We just got word from a number of readers that the Allegro condominium development will become rental apartments. Allegro condo purchasers wereThis is generally a good thing for condo purchasers there. They get back their security deposits and thus won't lose money on a depreciating asset.
recently sent letters from the developer informing them of the news and providing assurance that their deposits will be returned as a result of the conversion to rentals.
The reason cited for converting the condos to apartments was the downturn in the housing market and the credit crunch. Condo purchasers were offered the option to lease their units. Allegro follows Highland Park as another major condo project in Columbia Heights that is converting to apartments due to slowing sales.
Tuesday, February 19, 2008
More Condo Projects Going Rental
In many bubblicious areas across the country condo projects are turning to rentals as is the case in the Columbia Heights neighborhood in Washington, DC. Columbia Heights News reports that:
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Those condo purchasers are so lucky. Kudos to the builder for doing the right thing.
ReplyDeleteI wonder what the lease costs look like compared to the total ownership costs?
Was their a construction loan on this project? Did the bank relax the rules to allow this project to go rental or did the builder pony up cash?
Got Popcorn?
Neil
You seem to be getting pretty half-hearted in your posting. Half-hearted, half-assed? You say potato, I say potatoe. So sad.
ReplyDeleteAh well. Luckily, the plethora of links on this blog give plenty of opportunities for bubbleheads (and the few hold-outs) to get their bubble fix. Could you at least post something describing the reasons why you've lost enthusiasm for the blog? Is it the fact that the bubbleheads have been proven right? Do you not enjoy dancing on the grave of the real estate market? That can't be true, but perhaps you are feeling some remorse for the flippers who are facing foreclosure? And where is Lance? Alas, I suspect that no one really cares about the answer to any of these questions.
Farewell bubblemeter blog, we hardly knew ye...
David said:
ReplyDelete"This is generally a good thing for condo purchasers there. They get back their security deposits and thus won't lose money on a depreciating asset."
So, David, you think the developers are being altruistic and doing this so that the condo purchasers 'won't lose money on a depreciating asset.'?
I guess I'm less inclined to think so nicely about developers. I think the opposite of what you state is the truth. The developers would rather hold on to a "temporarily depressed" asset ... and sell it later when it is better valued.
According to recent reports, the Class A condo vacancy rates are headed up, albeit from a low number. Washington had enjoyed a3.4% vacancy rate, while the long-term stabilization rate is probably around 4.4%. While DC has fared better than many other markets, the many condo to rental projects and the many condos purchased by investors now being rented out, is having a destabilizing effect. The market is already primed for rental properties, which typically have lower ceilings, smaller floorplans, but often additional amenities, such as pools, recreational rooms, 24-hour front desks, etc. Rental rate increases have about disappeared and free rent for some months, parking for no additional charge, and sometimes televisions are now the norm.
ReplyDeleteFunny how when I visited about buying at the Allegro (way overpriced for a marginal neighborhood) they acted as if it were the best thing since sliced bread.
Going to rental is an example of taking the beating drip by drip rather than taking one hard slap. Oh, well. It just means a longer period for real stabilization of the real estate market. It will be a slow slog to the bottom.
I work as a Realtor in the Phoenix area. When I work for clients who are looking for a condo, I always recommend that they go with a community that was originally designed as such and that isn't a conversion project. There are many reasons for this which I point out to them. Often times, these complexes sell the apartments as is without any changeover being done. I give clients a list of things to ask about and consider when looking at conversion-type properties, some of the risks for which you highlight. Thanks for the insights here! Dave Lorti, www.davelortihomes.com
ReplyDeleteLance said:
ReplyDelete"I guess I'm less inclined to think so nicely about developers. I think the opposite of what you state is the truth. The developers would rather hold on to a "temporarily depressed" asset ... and sell it later when it is better valued."
The developers don't know better. What they are holding onto are temporarily overvalued and heading back to the norm. Too bad for them.
Read this from Fortune, with input from Mark Zandi at Economy.com.
http://money.cnn.com/2007/11/06/real_estate/home_prices.fortune/index.htm
It would be interesting if you find a fatal flaw in the methodology. It predicts a 39% correction for the Washington, DC area.
Excerpts:
"To understand why the big price declines are inevitable, it's important to appreciate the giant chasm that opened between prices and rents, and how fast it happened. All through the 1990s the multiple of prices to rents nationwide remained between 14 and 15."
"The cheap and easy money is gone, but the inflated prices it created are still here. No other factor was as important in driving the price-to-rent ratio to its current, unsustainable heights. From 2000 to 2007 the nationwide P/R jumped from 15 to 24, an increase of 60%. The figure went from 12 to 21 in Tampa, 11 to 26 in Washington, D.C., and 28 to 51 in California's East Bay, an area that includes Oakland and the area east of the city."
"But the tailwind from low rates is now over. The turning point came with the credit crunch this summer, when rates on jumbo loans jumped almost one percentage point. Today average real rates for all mortgages, fixed and adjustable, stand at 4.7% (adjusted for inflation), which is roughly in line with the long-term average. "For a time, higher than normal ratios of prices to rents were justified because of low real mortgage rates," says Mark Zandi, chief economist at Moody's Economy.com. "Today that justification is gone.""
Senate Square condos in DC are going rental also - I got an email last week. www.senatesquare.com. I looked at these places in 2005 - they wanted 700K for a 2 bedroom apartment.
ReplyDeleteLance again with the "temporarily depressed"
ReplyDeleteDude, it is over. The prices aren't going back up this year, next year, five years, or 10 years, and this is doubly true for bubbulicius condos. And don't pull the "desiarable location" crap....they are effing condos worth 150k tops!!!
Going to rental is an example of taking the beating drip by drip rather than taking one hard slap. Oh, well. It just means a longer period for real stabilization of the real estate market. It will be a slow slog to the bottom.
ReplyDeleteThe Post predicts a 3 year decline for rents. That is a reasonable estimate; if you disagree, let us discuss it in 2010 to see how the prediction went.
Got Popcorn?
Neil
another Bubble Meter mention, this time in the City Paper:
ReplyDelete54: Number of comments posted on D.C.-area blog Bubble Meter in response to post titled “Your Turn: How Much Have Prices Fallen in the DC Area?”
8: Average number of comments posted on D.C.-area blog Bubble Meter
http://www.washingtoncitypaper.com/display.php?id=34586
My rent in the 22201 continues to go UP each year...currently sitting at around 3600/month for a 3 bed/3.5 bath apartment (Which is still cheap, compared to others close by!)...so I'm not seeing it on the front lines.
ReplyDeleteWhich is why I'm moving into my purchased condo in D.C. next month that is looking at $1500 a month total for a non-ARM mortgage. A great deal by my estimates. ...keep waiting on the sidelines gentlemen.
"Senate Square condos in DC are going rental also - I got an email last week. www.senatesquare.com. I looked at these places in 2005 - they wanted 700K for a 2 bedroom apartment."
ReplyDelete---------------------------------
I am guessing the rent will be a lot less than the payment on a $700,000 mortgage. But that's just a hunch.
Which is why I'm moving into my purchased condo in D.C. next month that is looking at $1500 a month total for a non-ARM mortgage. A great deal by my estimates. ...keep waiting on the sidelines gentlemen.
ReplyDeleteIf you can really get a condo with a total payment of $1500 in a good neighborhood, its worth considering. But that implies a $225k or less purchase price. That sounds tiny...
I see the posts saying renting is cheaper, but I've yet to see a condo project going for a low enough price to make the math work out. Right now the cost to own is twice the cost of rent. And rents are projected to go down... Landlords are asking for more rent, but most of my friends have been able to negotiate down... hmmm...
So your claim is dubious. If buying was really cheaper than renting, we'd see the ads in the paper! A la the late 1990's!
Got Popcorn?
Neil
I should have mentioned, if it was indeed cheaper to buy than rent, these buildings would never go rental; they would be selling. :)
ReplyDeleteGot Popcorn?
Neil
Rents have not fallen much in DC. Especially on the lower end. Section 8 puts a floor on rents. And that floor is artificially high. In the worst parts of SE, I can rent a 1BR for 1100 and a 3BR for ~1750. That is a lot of money. With that said, the rent in NW is so high that I won't even accept Section 8. This market is bad for condo owners. Bad for flippers. Bad for people looking at their home as a short term investment. But if you own rental property, you are flooded with calls from people with guaranteed rent desperate to find housing. That's just my $0.2 on what I am seeing as a landlord.
ReplyDeleteThis is fantastic. The Allegro website still has a "why you should buy instead of rent" page, even as the condo project has already gone rental.
ReplyDeletehttp://www.allegrospaces.com/ownership/
My favorite part is the fine print: "The payment scenarios given on this form are examples only and are based on a 5-Year Interest-Only loan with an interest rate of 6.25% and a second trust, where applicable, with an interest rate of 8.50%." Last I heard, those were a bit harder to get for most folks these days. ;)
$1500 a month total means that include condo fees. Let's use a notional figure of $250 for condo fees. That's a mortgage payment of $1250 / month. That equates to a purchase price just shy of $200K (assuming you got a 6.5%/30 year traditional mortgage.)
ReplyDeleteSo I'm guessing you're not in DC like you claim to be, or you moved into a studio condo.
Good for you. I'll keep sitting in my rent controlled apartment while your Anacostia "Efficiency" continues to depreciate.
"Senate Square condos in DC are going rental also - I got an email last week. www.senatesquare.com. I looked at these places in 2005 - they wanted 700K for a 2 bedroom apartment."
ReplyDeleteLol. I'll take one for a total cost of PITI + HOA of $1500. ;)
What's the rent?
Got Popcorn?
Neil
"Which is why I'm moving into my purchased condo in D.C. next month that is looking at $1500 a month total for a non-ARM mortgage. A great deal by my estimates. ...keep waiting on the sidelines gentlemen."
ReplyDeleteNotice this guy doesnt say how much cash he is putting down - given these numbers, I assume it is alot (which skews the whole equation).
The Idiot Anonymous
Senate Square condos in DC are going rental also - I got an email last week. www.senatesquare.com. I looked at these places in 2005 - they wanted 700K for a 2 bedroom apartment."
ReplyDeleteLol. I'll take one for a total cost of PITI + HOA of $1500. ;)
What's the rent?
-----------------------------------
It is here. They are really pricey for that ghettofied area.
http://www.forrent.com/apartment-community-profile/1000053000.php
It would be interesting if you find a fatal flaw in the methodology.
ReplyDeleteActually, they do have a fatal flaw. They underestimated the price decline due to bad math.
DC data:
Current P/R Ratio: 26.0
Traditional P/R Ratio: 15.9
% correct in P/R Ratio: -38.8%
All is good up to this point. Then they estimate a 13.7% rent change and then take 38.8-13.7 to get a 25.1% price decline. However, this is bad math. You can't just subtract the percentages like that.
If you had a 25.1% price decline and a 13.7% rent increase, the new PR ratio would be:
(current P/R) * (1-.251) / 1.137 = 17.13.
This still yields a too high P/R ratio.
Your homework assignment is to calculate the real % price decline. Hint, it will be even higher than they list.
Other than that I think they make good points. However, if they can't do simple junior high math that unfortunately gives Lance a lot of room to question their methodology.
A "cheap" 3600/mo in Virginia. Sure thing, buddy.
ReplyDeleteI wanted to respond to some of the Rent v. Buy critics... The rental scenario does work for me... The scenario:
ReplyDelete1BR- $350k in Oldtown w/parking
3% credit at closing which covered the closing costs
10% Down Payment of $35k
Rate - 30yr fixed @5.25% w/1pt (covered in credit)
Payment - $1739.44 ($1378.13 is Int)
Condo Fee - $257/mo (prepaid 6 months with credit)
Est. Taxes - $126.63/mo
Gross Pmt - $2123.07
Est. Tax Savings - $385.88/mo
Net Pmt - $1737.20
Current Class A Rent - $1850/mo (Monarch & Post Carlyle)
I am sure you are wondering if these rents are achievable as well, as the comps are offering rental concessions currently. Well, I am not ready to move for 6 months, so I just rented out the place on a 6 month lease on Craigslist. It took two days and rented for $1800/month. Pretty good in my opinion...
I agree, the market can be scary, but at the very least I am in a stable neighborhood and can rent my place if/when I decide to move and come close to covering my costs... BTW, this scenario also works in several places in DC... I was looking at buying at Jenkins Row, the Dumont, the Phoenix, etc., and they all have similar prices for 1BRs with rents that are around $1850 or higher in neighboring rental communities.
BTW, if rates go up to 6.25 the net payment is around $1875 after taxes... The stability of the market is all rate dependent in my opinion...
I wanted to respond to some of the Rent v. Buy critics... The rental scenario does work for me... The scenario:
ReplyDelete1BR- $350k in Oldtown w/parking
3% credit at closing which covered the closing costs
10% Down Payment of $35k
Rate - 30yr fixed @5.25% w/1pt (covered in credit)
Payment - $1739.44 ($1378.13 is Int)
Condo Fee - $257/mo (prepaid 6 months with credit)
Est. Taxes - $126.63/mo
Gross Pmt - $2123.07
Est. Tax Savings - $385.88/mo
Net Pmt - $1737.20
Current Class A Rent - $1850/mo (Monarch & Post Carlyle)
I am sure you are wondering if these rents are achievable as well, as the comps are offering rental concessions currently. Well, I am not ready to move for 6 months, so I just rented out the place on a 6 month lease on Craigslist. It took two days and rented for $1800/month. Pretty good in my opinion...
I agree, the market can be scary, but at the very least I am in a stable neighborhood and can rent my place if/when I decide to move and come close to covering my costs... BTW, this scenario also works in several places in DC... I was looking at buying at Jenkins Row, the Dumont, the Phoenix, etc., and they all have similar prices for 1BRs with rents that are around $1850 or higher in neighboring rental communities.
BTW, if rates go up to 6.25 the net payment is around $1875 after taxes... The stability of the market is all rate dependent in my opinion...