Sellers are Lending and Lenders are Selling

As the stock market continues to slide, and real estate properties are at some of the lowest prices we have seen in years, commercial real estate starts to look more and more like the good investment it always was. While paper covers rock, in “rock, paper, scissors”, at the end of the day, owning a ‘piece of the rock’ is preferable to many investors than owning a piece of paper (i.e. stock certificate).

True, financing is hard to come by, land development is difficult these days, and retail-based real estate is challenging as many retailers are scaling back operations. The residential market (from a buyer’s point of view), however, has never been better. If you can qualify, mortgage rates are back down to 5%, on average. The new Stimulus Bill increased the tax credit for 1st time home buyers to $8,000, and prices are low, low, low.

Residential real estate as an investment is even more attractive these days, with the flood of foreclosed homes on the market. Thankfully, some banks have temporarily halted foreclosures, and an Ohio House Bill was recently introduced which would freeze all foreclosures for six months. Moreover, the Obama Administration has recently introduced programs to further alleviate impending foreclosures facing many homeowners (although homeowners paying mortgages on time are not pleased). While few opportunists are happy to see people lose their homes, they are more than happy to buy at a bargain, and become landlords, leasing to those in need of housing.

At a time when some sellers are lending (taking back mortgages), many lenders are selling. Banks are not bashful these days about entering the real estate market to help showcase the properties they have for sale. As Arielle Kass points out in her February 16, 2009 article in Crain’s Cleveland Business (entitled: “Banks depart from norm, turn to web to unload foreclosed homes”), “instead of passing homes off to real estate agents as they had in the past, the banks are setting up websites to sell the properties themselves”.

According to Ms. Kass, among the lending institutions featuring their foreclosed properties on the web are the following:

1. Fifth Third Bank- http://reo.53.com;

2. PNC - http://www.realtyservices.pnc.com

3. Park View Federal - https://www.parkviewfederal.com/reo2.asp

4. First Place Bank (through Fannie Mae’s “HomePath” Program) - http://reosearch.fanniemae.com/reosearch

A few words to the wise, however, for all the “would be landlords” out there.
First, check zoning laws to see if rentals are permitted in the particular locale.

Second, understand that you will probably not be eligible for the lowest mortgage rates around which are based on “owner-occupied properties” (although many banks are being competitive to help lessen their inventory of foreclosed properties).

Third, you should have your legal professional form a corporation or Limited Liability Company (the usual “vehicle of choice”) to hold the property in order to reduce your personal liability.

Finally, Ohio’s Landlord-Tenant Law is very “tenant protective”. In other words, don’t buy if you are not willing to spend money to make needed repairs, and invest in the health and safety of your tenants, as well as the health of your bottom line.