Rent To Own NC News

HOMES FOR RENT: THEY DIDN'T SELL

Frustrated homeowners give apartment landlords stiff competition, leasing houses no one would buy

Jack Hagel, Staff Writer for the News & Observer.


Wendy Gilbert had high hopes for her University Park house.

Buoyed by rapid sales and rising prices in the West Raleigh neighborhood, she and her husband paid $252,000 for the three-bedroom Brooks Avenue home in December. They planned for profit.

They fixed it up and listed it in July for $429,000. It lingered unsold, even after a $14,000 price cut. "There were several people interested," said Gilbert, who lives in Cary. "But either they couldn't sell their house, or they couldn't get financing."

So last month, she started courting another kind of house hunter: the renter.

Gilbert is among a growing number of would-be sellers offering properties for rent, conceding to a glut of unsold homes and the prospect of cooling prices as tighter lending practices make it harder for some buyers to get mortgages.

The practice is creating a shadow market that masks the true inventory of unsold homes, which in the year that ended Sept. 30 climbed 22 percent to a four-year high of 17,929. When the wobbly housing market begins to stabilize, experts say, these homes could be the first to flash "for sale" signs.

"You really have no idea of what supply will be hitting the market and at what time," said analyst Brian Reece at Karnes Research, which collects data for the Triangle Apartment Association.

This shadow not only looms over the home sales market, it is pressuring the rental market, because apartment owners had been expecting a surge of new business.

There were 3,102 apartments built in the year that ended Sept. 30, according to the apartment association. That's 86 percent more than the annual average in the previous four years. About 3,000 units are under construction.

The shadow could skew demand, prompting apartment landlords to cut rents or offer concessions such as free months of occupancy or waived security fees.

Landlords have been angling to feast on demand from families who are moving to the Triangle but who can't sell homes in the soft markets they left. Often, those families are the potential renters who prefer a home with a yard over an apartment complex.

"They haven't been in an apartment since they've been in college," said Sharon Schovain, director of property rental and management at Block & Associates Relocation in Raleigh. Block is listing about 450 houses for rent, a 12 percent increase over last year.

"I don't really remember a time when our inventory has popped up like it has this year," said Schovain, who has been managing rentals for 23 years.

The new business comes from sellers who "got disgusted with the soft sales market" and independent builders who have given up on selling some homes, turning to the rental market to soften the blow, she said. They are joining out-of-state investors who are "buying up houses like crazy" in the Triangle, banking on the long-term prospect of rising values.

"If you were living on the West Coast, imagine how cheap the real estate looks here," Schovain said.

At 5628 Keowee Way in northeast Raleigh, a "for sale" sign and a "for rent" sign compete for attention outside a three-bedroom home with a two-car garage. Homeowner Mike Yoquelet, 49, expected the value of the five-year-old home to appreciate handsomely with the extension of Interstate 540. He paid $180,000 for the home in February 2006. He wants to sell it for $229,900 but would settle for a renter paying $1,295 a month.

"At this point, I'm trying to do either so I can make my mortgage payment," said Yoquelet, a broker at Northside Realty.

Even if he couldn't, the shadow still lurks: There is a growing segment of investors who are padding the rental and for-sale markets by targeting those who couldn't make their mortgage payments. Borrowers who defaulted on home loans were expected to fall back to
apartment living. Their foreclosed homes became opportunities for investors to buy cheap and resell at a big profit.

\Now some investors are targeting foreclosures -- and errant borrowers -- with lease-to-own programs.

Bob Bishop last month paid $71,000 -- at least 21 percent below the original list price -- for a two-bedroom house on Alcona Avenue in Durham. Bishop, a software engineer, made some repairs and now offers it under a lease-to-own program in which the tenant pays $3,000 down and $950 each month for two years. The idea is for the tenant to rebuild credit and eventually qualify for a mortgage.

"If I find somebody that can't qualify or has credit problems, they would not be picky about knocking me down on price," he said. "They'd be more interested in being able to get into their first home."

Jeff Ochieng of Knightdale has built a business out of the concept. He has quit his job as a furniture salesman and tripled his portfolio of rent-to-own homes, hoping to lure nine buyers.

"Bad credit. Filed bankruptcy. Late payments. Judgments. Charge-offs. Even a car repo or previous foreclosure. You can still own a home through our rent to own program," says his Web site, RentToOwnNC.com, which debuted in August. "I figure I can help people," Ochieng said.

The same sort of thing worked for Gilbert. The house on Brooks Avenue has been leased, and the weight of her second mortgage lifted with the help of a rent check from a tenant who has an option to buy the house.

"We weren't planning to hold it for this long," she said.

© Copyright 2007, The News & Observer Publishing Company

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