Sunday, May 04, 2008

Condo Flipper Rental Woes

by Tanta on 5/04/2008 06:59:00 AM

The Washington Post finds two fresh victims of the RE bust, condo owners whose mean, nasty condo boards won't let them rent out their units:

. . . said Moss, who also is a real estate agent. . . . said Gozen, a mortgage loan officer.
Surely, if anyone understood the risk in trying to flip units in an owner-occupied project, it'd be these two, no? No.

Gozen:
"My idea was not to be a landlord. My idea was to flip them, but here I am. I am stuck with them," he said.

Gozen is applying for hardship exemptions from both condo boards, arguing that without a renter he will not be able to keep the properties and will be forced into foreclosure or will have to sell at a particularly low price -- either of which would drag down values for the entire building.

"I can only afford to pay their mortgages for a few months, and then I will have to go to foreclosure," he said. "If they would ease up on this until the market gets better, that would be great."
Why is it we can't get reporters to just ask a couple of Econ 101 questions when they interview these people? Like, how much would you rent it for? Would that be enough to cover 2005-era mortgage payments? If so, how does that compare to what the unit would sell for? If not, would the "market rent" you set here also "drag down values for the entire building"? And what's your plan for making up the difference? What's a "particularly" low price, anyway? At the end of it, what's the net difference to your neighbors of turning the thing into a rental project, which lowers values, makes financing for resales hard to get, and uses up the "hardship quota" of allowable rentals, versus establishing a painful but accurate new comp for an owner-occupied sale?

And, finally: do you really expect the short sale-style negotiation tactic--"accommodate me or I default on you"--to go over as well with your neighbors as it does with your servicer? I'm truly curious about that question. At least, in a short sale, the servicer is free of you after taking the loss: from the servicer's side, the deal can't get any worse down the road once you sell. What are you offering your condo board? A guarantee that you'll never skim the rent and end up defaulting anyway? A guarantee from a self-described flipper who doesn't appear to have disclosed intended occupancy quite accurately up-front when he bought the units in the first place? (If they were purchased as officially non-owner-occupied, why were they not rented immediately? Did you try but fail to rent them immediately? What am I missing here?)

I am prepared to have some sympathy for bona-fide owner-occupants who have fallen on unforeseen hard times and must now battle recalcitrant condo boards to be allowed to rent. I rather wish the Post had found one or two. Perhaps I should be more charitable on a Sunday morning, but I'm having a hard time working up sympathy for a couple of industry insiders who bought at the top of the market for speculative purposes and now want the rules re-written in the name of "protecting the neighbors" from a sale at market prices.