Inman News (a real estate news source) recently interviewed Rick Sharga, CEO of CJ Patrick, a company specializing in Market Intelligence. Some of Sharga's predictions for 2024 are surprising.
No drop in mortgage rates until at least May or June. How do we know? The Fed decided to keep the benchmark interest rate at 5.4%.

Home prices will keep rising slightly. They have been rising about 5% year over year and that trend is not likely to disappear in 2024, says Sharga. Inventory will remain low until rates drop to 5.5% or below (they are about 7% right now). Potential home sellers with mortgages below 4% would double their house payment if they moved. But when rates drop to 5.5% and lower, Sharga thinks that sellers who have held onto to their homes longer than usual will finally sell.

The higher cost of homeowner's insurance will affect many buyers. Whereas in Georgia we used to see insurance running $100 per month, we are now seeing $150 to $185 per month. Sharga's report was nationwide and the insurance problem is much worse in California, Texas, and Florida.

Foreclosure tsunami? Not going to happen, says Sharga, despite what many "YouTubers" are putting out there. Foreclosure activity has been slightly rising, but that comes after a historically low number of foreclosures, so current numbers are still quite low. Homeowners have much more equity than in the Great Crash. There are not many homes making it to auction and few bank repossessions and REO's on the market.

Investors are doing less flips and more rent-and-hold. Flips worked especially well in a market where prices increased dramatically.

Sharga's final comments to summarize the year: "Sales activity for both existing and new homes will increase year over year, probably not to 2022 levels, prices will go up a little bit, foreclosures will be at a minimum, and it will be a couple of years while the market resets."
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SOURCE: Inman News, "Here's what lies ahead for the spring selling market," article by Bernice Ross, February 20, 2024.

I predict that 2024 be a Market of Confusion. We should be in a full-on “Buyers’ Market” right now, but we’re not. Many houses that go under contract will fall out of contract (creating an opportunity for landlord-investors). Many homes will sit on the market and not sell. A lot of Sellers—and real estate agents who lack experience—will market their property in the wrong way and will end up reducing the price . . . multiple times. A pent-up backlog of homes that would have gone on the market in 2023 will finally go up for sale in 2024. Areas where landlord-investors typically saw great results in the past will not bring the best results in 2024.

It will be a good year to have a Realtor who understands the landlord-investor market.
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The factors that brought us here have been repeated in article after article—but not everybody reads about real estate trends, so I could possibly mention a few things in this week’s report you don’t know. But let’s start with a few obvious factors: low inventory and high (average, actually) mortgage interest rates.

Low inventory is the result of two main ingredients: a major slowdown in new construction after the 2008 Great Crash and the plethora of potential Sellers who want to move, but don’t want to give up their 3% mortgage interest rate in exchange for 6.8%.

The lack of Buyers willing to fully execute a purchase (a fair number start and then drop out) has similar causes. Prices and mortgage rates are higher than they would like and housing is unaffordable for many Americans. There have been numerous cases of Buyers terminating contracts when they discovered just how high their monthly payment would be or when they realized they lacked the cash to repair the house they thought was a great buy.

We should be in a full-on Buyers’ Market, which is defined specifically by having more than 5 months worth of inventory (we currently have half that or less). I say we “should be” in a Buyers’ Market because real estate commonly follows an up and down cycle of about eight years. Sellers have had it good for quite a while now. And there are millions of potential Buyers, especially Boomers who want to downsize and Millennials who want to buy their first home and GenXers who want to step up to a bigger, nicer home.

But the rapid increase in mortgage rates (the fastest increase in mortgage history) killed it and low inventory put the nail in the coffin.

Will it still come? Absolutely. The market always changes.

In the meantime, the Market of Confusion that is 2024 will provide you, dear landlord-investor, with some opportunities.

Homes that come back on the market after a transaction is terminated: what an opportunity for you! The Seller has just gotten a dose of reality. Their prize property that they are emotionally invested in did not do as well on the market as they hoped. They are discouraged. They are ready to be more realistic about the repairs their home will need and the fact that a Buyer will want to reduce the price and/or receive concessions to offset the repairs.

Houses that have been on market more than 60 days are another lucky break for you. Hedge funds and large investors commonly offer 85% of the “after repair value” that they predict for a house and they tend to overestimate the repair costs. But you, you’re a lot smarter than the Wall Street drones who send out scores of these offers every day mostly to the sounds of silence. You know that business is best handled as a win-win for all parties. Yes, you may get the home for 10% under asking and you may get concessions for realistically appraised repairs. It’s your chance to beat the Big Investors.

Some Sellers are listing homes that are out of date or in obvious need of repairs. In 2021, houses like that would sell above appraised value and eager Buyers were saving so much money on the mortgage rate, they cheerfully undertook home repairs and remodeling like champions.

And some real estate agents only handle one or two transactions a year (49% of Realtors sell 1 or 0 homes per year, yes, it’s ridiculous). So they don’t really have hands-on experience with market trends.

That is why many homes sit on the market (and it’s not always the Realtor’s fault, since many Sellers believe they know the market better than Realtors and they will not listen to advice).

These Sellers will end up reducing the price of their property multiple times. Sale price? $420,000. A month later, $399,900. Then it slowly works its way down to $369,900 and they get a Buyer.

That Buyer could be you.

And you could have something in your pocket most Buyers don’t: real estate professionals who excel at handling repair and remodel projects. You can get better prices from repair contractors and better service by using a Realtor who specializes in landlord-investments.

We understand that landlord-investors are seeing their cashflow shrink when prices and rates are high.

But we also understand that smart investing is still happening every day. And even when cashflow is a bit less, landlord-investors are still engaged in one of the best methods of building wealth. And with experience and intelligent buying, your dream of early retirement and solid investment strategy is very much alive and well in the upcoming Market of Confusion.

​Maybe you got into the rental property market during the Great Crash. In 2008-2010, mom and pop investors were buying houses for 50k or less, spending very little on repairs, and renting them out for 20% or higher Gross Rent Ratios.


We know because many of them are our clients. For such a small investment, by the time 2023 came around, some of these houses were renting for more than $2,000 with a very reasonable track records of repairs and capital improvements. Roof replacements. HVAC. Plumbing. But $2,000 a month!


But rental investments perform very well even when you actually have to pay real money for a house. Our Broker was an investor before the crash. We've helped many clients purchase rental properties, leased and managed them, and have seen the financial benefits flow to the owner. Even when it's not a gold rush, there is wealth to be made.


Probably the worst market for investors was in 2021 and into early 2022. Ugly houses were selling for more than appraised value. Out of date houses were getting twenty of more offers.


2023 has been quite different. I would by no means call this a "Buyer's Market," but it has been a softer market for Sellers and Buyers have had some good opportunities.


Prices and interest rates are both high at the same time.


There have been a lot less homes on the market.


It's a struggle to get an 8% Gross Rent Ratio right now (which is the target number we look for when house shopping for clients). But it can be done. And even a 7% Gross Rent Ratio ends up being profitable.


And there are a lot of other considerations besides sale price and interest rate. How efficient are evictions in the county where you are buying? How quickly do homes rent in a given area? Where will the taxes and/or association fees kill you? How well will the features of a home stand up to normal renter wear-and-tear? How can you identify a potential money-pit?


The bottom line is this: rental investments pay a more modest return now than during the Great Crash, but landlords still find wealth and success in obtaining tenants who pay all or most of their mortgage. 2023 is in the books now and things will most likely get better for landlords and investors in 2024. Inventory is likely to increase. Rates are likely to decrease. Prices are likely to hold steady or decline slightly.


Coming next time: what are the opportunities for landlords / investors in 2024?

​I guess anyone who works with the general public sees the good and the bad. We certainly do. The first and most important part of screening a rental application is doing some research to look for mistruths, fabrications, and outright lies.


Fortunately, most people applying for rental properties are not professional identity thieves. When it comes to experienced identity thieves, there's not much that can be done. Their ability to obtain fake ID's and social security numbers makes them very hard to catch. But the common renter hasn't invested thousands of dollars into their application fraud. They just hope we won't pay close enough attention.


As someone who has been leasing and managing properties in Atlanta for nearly seven years, I have seen a lot of attempts at deceit. As a Realtor, I have tools that in many cases can allow me to catch the lies.


I guess the first question that should be asked is why people feel the need to lie on their application. They are usually trying to hide something. They know their landlord will give them a bad report. Or they worry that a criminal background will automatically disqualify them (which it does not). Or they think the leasing agent won't notice an eviction from 2 years ago.


Here is a rundown of the common types of deception we see on applications.



There are four main things we look for when screening applications: employment/income, rental history, credit history, and criminal background.


Many people applying for a rental home have a bad rental history. Maybe they left trash and personal belongings at their last residence and the owner had to pay for junk removal. Maybe they damaged a previous rental home severely. Perhaps they were late every month with rent and missed a few months.


The common scam? List a friend or relative as the "landlord." We see this quite often. Fortunately, as Realtors, we have easy access to tax records and Property Title databases. And we know other Real Estate Brokerages and Property Management Companies.


Just this morning (Monday, I usually write the report on Monday and send out on Tuesday), I caught someone doing this very thing. Checking the tax record and calling a Realtor who listed the home for sale in March 2023 provided more than enough evidence of fraud in the application.


What the applicant hopes will happen is that we will simply ask the person they listed as the landlord if they were good renters, paid their rent on time and took good care of the premises. Of course the best friend or cousin or sister will email back a glowing report—that is completely counterfeit!


The same scam sometimes works with the contact listed for the employer. It may be a friend or relative. Or possibly they may list a colleague at the business who is not their actual supervisor.


Then there are the "emotional support animals." As a Realtor, I support accommodations for people with disabilities. The laws about emotional support animals are well-intended and serve a good purpose—to allow people with anxiety, depression, OCD, and similar illnesses to have a physician-approved support animal and prevent discrimination by landlords.


But . . . this has become an easy opportunity for a scam by renters. There are websites that advertise, "Tired of Paying Pet Fees and Deposits?" They advertise a simple service, providing "emotional support animal" documentation to renters for a small fee.


Because of the law, we can't always prevent a scammer from succeeding at this. But usually we can. We use a third-party service to verify vet records and all documentation with animals and pets (two different categories under the law). Many renters do not want that level of scrutiny and give up.


Finally, there is another way we catch people in their deceit and that is called the Credit Report. There are things a person can easily hide and there are embarrassing facts that are not so easily swept under the carpet.


Deceitful information can be found on a surprisingly high percentage of applications (we don't track this in our system, but it would be interesting). Fraud is common enough that our standard "denial of application" letter has a checkbox for "Inadequate or Untruthful Information Provided by Applicant."


So be careful out there and let us know if there's anything we can do for you today.

As everyone knows, we are in a weird housing market. I could talk about reasons that this market has come about. But I'd rather talk about some of the facts on the ground that Buyers and Sellers are facing.


Interest rates. They're finally coming down. Mortgage Nuggets newsletter says 7.09% is the average for a 30-year fixed conventional loan right now. Freddie Mac's Primary Mortgage Market Survey says 7.22%.


For an investor buying a 400k property with 20% down, that's about $2,650 per month excluding Landlord Insurance (about $2,775 counting insurance). A solid investment property at the 400k price mark will bring about $2,670 in rent. After leasing and management fees, many investors will see about $400 per month in negative cashflow.


In other words, the tenants will be paying 85% of the mortgage in this scenario.



A 40% down payment could be the break-even point for a 400k investment renting at $2,670 per month. That is, it will break even after factoring in mortgage, insurance, leasing and management fees.


Many buyers are canceling contracts. Many houses on the market have been under contract and returned to active status. Buyers enter the process not realizing how large their monthly payment will be (if their agent and/or loan officer hasn't prepared them for the new reality).


As a result, while inventory of resale homes is low, there are as of December 2023 thousands of homes that have been on market more than 30 days.


The opportunity for rent-and-hold investors is better now than it has been since Spring 2022.


Another issue that works in your favor as an investor: owner-occupiers are avoiding houses that have obvious repair issues. Typical owner-occupier buyers are low on cash, unable to come up with closing costs and down payment and still have enough cash reserves to make repairs.


Finally, what about the future of mortgage interest rates. It's a guessing game, but experts are saying the Fed will probably not raise rates at their open markets committee meeting December 13 (Housing Wire, Nov 30 report). And many think rates will fall to 6.75% by Quarter 2 (Bright MLS, 2024 Housing Market Forecast).


If the rate drops to 6.75%, that will save more than $100 per month on 20% down for a 400k property (compared to current rates).
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First, let me report some good news about mortgage interest rates. They've been coming down the past few weeks. As of November 24, 2023, the average 30-year fixed mortgage rate is 7.32% (Mortgage Nuggets Daily).

Second, the not-as-good (for investors) news is that sale prices have shown no sign of decreasing. Yet. Houses and townhouses and condos and multi-family buildings in Metro Atlanta are more expensive than ever.

Third, the seasonal good news is that December and January are a time for possible savings on the purchase of a resale home. There are homes right now that have been sitting on market for months (in spite of low inventory!).

Why are they not selling?

There are fewer buyers (primarily because of mortgage rates). Many sellers have the idea they can sell like it's 2022 (the crazy market for sellers ended Spring 2022). So some sellers have put fixer-uppers out on the market—at full price as if they were move-in ready homes. Some sellers have listed their homes at a price above the market. After months of zero-success, however, there is an opportunity in this slow buying season for those who want to find a bargain.

So, to prepare for this article, I spent 30 to 45 minutes perusing available homes in a few areas I know very well. Finding a good investment (which I define as minimum 8% gross rent ratio) is harder now, but not impossible.
I found a lovely 2006 home in Gwinnett County, in the city of Snellville, for 400k—but it has been on the market for over a year!

A 400k house would need to get $2,700 in rent to beat the 8% gross rent ratio threshold I am looking for. With some improvements, this home will rent for $3,000.

But there is no reason to pay 400k. Having been on market for over a year with no change in price, I feel confident this home could he obtained for less than 400k. For the purpose of this exercise, I will say I think we could get it for 385k and spend 15k on improvements—flooring and paint.

To calculate Gross Rent Ratio, I consider the total cost of acquiring the house, which would be 400k (385k plus 15k in improvements). Anything $2,700 or higher in rent would make this a solid investment. Let's assume we could get at least $2,900 in rent.

After leasing commissions and management fees, the average monthly income for the owner would be $2,426.33. In the second year, if the tenants renew, the average monthly income increases to $2,547.16.
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With a 20% down payment on 385k, the mortgage with property taxes and homeowners insurance would be about $2,687.

So there would be $260 per month in negative cashflow. But another way to look at it is that the tenant is paying 90% of the mortgage. A solid investment. Factoring in the tax benefits of owning real property, that negative cashflow will more than be made up for on your annual tax return (perhaps the subject of a future report).

The answer is YES. Even in this tough market for investors, profitable investments can be purchased.

​"Hey, Derek, let's sell the property." Landlords sometimes see that their investment property has appreciated in value and feel it may be the time to sell.

And what Realtor wouldn't jump at the chance?

Well, hold that train for a minute. Of course, I'll list the property if that is the owner's desire, but sometimes selling is not the best idea—if you have a Golden Goose.

There are plenty of good reasons to sell. You need the cash to make another purchase. You are at retirement (or early retirement) and want to cash out. The market could be changing and you want to sell before price reductions happen. Or the property is not performing well. All good reasons.

But a Golden Goose lays golden eggs. And before you sell it, consider these points . . .

A good rent-and-hold property is laying golden eggs for you. You can sell the goose for a lot of money. But you won't get any more eggs.

I use a measuring stick for residential rental properties, the Gross Rent Ratio (annual rent divided by total acquisition price). For example, a client might purchase a home for $320,000 and spend $40,000 on improvements. That's an acquisition price of $360,000. If the home rents for $2,600 then the Gross Rent Ratio is 8.7%.

I try to help clients find investments with 8% or better Gross Rent Ratios. In some markets, this may be impossible. But 8% is the gold standard (for a healthy Golden Goose).

One situation that tempts an owner to sell is when repairs start to become costly. In some cases, this is because the landlord avoided capital improvements and opted for short-term solutions rather than long-term. I've had owners who bought a house during the crash (2008-2010) for 50K and they're getting $2,000 in rent (a 49% Gross Rent Ratio!!) who want to sell it because the siding and HVAC need to be replaced.

If you're making a 49% Gross Rent Ratio, you have one heck of a Golden Goose! Spending 30k to repair a home that is performing that well is a financially sound decision.

In fact, if you're making 8% or better, you have a well-performing investment. If there is still a mortgage, someone else is paying for it. If the mortgage is paid off, you're getting some amazing cash flow. Hopefully you put some of the golden eggs into savings to pay for new HVAC or siding or roof or whatever is needed to keep the goose going strong.

Just throwing out some food for thought. Maybe Thanksgiving is a good time to talk about a Golden Goose. I mean, if your rental property is a Turkey, selling is a good idea.

Let us know if you have any Turkeys you'd like our help with or if you wish to engage our services for your very own Golden Goose!