youngs will tell you, sometimes the owner may not even know that their property is for sale, when they are contacted initially.

These properties are commonly known as “shadow inventory”. This term has been used since the housing crash, in reference to bank owned foreclosures that were not listed for sale. But for the true professional investors, shadow inventory can include any property that may be available for purchase for a variety of reasons.

Often finding the best deals with the most creative terms will mean seeking out those property owners who may need to sell for some reason, but may not even realize that they want to sell until they hear from a pro who can explain to them what is happening with their property, and educate the owner about options for solving their problem.

For example, Tony Youngs is a full time real estate investor who’s been buying and selling real estate for more than 30 years. He travels to real estate markets all over the U.S. training “newbie” real estate investors in his unusual techniques for finding and buying shadow inventory.

During that time he’s seen literally thousands of deals that would not have taken place had he not been willing to seek out problem properties, then contact the owners to discuss their options.

Often the properties are vacant, but are not advertised for sale. There is no sign in the front yard and no indication that the home is for sale at all. But Tony is an expert at finding property owners, and contacting them about these properties. More often than not, the seller does want to sell, but has no real idea what to do with the property. According to Tony, sellers often do not even realize that they can sell the home in it’s present condition. Many sellers do not attempt to market a property because they mistakenly believe that they need to complete expensive repairs before they can sell, but they do not have the money. So they do nothing instead.

Once Tony has contacted them, he usually has to educate the seller about the fact that that they can sell their property without having to spend money on repairs. Tony tells a great story about driving around a neighborhood one day, when he ran across a guy loading a U-Haul truck at a house. Tony stopped and asked him if the house was for sale. The guy responded that he was just a tenant and was moving out. He did not know if the owner wanted to sell or not. But he did have the phone number for the owner, and gave it to Tony.

Tony called the owner and asked her if she wanted to sell the house. Turns out the owner had gotten the house in a divorce, and had never even been to see it. She had no idea that the tenant was moving out. When Tony informed her that the house would need extensive repairs to get it into rent-ready condition, the owner freaked out because she did not have money for the necessary repairs, and did not live in the immediate area. Tony informed her that he’d be happy to purchase the house in it’s existing condition, and they began to negotiate.

When it was all over, the seller was happy to unload a house that she could not manage, and did not have money to fix. Tony partnered on the deal with a coaching client who used this property as his first real estate investment. Through a creative agreement with the seller, Tony and his coaching client bought the property, renovated it, and resold it to a owner occupant. The seller was happy to receive ten thousand dollars at closing, and after spending about thirty thousand on a rehab that took about 3 months, the coaching client realized a profit of about thirty thousand dollars on his very first “fix and flip” property. And all this happened AFTER the housing market crash.

When it comes to the best real estate investments, doing the little things like stopping to talk to the guy loading a U-Haul truck can yield a big payday for smart real estate investors. And the seller did not even know the house was for sale until she was contacted by the investor. Now THAT’s what I call “shadow inventory”. The secret of the pro’s is that the best deals are the ones that no one knows about.
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Donna Robinson is a 16 year veteran of the real estate industry. She has been a coach and consultant to real estate investors for 10 years. Her website is www.RealtyBizConsulting.com