Buying for the VCU Student

September 4, 2011 By Leave a Comment

The TriBeCa Brownstones were built on land close to VCU and many were purchased by a parent for their child as a dorm alternative.

Buying a Dorm

I would like to offer the following debate to the parents of VCU students and their Medical School counterparts who are coming to Richmond this summer (or who have already arrived) and who need to decide whether to buy or rent a home near the VCU or MCV Campus.

You should buy a house or condo.

Now I understand that my position on this is not without bias. I am a Realtor who sells a lot of property in and around both the VCU Campus and the MCV/VCU Health Systems Campus. It benefits me when you buy. It does not really benefit me when you rent. I am now done disclaiming my conflict of interest.

That being said, it does not mean that I am wrong.

I am not going to give you the rent vs. buy calculator argument because we can all tweak the numbers until we can get it to show what we want it to. Depending on inflation and appreciation and tax effects, I can get one of those things to spew out some amazing numbers. Those are interesting tools and they have their place. This is not a debate for the rent vs. buy calculator.

My argument is more macro in nature and relates to the following set of circumstances:

  • Prices are down 20-30% depending on your market and asset type
  • Interest rates are being held down (somewhat artificially) by the Fed and are still hovering around 5%.
  • College tuition and college room and board is going up despite the rest of the economic world moving the other direction.

Renting a property for roughly $1.30 per SF per month (which translates to about $1,200-1,400/mo for the typical 2-bedroom apartment in City of Richmond in or around the VCU campus) or buying a property for about $190-210 per square foot yields about the same monthly cash payment at the end of the day.

Which one gives you some upside? It is pretty obvious that buying has the promise of upside.

I know that the counter argument is simply that many are not sure that the pricing declines behind us.

The facts are as follows:

  • On January 1 2009 there were over 400 condos for sale in Richmond, VA
  • On January 1 2010 there were less than 200 condos for sale in Richmond, VA
  • On January 1 2011 there were still roughly 200 condos on the market in Richmond, VA.
  • There is no new projects in the pipeline that offer “for sale” product coming on-line in 2010 or 2011 that would skew those numbers

Life, at least financial life is about managing/pricing/understanding risk. Betting large sums of money on risky endeavors with no upside is not smart. Betting medium sums of money with a low cost-of-capital in a market that has balanced itself with no competition coming on line sounds like a pretty decent bet to me.

Don’t let the national media scare you off. While extremism and negativity sells, I have yet to see report on the college-driven housing market on 60 Minutes. As a matter of a fact, the student housing market is one of the healthiest housing sectors in the market and owning a home that is underpinned by a rental option to students is a way to remove a great deal of risk from the equation.

Filed Under: Condos, Financing, Market Values, Student Housing Tagged With: ,

Condo Finance — Let’s Play Fair

September 4, 2011 By Leave a Comment

Here is an article I wrote a while back talking about how the current state of condo finance was really hurting urban housing.  It is still a huge issue and until it is addressed, we really are influencing decision making about housing in a negative way.  It also got me an audience with Eric Cantor (well sort of, see the RTD article here….)

Sitting in Traffic with Fannie and Freddie

As development and housing reel from the lack of credit available right now, the fallout is all around us. We know about foreclosure. We know about short sales. We know about property values re-adjusting severely and people being trapped in their homes. This is a problem, for sure, but it can and will be solved by a balancing of supply and demand. It is already getting better….marginally….but better.

Where we go from here is the issue that is more important. The new world of lending is pretty much DIRECTLY AT ODDS with the things that will set us free from the larger mess we are in.

Do tell…..

IF we are trying to be greener AND we are trying to reduce out dependence on foreign oil AND we are trying to reduce our carbon footprints AND we are trying to retool out transportation systems THEN WHY ARE WE PUNISHING URBAN DEVELOPMENT?

There is no way to build with any density other than to build vertically. Period.

Take, for example, any multi-family building of 3-5 stories (or any height, for that matter) built in any urban area. The building can be an apartment building with no problem. But if there is to ownership, we got a problem.

The only way that any vertical structure can have individual ownership is condominium ownership. There is no other way (and do not say co-op, it is even more convoluted.)

Right now, there condominium lending environment is ridiculous. The requirements put onto condo lending call for unrealistic “pre-sold” requirements, interest rate add-ons, lower loan-to-values, a maximum number of investor owned units AND condominium dues are counted against qualifying ratios. Bottom line, is you need to make more money, have more cash to put down and only purchase in condo projects that have a large portion of units already sold.

I could MAYBE stomach these requirements if the same set of rules were applied to single family housing, but they are not. There is not a pre-sold requirement in any single family neighborhood. There is not a check of investor owned homes in any single family neighborhood. There is not an “add-on” to the interest rate and the maximum loan to value is 5% greater than condominiums.

This is the kicker…condo dues typically contain some utility costs and a repair reserve in the budget. This is not accounted for in single family loan underwriting.

It is akin to saying that single family homes do not require repairs and the owners have the option of using or not using water and sewer.

It is not fair. And it is just plain wrong.

If someone chooses to live in their downtown OR wishes to have a space that does not have a yard to maintain, then they should be able to choose to live in that environment without penalty. The current rules say otherwise.

Fannie Mae and Freddy Mac have spoken and they would prefer you live in the suburbs.

See you in traffic.

Article Source: http://EzineArticles.com/3519249

Filed Under: Condos, Downtown, Financing, Market Values Tagged With: , ,

Ignore Absorption Rates At Your Peril

September 3, 2011 By Leave a Comment

What is an ‘Absorption Rate’?

definition

I firmly believe that being able to calculate an absorption rate is one of the most important skills a Realtor can possess.  The fact that it is not required part of any listing presentation is beyond me.

It is one of the first things that I talk about when sitting down with a buyer OR a seller.

When I hear people refer to a market as being ‘oversupplied’ or having ‘too much inventory’ it makes me shake my head because it does not tell anywhere near the true story.  Absorption, inventory, supply and demand, while all related, need to be viewed over time for any real substantive information to be gleaned from the exercise.  Likewise, if you do not identify the type of property you are really trying to measure, you will not get an accurate picture, either.

Ask yourself….would you be better off if you knew the number of months worth of housing supply that zone 22 currently has….OR….would you be better off knowing the number of months of supply of 4 bedroom colonials in the Godwin School District during the summer months year-over-year dating back to 2007?  Which answer gives you a better pricing strategy?

Ask your Realtor to compute the latter and see what you get.

Filed Under: Apartments, Condos, Market Values Tagged With: , , ,