John Gale, committee chairman, kicked off the meeting with a brief history of zoning in Hartford and the current zoning in the neighborhood. Most of the area north of Farmington Avenue is zoned for single family, though there are a few blocks that allow more density. South of Farmington Avenue is zoned for higher density residential buildings. From there he transitioned to a quick survey of recent WECA Planning & Zoning Committee topics and positions. The stated goal of the meeting was to start a conversation, and to begin the process of working towards a WECA policy on common zoning issues in the neighborhood.

A Wide Open Discussion, Or Not
Once the floor was opened to the attendees, the discussion quickly narrowed to “problem properties,” which were all multi-family homes. The group seemed most concerned about nuisance issues (noise, traffic, parking, …), and discussed the appropriateness of using zoning laws as a primary strategy for fighting back. Although the zoning laws are clear about what is allowed, they are implemented inconsistently. Ambiguities seem to arise from bureaucratic issues like the Assessor and Zoning departments classifying properties differently, and the policy of zoning enforcement on an “as needed” basis. As a result, owners currently have the flexibility to use their properties in ways that conflict with zoning laws as long as they do not upset their neighbors and get reported to the city.

Overall, the group seemed to like that the zoning laws were inconsistent. Multiple attendees noted that the nuisance neighbors were more often than not living in multifamily properties owned by absentee landlords and configured in ways that conflicted with zoning. Others spoke about the limited success that they have had in working with the police department to address “quality of life” issues. Reporting the properties for zoning violations was an effective way to get the attention of the owners, and ultimately address problems caused by the residents.

A minority of the group spoke out against the zoning ambiguity, primarily on the grounds that it was bad business. One attendee described the ordeal he has been through after purchasing a multifamily property. His good-faith efforts to bring it into zoning compliance and improve the property have been halted by confusion within the city about what is allowed. The property in question is categorized differently by the Assessor and Zoning departments, and research by his attorney has uncovered evidence that a third use may predate the city’s 1968 implementation of zoning laws. Other attendees also described their challenging experiences in securing permits.

As a real estate agent trying to sell homes in the West End, it is very important to accurately describe, and advertise, a property so that potential buyers and other real estate agents know exactly what uses are permitted. This is obviously a challenge if the official policy is that many current uses are technically illegal, though allowed through non-enforcement.

But What About Density?
The question of density was not truly the focus of the meeting, though it surfaced periodically and again divided the group. Those supporting increased density generally advocated recognizing existing 3-families and allowing both 3rd-floor rentals and accessory dwelling units. They argued that density is good for local businesses, property values, expanding public transit, and energy efficiency. Those opposed to increased density focused on the traffic and parking issues that already exist in some areas of the neighborhood. The majority seemed to support increased density in theory, though the link to absentee landlords and nuisance neighbors seemed to make many feel it would not be right in practice.

Larger questions about density went unaddressed because no one raised them as issues. The Committee has held meetings to discuss proposals for a vacant lot on Kenyon, the former Medical Society building on Scarborough, and the University of Hartford Asylum campus. Each meeting drew numerous West Enders with a direct interest. And each meeting ended with the neighbors in attendance against aspects of, or all of, the proposed project.

An Important Conversation
Working together as a neighborhood to find agreement on zoning and development issues is challenging, but important, work. Previous meetings have demonstrated that there is not a single consensus among all interested parties. Taking the time to find common ground will allow WECA’s representatives to head off unacceptable projects on the neighborhood’s behalf, which will hopefully reduce the number of emergency zoning meetings. Perhaps the conversation will also help identify uses to encourage for specific properties.

This meeting was the first to allow a forum for the West End to be proactive in addressing a subject about which many have very strong feelings. We encourage everyone to get involved in the discussion by participating in the next meeting and raising issues that are important to them. Ideally, the effort will be able to identify policies that represent the neighborhood’s collective opinion so that owners and potential owners know what to expect when looking to change the use of their property.

Today, as of 11:30am, we are no longer investment property owners and I can say that we are both very happy about that. Ironically we never had any issues with our tenants; they always paid their rent on time and were respectful of the property. Every month we netted about a $100 in profit – nothing huge but enough to cover unexpected expenses beyond the mortgage, condo fees, taxes, and insurance.

Looking back, we learned some things through this process…

First, finding good tenants is a lot of work. We only went through the process twice, but in each case it required at least two weeks of concentrated effort. We would post the ad on CraigsList and then try to answer as many questions as possible via phone or email. Kyle or I would meet potential tenants at the condo to show them around, answering any remaining questions. The paperwork aspect was less burdensome, but still required time and effort. It would have been possible to fill the unit much more quickly had we lowered our asking rent, but we were very focused on finding good tenants and making sure our investment was cash flow positive.

Because the unit was a condo, once we decided to sell we had to choose whether or not to sell it as an investment property with a tenant in place or as a vacant unit. We were confident that a vacant unit would be more attractive to the buying public. However, we had a good tenant in place who was interested in extending her lease, so we decided to try to sell to investors first. There was some interest in the property over the four months we were advertising, though informal discussions with potential bidders made it clear that investors valued the unit far lower than we believed an owner-occupant would. We listed the vacant unit for sale and quickly saw the asking price, which was so outrageous to investors, was very attractive to traditional buyers. Agents showed the unit early and often, and it went under contract in about a month.

Part of the due diligence process we used during our initial search was modeling the expected financial return of the property. Kyle put together a spreadsheet to take into account all of the expenses that investment properties require. It was interesting to see how the model rated different opportunities. Nearly all of listings we considered were cash flow negative at the asking prices – many dramatically so. It was difficult for us to understand how buyers were expecting to make money on their investments. Having gone through the landlording process with a property that was cash flow positive, it seems to us that the buyers must have been counting on continued price appreciation. There were no hidden revenue sources or profits.

Property ownership is one of the oldest businesses in the world. It is a specialization unto itself and should not be thought of as “easy money.” After a dipping our toes into that world, we have a good understanding of how it all works, and have concluded that it’s not for us right now. We have other priorities, and don’t want to feel responsible for maintaining additional properties.

That said, we wouldn’t rule it out as a future business activity. There are definite advantages to being a property owner and a landlord. We would have to be involved at a larger scale than one rental unit, and we would be much more opportunistic about our entry point so that there was a better chance for price appreciation in addition to the regular cash flow. At this stage in the market, the two main opportunities we see are for contractors to buy, repair, and operate distressed properties, and as a place to park excess cash (buy with no mortgage) that will generate a better return than money markets, CDs, or government bonds.

We hear frequent debate about whether the globe is warming, and if so, whether or not our civilizations and lifestyles are the cause. We also hear about large chunks of ice that break off into the ocean. But we do not hear much about specific consequences of rising sea levels in the news. Satellite images show that the amount of land ice has been decreasing in recent years. Reports from low lying areas tell the stories of societies already dealing with higher water. At some point the issue may become “real” for the rest of the world.

Rising sea levels, attributed to melting land ice, present a different type of challenge than we’re used to facing. Rather than being an acute event that ends as quickly as it began, rising sea levels stick around to create a new equilibrium. Coastal cities around the world will need to adapt if the predicted changes actually occur over the next 100 years.

New York City is already thinking about how they will protect their extensive coastline. The Wall Street Journal’s recent article about their efforts raised a number of interesting points. Most heartening is that City leaders are monitoring the latest studies to proactively plan defenses and countermeasures. Though there is no definitive prediction about what will happen, City leaders are currently expecting a climate similar to Raleigh, NC by 2080 and higher water around the City than in other parts of the globe. Despite the research, their ability to act is limited because they “can’t make multibillion dollar decisions based on the hypothetical.”

Assuming we believe there is a threat, the logical place to look for a plan is the Federal government since rising sea levels will directly impact much of the country’s population. Current government policy is to help regions that are impacted by natural disasters. Leaders declare a state of emergency and bring in help from other areas. What happens if our country’s entire 12,383 mile coastline is threatened? Which portions do we protect? When do we begin the projects? How are these decisions made? Given our tendency to punt on hard questions, we’ll probably see little proactive planning followed by various levels of government addressing problem areas as they arise.

There is little a homeowner can individually do about rising sea levels. Their best option is to be thoughtful about the risk for their properties. Beachfront homes clearly are at a higher level of risk than those at elevation. The recent work by FEMA to redraw flood maps has made more home buyers aware of floodplains, but very few in this area consider rising sea levels in their purchase decisions. Which may be appropriate since the City of Hartford sits at an elevation of 59 feet (18 meters).

The threat of higher seas is decades, and perhaps even centuries away. There is plenty of time to plan our personal and national strategies. Some thoughts…

1. The Federal government needs to take a position early stating what they are willing to do. Because of the persistence of nature, and the massive length of our coastline, the fair and practical response is probably to do nothing.

2. Coastal property will transition from selling at a premium to selling at a discount. This should happen whether defenses are built or not, and is just a matter of degree. Markets adapt as new information is available, and once there is more certainty about when rising sea levels will be a problem, buyers will begin to consider property elevation in their purchase offers.

3. It is common for buildings to last decades, or even centuries. Ideally, real estate development will shift to areas that will be less threatened by rising sea levels. Realistically, it probably won’t since there will still be demand in coastal areas until the point when the problem becomes “real.”

Nature has changed the face of planet earth on many occasions. It is a powerful and persistent force that will prevail despite our best efforts. One way to imagine the potential impact of higher seas is by playing with a simulator. Greater Hartford, as an inland metropolitan region, should not feel the impact directly. Perhaps we’ll even benefit as people and investments move away from the coast. But like everything else about rising sea levels there are no definitive answers.

All data was pulled from the CT MLS and reviewed and compiled manually. “Distressed” property to me means that either a bank already owns the property or the sale will require lender approval because it is a Short Sale. This analysis does not include properties going through foreclosure if they are not listed in the MLS because there is no central data source which collects that information. And when I say “reviewed manually” that means me going through every single MLS listing for that type of property and counting it manually. The MLS does not require agents to enter in the owner, nor does it require us to enter in a Short Sale, although those data fields do exist. Some agents fill in the information, but most do not, so the easiest way to gather the data is just to look through and manually count. It is not fun, but is doable while sitting on a couch on Tuesday night, watching TV. I counted a property as Distressed if the owner was listed as Corporate or a bank, if the Short Sale field said Yes, or if anywhere in the listing description or agent remarks it said that the sale needed lender approval, was bank owned, or was a short sale.

Here’s what I found. Remember, data from the MLS is deemed reliable, but not guaranteed. My ability to count correctly while watching House Hunters is deemed fairly reliable, but also not guaranteed…

Some Observations…

1. The levels of distress among multi family properties is consistently above 20%, and in some cases above 30%. In absolute terms, these numbers are higher than we have seen in previous years and show that the Connecticut’s cities have felt some of the impact of the “housing crisis.”

2. The levels of distress among multi family properties is generally higher than among single families. Unfortunately, the data does not give any clues as to why multi families have become distressed at a higher rate. There are many factors that play into a property owner’s decision to default, but the most likely explanation is that investors took on too much debt to buy marginally profitable properties in hopes of continued price appreciation.

3. Inventory levels vary between the towns. This suggests that there are more buyers shopping in New Haven, where the multi family inventory is 7.3 months, versus Hartford. The other side of the coin is that there may be more opportunities for buyers right now in Hartford.

Connecticut is experiencing distress in its multi family markets, and seeing it at a higher rate than the single family properties in the same markets. This creates opportunities for buyers with cash, whether they are looking for investment properties or plan to live in one of the units themselves. Next month’s market statistics post will include updated data for distress in the single family markets of our usual towns.

The new rules, which went into effect at the beginning of 2009, still use the 5 year look-back period. They also retain the exclusion limits of $250,000 and $500,000. However, sellers now need to scale the exclusion by the percentage of time that the property served as their primary residence over the past 5 years. A quick example is the easiest way to illustrate the change. Suppose an owner lived in a property for 2 years, then rented it out for 3, and is now looking to sell. Because they lived there for 2 of the previous 5 years, they would be eligible for 40% of the credit. Under the previous code, they would have qualified for the whole thing.

Like all laws, this can get complicated quickly. And portions could be open to interpretation. So, investors and second home owners planning to take advantage of this gains tax exclusion need to consult with their people (accountants and/or attorneys) to make sure that they are on track to achieve their real estate goals.

For Your Further Reading Enjoyment:
The Housing and Economic Recovery Act of 2008 (refer to Section 3092 near the end)
IRS Section 121 Code

As many of you know, Kyle is my husband and has been a regular contributor for quite some time. His bio has been available on the site for a while so I’m not going to rehash the gory details. I will say that he is a smart, creative and hard-working guy, and it never hurts to add people like that to your business.

Kyle has been working part-time as a licensed agent for almost a year now, so he’s going to be able to step right in and begin working with clients. We expect that he will focus mainly on buyers, giving our team twice the availability for showing properties. To the extent that we work with investors, he will likely take the lead there so that clients can benefit from his considerable experience analyzing opportunities (his full-time job for the past 5 years). Finally, he’ll also be active on the operational side of the business, working to support our various initiatives.

On a personal level, I’m really looking forward to seeing Kyle more often and having him partner with me. We both have different business strengths and ideas, and I think this is going to help take our customer service and overall business to an entirely different level. I can’t think of anyone else I’d rather have on my team!

Welcome, Kyle!

UPDATE: A few of you inquired, Kyle was not laid off, he chose to leave his previous position to help me expand my business. This was a carefully planned decision which we’ve been working towards over the past few months.

It did not disappoint. The petitioning homeowners felt that the Condo Association Board was not being open and fair with everyone. Which is always an interesting topic to discuss in public. The general sense of distrust seems to be the result of homeowners feeling as though they are not allowed to attend Board meetings, not understanding what the Board is doing, and not feeling that the Board is responsive to their needs and wishes.

Despite having some valid concerns about transparency, the ringleader of the petitioning group had trouble leading a coherent discussion. Making matters worse, he is actually a member of the Board and has apparently not tried to make the petitioned changes internally. The only thing that saved the meeting from complete chaos was the voice of reason in the form of the management firm. The two representatives were able to command the floor and insist that the meeting proceed according to the association bylaws.

The final result was that the handful of homeowners with concerns got to say their peace, and the Board committed to consider the requests on the petition. Once again I was pleased to hear during the Treasury report that the Association is well positioned financially.

But the formal business took a back seat to the absurdity of the whole proceedings. Amy mentioned a few times that she felt like she was witnessing a live Dilbert comic strip unfold. Some of my favorite moments:

1. Remembering that we elected the petition ringleader to the Board at the previous annual meeting, realizing that he was the one that launched the petition, and then further realizing that after 9 months on the Board he still does not understand the rules by which meetings are run.

2. Learning that the minutes from the annual meeting (last April) are still not available. The current minute-taking process is to record the meeting on tape and then transcribe the tape. Apparently only one person is capable of transcribing the tape and she has had a difficult year and has not yet gotten to that particular meeting.

3. “My name is John Doe, and I live in 4F.” All speakers began their remarks with this identifying sentence. Although a sensible thing to do in theory, the ringleader insisted on starting off with it each one of the 1.32 million times he interjected or responded. And each time one of the other Board members sighed in exasperation.

4. Hearing the recorder used for the minutes start beeping on three separate occasions. Based on the reactions of the Board members, the beep meant that the tape was done and needed to be changed. Minutes of transcript were lost each time.

5. Learning that the Board voted to kill the committee that the petition ringleader chaired rather than remove him as the chair. Another Board member actually admitted that they did it because they did not like dealing with the ringleader. The closed Board meetings must be a barrel of fun!

6. “Satellite dishes are beautiful!” The association has a policy of not allowing personal property outside on common property. Thus no satellite TV. And an impassioned plea for the freedom of (TV) choice.

7. “It’s the email’s fault! It’s the computer’s fault! ” A quiet aside by one of the Board members about why some information was not available. At first I thought it was a serious comment, but then she followed up with, “We have to blame the computers for everything.” Whew.

8. And last, but not least, the Board members selectively using the Roberts Rules to silence audience members (homeowners) when they were speaking out of turn. This tactic is a go-to move for power players and is especially effective when used against good-intentioned people who want to follow the rules.

Despite the absurdity and strong emotions, it’s possible that some good will come from what I’m certain will be known for all time as the “Special Meeting of 2009.” There should be some added transparency to the Board’s activities. And the Board should seriously consider some of the other proposals. I’m not sure if they will or not, but we can all look forward to the next Annual Meeting to see how things have developed.

That wraps up this edition of dysfunctional Condo Association meetings. Now we’d like to hear some of your stories. Does this all sound familiar? What has been your favorite moment? Please send them in without the name of the complex or individuals to protect the guilty…

Year-to-date, multi-family homes sales are down 24% in Hartford, compared to the same timeframe in 2007. The median price for multi-families in Hartford is down 37% this year, compared to the same timeframe in 2007. And there is a whopping 15.4 months of multi-family inventory on the market in Hartford right now. That means if no more multi-families were listed in Hartford, it would take 15.4 months to sell what’s currently out there based on the current rate of closings.

As I mentioned the other day in my Short Sale post, 15% of the available multi-families are short sales. If you’ve got time and some cash, this may be an excellent opportunity for you to score a bargain in Hartford.

Offers on short sale properties must be approved by the seller’s lender before they can be officially accepted. And when a short sale property is listed in the Multiple Listing Service, the agent must call out language that it is indeed a short sale and it requires lender approval. Lender approval often takes months to receive, as the bank must do their own appraisal, a littany of paperwork, and often times negotiate with secondary lien holders in order to approve the sale.

Right now, there is no way for me to quickly find short sale properties, as the CT Multiple Listing Service does not have a required field which denotes a property is a short sale. Luckily, they will be adding this searchable field at the end of August and it will make my job a lot easier. Here’s why…

This morning one of my investor buyer’s called me to find out about short sales in Hartford. Because there is no searchable field, I had to look through all of the properties manually, both single family homes and multi family homes.

As of today, out of the 335 multi family homes for sale in Hartford, 51 of them are short sale or bank owned properties. That’s 15% of the market! The same is true with single family homes available for sale, out of the 153 single family homes, 23 are designated as a short sale or bank owned. Again, 15% of the market.

This is good news for my investor. They have time on their side and lots to choose from. The searchable short sale field will also make it easier for me to monitor area towns to see how the percentage of short sales compare, and when they increase or decrease. Will we actually work through the short sale inventory, or will it continue to sit and move towards foreclosure, eventually becoming bank owned?

I typically walk by it on a daily basis while walking my dog. Well, in July, it went up for sale. It was bank owned and being sold As Is, originally listed at $769,900, which was about $100 a square foot. Not bad considering that houses on Prospect Avenue typically sell for $150-$225 a square foot.

I went to take a look and my general observation was that someone had started fairly extensive renovations and appeared to run out of money. Hence, bank owned. The kitchen had been completely updated, baths were gutted and updates stopped mid-stream, walls were freshly painted throughout. There were beautiful architectural details and hardwood floors, but fireplace mantles and stained glass windows had been pulled out and were strewn about the house. In the basement, it appeared that fire damage had occured at some point. There was a sizeable carriage house with a lower level office and upper level apartment, both in disrepair. Going through my mental checklist, I estimated that the house and carriage barn needed about $200,000 in work to get it up to Prospect Avenue snuff. Adding that to the list price of $769,900 was too much for an investor because they would never be able to recoup the investment, given that it’s on the first block of Prospect north of Farmington Avenue.

But I continued to watch the drama unfold over the next few months. The listing expired in September and was re-listed again in October at $719,900. Still too much. It expired again in November and was relisted at $699,900. It went under contract at the end of November. It closed on December 31, 2007 for $450,000. That’s right, it was last listed at $699,900 and closed for $450,000.

Holy schniekies. Happy New Year to the buyer! There are a few lessons to be learned from this…

1. With a bank owned property, find out how much the bank is owed, don’t assume it’s the asking price. They really only need to cover what they are owed and their fees to close the deal (real estate commission, attorney fees, etc.).

2. You’ve got to have cash and a squeeky clean contract (basically no contingencies) to pull off these deals.

3. The neighbors of this house are going to be peeved because it will drop the property value for that block. I mean, come on, $59 a square foot? Crazy!

4. The neighbors of this house will be happy when the buyer (most likely) finishes the renovations and flips this sucker in a few months. My guess, just in time for the spring/summer market. It could probably go for $850,000+ once everything is fixed and in tip-top shape.

So, if you’ve got some cash and the stomach for investing, here’s an example of how it can really pay off. Best of luck to the new buyer. I hope whatever their strategy is works out for them, flip or hold. I’ll provide updates as I see this unfold over the spring…