Real Estate Agencies

Landlords loosen credit standards

When reviewing rental applications, property owners and managers say they are increasingly willing to overlook foreclosures.

The National Association of Independent Landlords recently reported that 82 percent of 562 U.S. landlords surveyed in March indicated they were willing to rent to someone who had recently lost their home to foreclosure — providing they traditionally had good credit.

Professionals in the local market said that’s certainly the case in Bakersfield.

“We don’t make that as a nick,” on rental applications, said Pamela Fein, office manager at Citywide Property Management in Bakersfield.

Nedra Sanders, property supervisor and marketing coordinator at Realty Management Services in Bakersfield, said her company used to view foreclosures harshly.

“Years ago, if someone had foreclosure on a credit report, that was cause for denial,” she said.

“We don’t do that anymore.”

Sanders noted, however, that applicants ought to have a relatively clean credit report with the exception of the foreclosure.

Real estate investors are jumping into Bakersfield’s rental market, attracted by sharply devalued apartment buildings and occupancy rates that have risen steadily as people who lose their homes are forced to sign leases elsewhere.

Such is the appetite for multifamily residences that out-of-towners and locals with plentiful access to cash are buying distressed properties on courthouse steps and flipping them for a profit, sometimes in a matter of days, Bakersfield professionals report.

Last year, Bakersfield’s four-plex and apartment market topped its 2009 performance in virtually in every measure — number of transactions, total dollar value of sales, citywide occupancy rate and price per unit — according to a report by commercial real estate firm Grubb & Ellis – ASU & Associates.

Unlike years past, investor interest is no longer confined to the relatively affluent southwest, said Marc A. Thurston, senior vice president within Grubb & Ellis’ multifamily investment group.

“They’re willing to go anywhere within our market and buy now,” he said.

High occupancy, low rent

Kern County posted the highest average occupancy rate — nearly 98 percent — among 39 multifamily housing markets across the United States in a first-quarter survey by RealFacts, a Novato-based data service serving the rental industry.

Over the preceding year, it reported, Kern’s occupancy rate grew by 3 percentage points, which was roughly the same size increase as the county’s average rent, which it said averaged $836 a month in the first quarter.

Kern remained a bargain as compared with Los Angeles County, where RealFacts said apartments were about 94 percent occupied and rent averaged $1,574 in the first quarter. Fresno County’s multifamily rents averaged $787 and were 94 percent occupied, the company reported.

A few factors account for apartments and other rental properties in Kern and elsewhere filling up, but it’s mostly because homeowners displaced by foreclosures are gradually moving out of relatives’ houses, said Tracey Benson, president of the National Association of Independent Landlords.

Meanwhile, RealFacts owner Sarah Bridge noted that many developers have hesitated to build new housing amid tight lending, weak incomes and expensive construction materials.

Buying up rentals

While strong local occupancy rates have reassured recent investors, conditions stemming from the housing boom and bust have made it easier for them to make money.

Investment in four-plexes and apartment buildings in and around Bakersfield shot up during the boom alongside investment in single-family homes. Data from Grubb & Ellis show that multifamily sales volume spiked at about $240 million in 2004 and remained above $160 million in 2005 and 2006.

The sales volume has since remained below $100 million a year. In 2010 the total came to $63 million, which was 70 percent greater than 2009′s tally.

Thurston said the local market has gained a strong reputation not for its price appreciation but its ability to generate cash flow for new investors able to pay cash or large down payments.

Prices for multifamily residences are generally down 60 percent to 65 percent from early 2007, when sales prices were at their highest, he said.

Investors who got in at the peak have struggled to keep up with payments, often creating opportunities for other investors to pick up property through foreclosure sales, he said.

Four-plexes have been a particularly attractive option, Thurston said, as they qualify for better loan conditions than other forms of commercial real estate.

He described a recent example in which an investor picked up a foreclosed four-plex for $300,000, renovated it and sold it for $375,000 a week later — “and they make a profit.”

Interest in houses for rent

Similar patterns in single-family home sales are impacting the rental market as well.

Bakersfield appraiser Gary Crabtree said real estate investors are achieving short-term returns of 15 percent to 25 percent by flipping homes bought in foreclosure sales.

Often, he said, those homes are ending up for rent while owners wait for values to rise.

“At the prices they are purchasing at, it makes the investment quite attractive because they cash flow,” he said.

Some buyers are picking up single-family homes strictly for rent, said Bakersfield Realtor Nance Fillmore, who said she sometimes works with such investors.

“Some of them are going to the courthouse steps and buying them in bulk,” she said.

Meanwhile, homeowners who bought during the boom are having a hard time because the money they collect in rent generally is not enough to cover their mortgage payment.

Pamela Fein, office manager at Citywide Property Management in Bakersfield, said she recently counseled a property owner to lower her rental price to about $1,500 a month from $1,800.

She said the owner resisted because the lower price wouldn’t cover her mortgage payment.

“I said, ‘Well, rent doesn’t cover mortgages these days,’” Fein said.

That and other financially difficult scenarios weighs heavily on Bakersfield Realtor Richard Watson. He said he sees too many renters falling behind on rent and too many property owners unable to collect enough money to keep their property.

“The market emotionally is bad,” he said.

Angie Trigueiro, 2011 president of the Bakersfield Association of Realtors, saw it from a different perspective. She said new investors are able to pick up property at a discount, then rent it out at prices local people are able to afford.

“This has turned out to be a win-win situation,” she said.