Your House May Not Be Such a Great Bet After All

Renting out a dusty listing is only the beginning of a downturn in the classic real estate cycle. Auctions are also familiar indicators.

Housing is/was the economy’s largest sector. Now it’s dragging us down. Job losses are around the corner. No one would have believed that home values would triple since the mid 90’s. Now, no one believes they will split in half into the 10’s. Don’t forget to factor in inflation as it will catch up to home appreciation (a.k.a. depreciation) and surpasses it.

Historically, the period for residential real estate cycles is about 20 years. That’s an awful long time to wait for a market peak to return, IF you can. Most won’t.

Prices got away from buyers. Now they’re getting away from sellers. The next boom will be greentech IPO’s. A lot of liquidated housing cash will go there.

At grave risk of beating a dead horse, this is what some of us were getting at yesterday. The Empty Nester move to the city–with barrels of money for that super expensive real estate–only works if they can the empty nests for a bundle.

“The Market Is Close To Becoming Illiquid”

Newsday reports from New York. “In January, when retired psychologists Ben Schwartz and wife, Peppi, put their Commack home of 44 years on the market for $649,000, it looked like a safe bet. ‘Houses in Commack last year were at a premium,’ Peppi Schwartz recalls. ‘We thought it would sell very quickly.’”

“Yet, through a dispiriting spring and summer, the house didn’t move despite several price cuts. So last month, the Schwartzes chose an alternative that may be cropping up more: They decided to rent their house. They’re still hoping to sell, at $499,000, but are now concentrating on marketing the house as a rental, at $3,500 a month.”

“‘We have to try to unburden ourselves,’ Ben Schwartz explains. With the couple now ensconsed in a two-bedroom, low-maintenance Mount Sinai ranch house, rental of the paid-off Commack property would help offset the new monthly mortgage payments. And besides, the emotional wear-and-tear of dealing with the unsold house was just too great, says Ben, who had come to think of his once-beloved Commack home as ‘an albatross around my neck.’”

“Some Long Island real estate agents are reporting that an increasing number of would-be sellers, daunted by the cooling of the once-sizzling housing market, are offering their homes ‘for sale or rent,’ or simply for rent.”

“The sale-to-rental approach ’seems to be a trend now,’ agrees Deborah Sande, who is marketing several of these houses. She says the sellers have come down in price, ‘but there’s a point where they want to stop. And they figure they’ll rent it and get an income from it, and when the market gets better, they’ll put it up for sale again.’”

“In Rockville Centre, (broker) Liz Wallace says ‘the market has dipped,’ and that is especially likely to affect recent buyers who need to move. ‘if they bought in the last two years and paid top dollar, with 5 or 10 percent down, the sale price of the house in this market may not cover what they owe the bank.’ Such owners, she says, ‘would be more apt to rent’ out their house than offer a painfully low price to choosy buyers.”

“Sheila Kassay says there’s been a change in the sort of person renting out a house. In the past, those putting homes up for rent were often investors. ‘In the last six months,’ she says, ‘we started seeing people who really had no intention of renting their home choosing to rent, because it’s sitting empty and they’re paying two mortgages.’”

“Ilana and Stu Austin of Long Beach got caught in a two-mortgage situation some nine months ago when a house they long wanted suddenly became available. They bought it and offered for sale their home of nine years, a Spanish-style Colonial they had painstakingly restored. ‘The market was hot,’ Ilana Austin says. ‘My assumption was we would close by the end of the summer.’”

“That didn’t happen. So the couple is offering the Colonial as a $3,000-a-month rental, preferably on a short-term basis with options to renew. ‘Our intention is still to sell it,’ she says. ‘[But] we can’t carry two houses, and the rental will help with some of the expenses.’”

You can rent out your unit in our co-op building. What’s nice about the smaller Brooklyn brownstone co-ops is their boards are not difficult with tons of rules like the bigger buildings around Prospect Park or in Manhattan. Don’t assume certain rules exist because it’s a co-op; just go ahead and ask.

Disagree with 4:36 about “Coop/condo would not have much freedom.”

Yes, I own a condo and not a brownstone.

The fact that your mortgage is paid changes everything. (And congratulations by the way, With rentals and no note, you, my friend, are sittin’ mighty pretty!)

But for the rest of us new to the buying scene within the last few years, taking out a huge mortgage on a multi-family brownstone is quite a big risk, and very stressful. We could have done it, we had a huge down and reserves, we have the income, and in ’04 we checked out Harlem, Clinton Hill, Ft. Greene and South Slope and ultimately realized we were going to completely be at the mercy of our tenants to help us pay the mortgage every single month. The payment on even a basic 3-fam brownstone was going to be $7000 minimum! That’s a hell of a lot of money to be responsible for every month! and If even one tenant flaked, or worse, refused to move out after flaking for maybe as little as 3 or 4 months, we would have been in trouble. And it can be incredibly difficult to evict tenants, even when landlords have plenty of money and good lawyers.

People should realize that owning a multi-fam brownstone can be a huge liability if the tenants behave badly and/or stop paying rent. It’s happened many times before, especially when times get tough…

So I say go for that multi-fam brownstone if you want it, but be prepared to have major cash reserves to cover everyone’s rents. The bank won’t care where the problem is coming from – they are going to want your payment if you want to keep the house.