Without buyers, Tustin condos will be leased

halfnote19_IHB

halfnote19_IHB

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[url =http://www.ocregister.com/articles/units-market-prices-2309993-buyers-tustin]Without buyers, Tustin condos will be leased[/url]



<blockquote>"We were trying to deal with the offers and buyers, but it just didn't economically make sense to keep lowering prices," Parker said. "Rather than just give the units away, it was felt that it was better to take them off the market and turn them into rental properties."</blockquote>


I don't understand why they would rather rent them then to sell them close to rental parity?
 
[quote author="halfnote19" date=1234937135][url =http://www.ocregister.com/articles/units-market-prices-2309993-buyers-tustin]Without buyers, Tustin condos will be leased[/url]



<blockquote>"We were trying to deal with the offers and buyers, but it just didn't economically make sense to keep lowering prices," Parker said. "Rather than just give the units away, it was felt that it was better to take them off the market and turn them into rental properties."</blockquote>


I don't understand why they would rather rent them then to sell them close to rental parity?</blockquote>


By definition it is already below rental parity since they rather rent than sell at that price.
 
Once you sell, it's gone. But if you rent it out, you have the option to sell it later.



During RE boom years, many apartment owners convert their apartments to condos for sale and cash out.
 
[quote author="asianinvasian" date=1234938783][quote author="halfnote19" date=1234937135][url =http://www.ocregister.com/articles/units-market-prices-2309993-buyers-tustin]Without buyers, Tustin condos will be leased[/url]



<blockquote>"We were trying to deal with the offers and buyers, but it just didn't economically make sense to keep lowering prices," Parker said. "Rather than just give the units away, it was felt that it was better to take them off the market and turn them into rental properties."</blockquote>


I don't understand why they would rather rent them then to sell them close to rental parity?</blockquote>


By definition it is already below rental parity since they rather rent than sell at that price.</blockquote>


That definition is based on people acting rationally.



According to the article, the seller/land lord thought that offers in the low 400's were too low. Instead they are choosing to rent units starting at $2200.



Using IR's often cited Gross Rent Multiplier of 160 for an Owner/Occupier, these units are worth $352,000 at rental parity.



Using the 120 Gross Rent Multiplier for a deal to make sense to an investor, these units are worth $264,000 to an investor.



The only way this decision makes sense is if the seller/land lord thinks that this is a temporary slump and doesn't think that deflation will cause a drop in rents despite what is happening to rents all over Orange County.
 
That all depends on what happens to real estate prices. I believe they would be better off selling them quickly. They believe that they are better off renting them out.
 
Rent vs own calculations have been around for ages. These people are not stupid. What you have here is a simple choice:

1. Crystallize the loss by selling, default on the debt, everyone out of a job

2. Pay debt service out of rents, perpetuate the enterprise a bit longer and collect management fees and salaries.



They go for 2, as would anyone rational.
 
[quote author="earthbm" date=1234948583]Rent vs own calculations have been around for ages. <strong>These people are not stupid.</strong> What you have here is a simple choice:

1. Crystallize the loss by selling, default on the debt, everyone out of a job

2. Pay debt service out of rents, perpetuate the enterprise a bit longer and collect management fees and salaries.



They go for 2, as would anyone rational.</blockquote>


Wow! They sure are lucky that their boss is stupid!
 
and they are starting building on the second phase of an additional 30 units, with a third phase of 30 to follow.



of course, if you look on a map, you see that these are adjacent to the 5 fwy. maybe the original idea of selling 2000sf townhouses next to the fwy for $750k wasn't such a good one to begin with.
 
[quote author="freedomCM" date=1234956500]and they are starting building on the second phase of an additional 30 units, with a third phase of 30 to follow.



of course, if you look on a map, you see that these are adjacent to the 5 fwy. maybe the original idea of selling 2000sf townhouses next to the fwy for $750k wasn't such a good one to begin with.</blockquote>


Freedom REALLY hates freeways :p
 
[quote author="freedomCM" date=1234956500]and they are starting building on the second phase of an additional 30 units, with a third phase of 30 to follow.</blockquote>


They will lose thousands on every unit, but they'll make it up on volume!
 
[quote author="WINEX" date=1234950942][quote author="earthbm" date=1234948583]Rent vs own calculations have been around for ages. <strong>These people are not stupid.</strong> What you have here is a simple choice:

1. Crystallize the loss by selling, default on the debt, everyone out of a job

2. Pay debt service out of rents, perpetuate the enterprise a bit longer and collect management fees and salaries.



They go for 2, as would anyone rational.</blockquote>


Wow! They sure are lucky that their boss is stupid!</blockquote>


No, their creditors are.



Heck, if I could get a non-recourse 100% LTV ARM with 3yrs of teaser rates I would be buying a house now...
 
[quote author="WINEX" date=1234945640][quote author="asianinvasian" date=1234938783][quote author="halfnote19" date=1234937135][url =http://www.ocregister.com/articles/units-market-prices-2309993-buyers-tustin]Without buyers, Tustin condos will be leased[/url]



<blockquote>"We were trying to deal with the offers and buyers, but it just didn't economically make sense to keep lowering prices," Parker said. "Rather than just give the units away, it was felt that it was better to take them off the market and turn them into rental properties."</blockquote>


I don't understand why they would rather rent them then to sell them close to rental parity?</blockquote>


By definition it is already below rental parity since they rather rent than sell at that price.</blockquote>


That definition is based on people acting rationally.



According to the article, the seller/land lord thought that offers in the low 400's were too low. Instead they are choosing to rent units starting at $2200.



Using IR's often cited Gross Rent Multiplier of 160 for an Owner/Occupier, these units are worth $352,000 at rental parity.



Using the 120 Gross Rent Multiplier for a deal to make sense to an investor, these units are worth $264,000 to an investor.



The only way this decision makes sense is if the seller/land lord thinks that this is a temporary slump and doesn't think that deflation will cause a drop in rents despite what is happening to rents all over Orange County.</blockquote>


That's my point, the Gross Rent Multiplier you are using is incorrect, otherwise they would sell at lower price.
 
[quote author="asianinvasian" date=1235003246]That's my point, the Gross Rent Multiplier you are using is incorrect, otherwise they would sell at lower price.</blockquote>
Seriously? It's that rents are too cheap and not that they are asking too much?



They aren't selling because they still believe that their units are worth more than the market is willing to spend. Using your logic, pigs don't fly because they are just too lazy.
 
seriously, AI, did you even think about what you wrote?



If what you are suggesting is that the GRM should be 200 or 250, then they should have sold like hotcakes when they were priced at $400k. Instead, none of them sold.



Plus, I would argue that $2200 for that location is not a sustainable rent. If you need a 4bd, you have kids. You don't want to be living on an off-ramp to the 5fwy, both for safety and health reasons.
 
[quote author="freedomCM" date=1235019625]seriously, AI, did you even think about what you wrote? </blockquote>


AI = Janet + Less Crazy - More Stupid.
 
[quote author="no_vaseline" date=1235023789][quote author="freedomCM" date=1235019625]seriously, AI, did you even think about what you wrote? </blockquote>


AI = Janet + Less Crazy - More Stupid.</blockquote>


Correction = Janet + Less Crazy + More Supid.



I will give Janet credit, she may have had her facts wrong, she at least she had decent knowledge of how real estate transactions, rules, and laws work. AI thinks that a RE transaction will close with the previous owner's back taxes not being paid. Even Janet would have smacked him upside the head for that one. If he has a RE license then they need to revoke it, because that is basic knowledge.
 
[quote author="Oscar" date=1235003681][quote author="asianinvasian" date=1235003246]That's my point, the Gross Rent Multiplier you are using is incorrect, otherwise they would sell at lower price.</blockquote>
Seriously? It's that rents are too cheap and not that they are asking too much?



They aren't selling because they still believe that their units are worth more than the market is willing to spend. Using your logic, pigs don't fly because they are just too lazy.</blockquote>


Here's proof. Some California cities are already below historical averages.



<img src="http://s.wsj.net/public/resources/images/NA-AW110A_RENTO_NS_20090224194419.gif" alt="" />
 
It's called over-shooting the average. Google it. When you over-shoot on the way up, you over-shoot on the way down. Plus, rents are going down. If you are a smart landlord, you knew this was coming and can raise rents in down environment. Smart money knows how to do this.
 
I don't know how smart we've been because my husband and I have never really charged market rents for our 4 apartment units but we were able to raise the rent 10% on February 1st and no one is budging. We're actually approaching market rents finally. I'm sure we would never have the happy renters we have now if we charged too much. In the long run it would cost us more to charge market rents because even one month without a renter can be devastating to the bottom line
 
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