Can't sell, thinking of renting?

My words in italics. Unable to sell their home in today's market, many consider renting a viable option. It is, if you take the right approach. Consider this couple, "Stephanie Smith couldn't sell her home. Smith, her husband Mike, and their three children moved from Woods Cross, Utah, to Duvall, Wash., in 2007 after Mike was offered a Washington-based job.

In 2005, the Smiths paid $195,000 for their four-bedroom new construction home in Woods Cross and had almost no equity. So, the couple needed to sell the house for at least $250,000 to bring down the monthly payment on their new home in more expensive Duvall.

But in Woods Cross, the housing market turned sour.

"All of a sudden there was a dip," Smith says. "In our neighborhood, most people sold their houses within a week. But suddenly there were a lot of houses for sale and nobody was buying anything."

Because the Smiths couldn't sell the Woods Cross home, they took another tack: They decided to rent out the house and serve as long-distance landlords.

However, the decision to rent created new issues. In the past year, the Smiths have gone through two renters. They barely make enough in rent to cover their Utah mortgage.

Tough spot to be in. I've written previously about the dangers of being to aggressive on rents. You want to be a GOOD VALUE compared to your competition. If you're on the high end in your area, you eliminate the best qualified renters for those with bad credit, job history and criminal records.

The Smiths rely on Mike's brother to do repairs on the home. They hope to sell it -- to either the current renters or to new buyers -- this fall.

But living in two states away makes things more difficult, Smith says.

"I can't see the house, I have no idea what's going on," Smith says. "What does it look like? I can't pop in and just check.

"I'm so far away, there's hardly anything I can do."

Again, tough situation. I would never recommend a long distance rental without property management. Perhaps the Smiths can rely on family, but that is also fraught with complications.

Sell or rent
The Smiths are hardly the only couple to suddenly and unexpectedly become long-distance landlords. When faced with both a relocation and a house that won't sell, some owners decide renting the house is the only option left.

Such a decision should not be taken lightly, experts warn.

While the Smiths haven't faced any disastrous scenarios as landlords, others living thousands of miles away aren't so lucky. Mansion-sized headaches can include destructive tenants, missing rent and eviction notices.
“There are two ways you really get to know someone -- when you marry them and when you rent to them.”

Denny Grimes, a Fort Myers, Fla., real estate agent and real estate columnist for the Fort Myers News-Press, says long-distance landlords must remove the rose-colored glasses and prepare for the realities of turning their home into a rental.

"When people make a decision to rent, most make the mistake of not renting property like a business," Grimes says.

He shares a real estate saying that underscores the challenges facing long-distance landlords.

"There are two ways you really get to know someone -- when you marry them and when you rent to them," Grimes says.

Dale Siegel, a real estate attorney and mortgage broker with Circle Mortgage Group in White Plains, N.Y., agrees that homeowners need to tread carefully before jumping into the landlord business.

"If you plan on renting, make sure you can cover your monthly nut," Siegel says, referring to the cost of principle, interest, taxes, insurance and unexpected repairs.

"If not, how much will renting cost you each month?" Siegel asks.

It's not necessarily a bad idea to own rental property that is cash flow negative. Sometimes it's a good idea, depends on the house, the neighborhood, the market, YOUR INCOME, many factors. You MUST know your market or know someone who does, this person should be experienced and successful as a landlord.

Before deciding to rent out the house, an owner should closely look at the competition's rent and decide whether the market rates are high enough for the owner to break even.

As a landlord, it's hard to over-stress the danger involved in overestimating rents. Been there, done that. NEVER take rental rates provided by sellers at face value. Always demand a three year lease history, with special focus on when rents were last raised. Again, if you don't have experience, find a successful landlord.

In areas glutted with new construction or large-scale developments, it can be hard to generate the level of rent necessary to cover expenses.

High vacancy rates also tend to depress rents. Rental vacancy rates are highest in the U.S. South at 13 percent and lowest in the West at 6.9 percent, according to the Department of Commerce's Census Bureau. The Midwest (10.6 percent) and Northeast (7.4 percent) fall between the two.

In the first half of 2008, SLC's vacancies were just over 5% which is considered "fully rented." This is a great market to own rentals, especially as buyers are less able to get financing. Landlording will likely get better, not worse, in these times.

Still, renting out the house at a rate that doesn't quite cover expenses could be preferable to selling the house at a huge discount, Siegel says.

It's way better than overcharging and getting less than desireable tenants. In my experience, the top three rules of landlording are, find the right tenant, find the right tenant, and, well, you get the idea...

"It might be better than taking a big loss," he says.

Expert help
Homeowners who become long-distance landlords overnight need to follow the basic rules of finding good tenants.

Rather than just renting to anyone, Grimes urges landlords to ask prospective tenants to fill out an application with references who can attest to a tenant's history of paying rent on time.

Grimes also recommends running a credit report on a prospective tenant and using a rental contract that spells out the terms of the rental agreement.

These contracts often are available in state-by-state layman's books available at libraries and bookstores. Laws vary by state, so it's important to choose the appropriate contract.

Including damage clauses and documents that spell out late payment fees (or on-time payment incentives) and eviction procedures can assist the absentee homeowner if trouble arises.

"Don't waive those requirements, thinking it's cheaper in the long run to get somebody in there," Grimes says. "If they're not paying their bills other places, they won't be paying you. Go in with your eyes open."

"If you think finding a tenant is hard," Grimes says, "try getting rid of one."

Long-distance landlords also face some unique challenges. For this reason, owners who are relocating and considering renting out their homes may benefit from consulting with specialists before making any final decisions.

For example, a tax adviser can share how deductions may change as a result of moving out of a primary residence and renting it. Property taxes may increase now that the home is being used as a rental instead of serving as the owner's primary residence.

Homeowners who become landlords also should ask lenders about any new rules that may affect them. Siegel says many lenders recently tightened standards for borrowers who intend to buy a second home while renting out their first property.

In such cases, a lender might do an appraisal of the first house to more accurately gauge whether or not the homeowner is likely to get a decent amount of rent for the property, Siegel says.

Or, the lender may require documented proof of a renter and rental income for the first house before providing mortgage insurance on a second home.

Property management: A solution?
Some long-distance landlords worry about how they'll address day-to-day emergencies when they live so far away. Others don't possess the expertise or stomach for doing landlord duties.

In such situations, Grimes suggests hiring a professional property manager as a practical alternative.

"When the toilet breaks, they get the call," he says.

Professional property management companies screen potential renters, make sure rent arrives on time, perform minor repairs and thoroughly check properties for wear and tear. In exchange, they take 5 percent to 10 percent of gross rent received.

While this can cut into the owner's profit -- or increase the owner's debt if the rent isn't high enough to cover the owner's costs -- it can provide peace of mind, Grimes says.

If your income permits, it may be far better to take a near term loss to get a long term gain. People get rich in real estate due to property APPRECIATION...

"For absentee owners, there's a difference between handling a rental and having boots on the ground," Grimes says.

To preserve value and make sure the front lawn stays sales-ready, homeowners often need someone willing to thoroughly examine the home inside and out.

While neighbors, friends and family may be able to do quick spot-checks, they won't be as invested as someone paid to do so.

And some property management companies are headed by real estate agents, so they can do double-duty when it's time to sell.

Of course, not all property management companies provide high-quality services.

Before choosing a property management company, it's important to ask the right questions. Mark Heppard, president of Mutual Property Management in Farmington, Mich., suggests the following questions.

14 questions to ask a property manager

1. Do you work with the owners of single-family homes or condos? Can you provide references?
2. How do you communicate long-distance (e.g., e-mail, phone, letter) and on which topics?
3. Can I see a sample service agreement, outlining the services provided?
4. Do you handle property staging for rental?
5. How will you advertise my property (e.g., newspaper, Internet)?
6. How do you screen tenants and handle viewings?
7. Do you provide a trust account for security deposits?
8. How do you handle routine maintenance issues? Are your contractors licensed?
9. If a property emergency arises, what procedures are in place to respond quickly?
10. Who drafts and executes the lease documents?
11. What's the procedure to deal with late payments and handle the eviction process?
12. Do your services comply with government regulations?
13. How do you report monthly and year-end accounting?
14. If I decide to sell, do you offer additional services?

"Consider the reputation, accreditations, fees and testimonials of current clients," Heppard says. "If financially doable, the right property management company can save you a tremendous amount of effort, money and heartache."

Best of both worlds?
Sharon Simms, a real estate agent in St. Petersburg, Fla., knows that today's economic environment is tough on those who wish to sell.

So, she offers a potential solution to her clients -- she can place properties on the market for sale and for lease.

"In the MLS listings, we state that the property is listed as both and that the owner will do whichever produces a successful contract first," Simms says.

A lease can either state a fixed purchase price or leave the price open to a future agreement between parties, Simms says. However, a fixed purchase price won't entice many buyers until prices start rising again, as today's homes cost less than last year's.

And even the best agent can't change economic realities, especially for owners who are "upside down" -- meaning they owe more on their house than it's actually worth.

"In most cases, especially if the owner bought the house in 2005 or 2006, they will be losing money on either the sale or the rental," Simms says.

Sign Of The Times

A sign that things are getting pretty bad, they're painting the dead lawns of foreclosed properties green to help move inventory. Perhaps a sign that we're almost through the worst of it....perhaps?. From the Recordnet, Stockton California.

STOCKTON - A Stockton man sees the growing number of dead brown lawns of foreclosed homes in the area and sees nothing but green.

Nick Terlouw has launched the Greener Grass Co., which amounts to a service in which he sprays dead lawns with a deep green, water-based dye that makes the turf look good enough for a golf course or a professional football stadium.

For between $175 and $225 per yard, Terlouw uses a motor-powered 50-gallon insecticide sprayer designed for treating orchard trees. He waves his magic wand and in broad sweeps, a la painting a house, makes tired, if not expired, turf sit up and sparkle like Shirley Temple.

"Looking good from over here," hollered Chad Lam, a homeowner watching Terlouw spruce up a brown lawn across the street. "I'm glad to see that happen. It gives us all a lift around here."

Terlouw, who formerly had a window-cleaning business, said he got the idea for the new business from football games.

"They paint logos on football fields," he said. "Why can't we do the same for homes?"

He's had about 10 jobs since he started the business six months ago, but he expects to do better this year, with home foreclosures continuing through this year.

The wet season literally puts a damper on business because he can spray only when the turf is thoroughly dry. The commercially available lawn dye needs to dry two hours, but then will last for three to four months, he said.

Terlouw is trying to market his service to real estate agents and property managers. One home-owners association has hired him to spray a couple of dead lawns, he said.

"Honestly, I see a gold mine here."

One of his customers is Dave Harmon, a real-estate agent with Coldwell Banker Grupe, Stockton. He paid Terlouw $200 to spray the front lawn before a weekend open house on a foreclosure house in a relatively upscale development northeast of March and West lanes.

Most asset managers of foreclosure properties wouldn't be interested in covering such a cosmetic improvement to the lawn, Harmon said, so it's coming out of his pocket. He's hoping it will pay off with a sale.

He said he might use the service again and suspects that other agents could be interested as well to help spruce up the curb appeal of some foreclosure properties.

"I would only do it on homes in nice locations where I could attract some attention at an open house," he said. "Homes in a mediocre neighborhood probably won't get much play so far as decorating lawns."

So would this be a matter of disclosure by the seller to any prospective buyer, to wit: the grass that looks great may be, or is, dead?

Harmon said it hadn't crossed his mind that he would need to.

Actually, at the house where Terlouw was spraying Friday, the grass looked exceedingly anemic - perhaps mostly from winter dormancy - but the turf clearly wasn't dead.

After the spraying, the grass had a sparkling appearance and looked not only alive but also lush and thriving. This was so pronounced that the lawn jumped out on the street as too green compared with any other lawns, even the best kept ones, in the neighborhood.

In other words, the grass looked so good as to be suspect.

Paul Tamayo was visiting his daughter down the street from Terlouw's spray job and couldn't help but come over and ask about the service.

"I'm going to talk to my daughter to see if she wants it done," he said. "I mean, that's beautiful."

Bye Bye Booze!??

Utah first in nation to pull "alco-pops" from stores, gas stations reads a headline in today's Drudgereport... To outsiders who know little about Utah alcohol laws (save for incorrect stereotypes) it may well have been "NO ALCOHOLIC BEVERAGES!" I've already recieved messages from relatives asking, "what is up out there?"

Growing up in the midwest, I know "outsiders" understand virtually nothing about Utah, except that it's populated by Mormons, and you can't get a drink. Whatever your opinion of alcohol, why perpetuate myths with a law of relatively little impact? So you can't buy Smirnoff Ice at the grocery store, big deal. Do we think this does anything to limit underage drinking? Is the benefit worth the cost of reinforcing our image to the world as a dry state?

Story from today's AP...

SALT LAKE CITY - Utah's supply of flavored malt beverages will likely be exhausted in a few weeks as manufacturers decide whether to comply with labeling rules intended to make it clear the products contain alcohol.

Utah has some of the strictest liquor laws in the country, a byproduct of its large Mormon population. The Church of Jesus Christ of Latter-day Saints counsels members not to drink alcohol, and the church is highly influential among state lawmakers on alcohol policy.

On Wednesday, Utah will be the only state to ban the sale of fruity alcoholic drinks at grocery stores and convenience stores in an effort to keep them from minors. Those drinks also must have new state-approved labels on the front of the product that contain capitalized letters in bold type telling consumers the drinks contain alcohol and at what percentage.

So far, no new labels have been approved. Utah Department of Alcholic Beverage Control spokeswoman Sharon Mackay said the state's limited supply of those drinks will likely be gone in a few weeks.

Flavored malt beverages are already sold in state liquor stores, but they have a higher alcohol content than what has been allowed in grocery stores. They also have the same labels found in the rest of the country.

Some manufacturers have already decided it's not worth it to produce new labels just for Utah.

"Thanks to the Legislature, Smirnoff Ice is no longer available in Utah," said Zsoka McDonald, spokeswoman for Diageo, one of the world's largest multinational beer, wine and spirits firms. "It's just not cost effective."

Mackay said the department won't reorder any of the flavored malt beverages it has in stock until manufacturers comply with new labeling requirements.

"Many manufacturers, frankly, have not decided whether it's worth carrying the product to make changes on the labels," Mackay said. "It's anybody's guess which ones will be carried."

Republican Gov. Jon Huntsman said banning products like Zima, Smirnoff Ice and Seagram's Fuzzy Navel from grocery stores would harm Utah's image, but agreed to it in exchange for increasing the amount of liquor allowed in shots and standard cocktails to 1.5 ounces, up from 1 ounce.

Italian Cool--Dolcetti Gelato

Dolcetti Gelato has experienced meteoric success since husband and wife Mark and Elizabeth England began selling gelato at the farmers market, just three years ago! As artists, the England's apply the same dedication to gelato they would to paint and canvas. Indeed, they've studied with the best gelato artisans in Italy, the home of gelato. With a second location now open in Park City, they've obviously found a home for "Italian Cool" in SLC!

For location and hours, or to read about their gelato offerings, go to their website.

1) Why gelato? Did you consider other 'artisan' foods?

Because we are both artists we have this inherent focus on quality and making the best. Gelato is simply the best ice cream there is so it was a natural direction to take. I love cooking so there are always other things I would love to make at the store, but I have my hands full keeping gelato made every day. We chose to make crepes as well, as they are pretty simple and can be made fresh to order with lots of variations. My favorite crepe is spread with nutella, filled with stracciatella gelato (chocolate chip) and strawberries with whipped cream on top. Our espresso and Tea Grotto teas are also a good addition to gelato. We offer affogato, which is espresso or hot chocolate with a dollop of vanilla gelato. We also have imported Italian artisan foods such as olive oil, bruschetta spreads, pastas, and marinara.

(Mark and Elizabeth England in Italy, the home of Gelato.)
2) Please describe your beginnings at the Farmers Market. How long did you do that? At what point did opening your own digs become obvious? Why?

Everything pretty much started at the Farmer's Market three years ago. We had so many eager customers each Saturday who loved our gelato and kept asking where they could get it during the week that it was a natural progression to move to a permanent location.

3) Was this the plan all along, opening two locations (maybe more), or did your success just 'happen.'

At the beginning we didn't really know what would come next. As we continued to do well it made sense to open our original location in Sugarhouse. The opportunity to open a store in Park City came along and seemed like a good second location so we dove in. We are contemplating a few more locations but are happy putting our energy into developing the market in P.C. right now. Making artisan gelato requires a lot of personal care and supervision, so we have to be careful as we expand to also make sure the quality isn't compromised. You simply cannot mass produce it or franchise it.

4) Both you and Mark are artists.? Which skills did you develop as an artist that you use most in owning, and running this business?

I love creating spaces as I graduated in design, so it was fun designing the locations, especially Park City, where we could design it from the floor up. The creativity that comes with artistic training helps when it comes to creating new flavors and how to present the gelato and store. Mark is an accomplished artist, so it was great to have lots of wall space in Park City to hang some of his art.

5) Why did you choose Park City for your new location?

It is an untapped market and the locals as well as the tourists are a sophisticated group. Most have traveled a lot, are familiar with Italy and gelato and appreciate being able to find gelato in their neighborhood.

Rich Guy?

One rich man's plea, too funny! Reminds me of some real estate investors I know, the ladies, of course....

Party While The Ship Is Sinking!

I've gotten several emails asking about where the bottom is....Answer, I don't know, but believe we will start seeing clarity once congress approves the bailout. When that happens, reaction from the stock market should be a good indicator of what the "smart money" thinks of the road ahead...

Meanwhile, enjoy the clip, it's funny.

Bad Mortgages--Banks Failing....Why?

With banks failing and mortgages tougher to get than ever, we have yet another sign there is no free lunch. But how did this happen? The people that run our banks come from the top of this meritricious society, from the Ivy League, MBA's, attorneys...

It's relatively simple, first the government opens the door by requiring lenders to make so many loans in the "sub-prime" market, to people who normally would never be approved for a mortgage. The lender, who almost never holds the loan, sells the loan to another bank. Eventually, loans are grouped, sub-prime (high risk loans made without "proper" collateral) mixed with higher quality loans, by an investment bank and sold to investors, who pay so much based on the investment ranking, what's known as derivatives. Many of these loan packages were ranked as A quality investments, even though many of the loans in any given package were actually C or D quality investments(typically around 5-10%).

It's true there were few warnings, save for Warren Buffet who has been warning about the risks of derivatives as long as five years ago. And it really isn't rocket science. For most of the last 100 years, you could buy a home only with 20% down, because that was the best way to ensure you could pay your mortgage. Relax these standards, NO money down, and this is what happens. Think about it, your bum neighbor comes to you asking for a loan, will you take his promise alone, or will you make him sign over his car as collateral? The answer is obvious, so why would we do nationally what we wouldn't do next door?

Did our best and brightest, the ivy league grads who largely run the banks know better? Of course they did. During the run up to the bubble, they were getting fabulously rich through bonuses built on selling junk loans. This crises demonstrates the dark side of human nature, we'll do things we know are wrong when "everyone else is doing it." It reminds me of a friend of mine, who during college worked at hotel as a valet parking attendant. Now he's a family man, good job, church goer, respected in his community. Back then he told me recently, he and every last one of his peers who parked cars took around half of all the parking proceeds that were to have gone to the company. Over a couple beers one night, he expressed wonder at this part of his life. He said, "I'm not a thief, I would never steal anything!"...."But that's not true, I enthusiastically stole all that money from my employer!" I think the answer is simple, ethics are often relative to our situation, relative to what our peers are doing.

And its probably unavoidable, human nature as it is, that 60 years from now the same excesses will occur from the same people who should know better. So what's the point of this post, other than wallowing in human misery:)....Maybe those of us who are living through this now will speak up in the future when our leaders suggest that the rules are just sooo old fashioned....(See Website for Mortgage Calculator)