Speculators aren't the only ones who were hurt when they bought at the top of the market, finding themselves unable to sell at a profit as prices softened. Occupying homeowners who bought alongside them are also feeling the pain, as they watch their neighborhoods devalue further due to because of lack of care by investors and their renters.

Here's one homeowner's plight:

Dear Ms. Evans,

I recently purchased and have just started your book "Bubbles, Booms, and Busts." So far I have found it very informational.

I found an article in the Real Estate Journal, entitled 'Builders Aim to Stop 'Quick-Turn' Investors.' Here is an excerpt from it:

"Home builders say they are clamping down on speculators to protect customers as well as their own long-term business fortunes. Speculators can drive down the quality of life in a community because they don't invest as much money in the house or on landscaping as live-in owners. Investors also leave a trail of "For Sale" or "For Rent" signs that can turn off home buyers who think the neighborhood looks like a transient community," says Jeff Mezger, chief operating officer of KB Home.

Though my wife and I purchased a Pulte Home, we are currently living in a community where the majority of the homes surrounding us are owned by investors/speculators who primarily hail from the San Francisco Bay Area. My wife and I are the only ones on our block who are owner-occupants and it has been a terrible experience dealing with tenants who don't care about the homes they live in or the community.

I have nothing against renters, my wife and I used to be ones. Last summer I got into a shouting match with the tenant across the street. My car has been egged and car donuts at the local intersection are frequent. I feel like my wife and I made a horrible mistake in purchasing this home. In my mind it's been the worst decision I've made in the last few years. I feel like I should have researched this purchase more but to be honest I didn't think about asking the builder how many investors there were in the neighborhood.

Two investors from the Bay Area purchased half a dozen homes in our community. Unfortunately we bought at close to the peak of the market in the spring of 2004 and so the local housing market has softened where we would have to pay a large sum out of pocket to sell our home.

I'm sure there are others who are experiencing the same predicament. My wife and I feel trapped because the neighborhood has gone downhill with the unkempt lawns, abandoned vehicles, and so on which made it hard to sell the home the last six months.

We took the house off the market on Thursday after our realtor asked us to lower the price even more, as we're having little to no traffic. A part of me feels like the builder should have disclosed the fact that a large portion of the homes were bought by investors. I know it isn't the complete fault of Pulte, but I am going to think twice about buying from them because of this.

Would it be possible for you to write an article of the plight of those of us who wanted to make a home of our purchase but feel imprisoned by speculators? This has been far from the American dream, it's been a nightmare. So now my wife and I can't do anything about our predicament and the feeling of having no options is quite depressing. I feel trapped and I hate it. After this experience I am very hesitant to buy a home in the future.

Thank you for taking the time to read.

Praying For a Way Out, Dean Serrano

Realty Times responds:

Dean, I feel for you. Market momentum is against you, but there are some positive things you can do to turn your neighborhood around.

First, let's assess where you are. Your situation is more common than you might think. Non-occupying homebuyers accounted for a third of home sales in 2004 and 2005, and didn't slow down until 2006 when sales to speculators plummeted by nearly 29 percent. There are a lot of people out there who can't sell at a profit in a softening market, so what's their Plan B?

Many are turning into landlords. "A recent CompleteLandlord.com study revealed nearly one out of five landlords did not intend to rent the property when they purchased it," writes Broderick Perkins for Realty Times. "The National Association of Residential Property Managers says that's reflected in an increase by more than 20 percent in its membership in the past year as more suddenly-landlords seek property management help."

It stands to reason that if you didn't intend to become a landlord, and you choose to rent your home, you'll have to get up to speed with how to do it. You can use a Realtor to help you rent your place, with the proviso that he or she helps you learn the ropes. Who knows? You may like it and start gobbling up the other houses in your neighborhood or somewhere else.

Your other choices are that you can stay or that you sell.

One advantage to staying is that you save on moving costs until you build enough equity to sell. It will probably take several years, maybe less, for the excess inventory in your area to absorb so that prices start to rise again. If you can hang on that long, you'll want to do something about the tenants.

Live by example. Keep your place in tip-top condition. That way, no matter what happens, you'll be in a better position to rent, sell or enjoy your own property.

Ask your Realtor for comparables and see if he or she would be willing to do a study for you to determine if the homes that are selling for more near you are owner-occupied or former rentals. You can use this information in a letter to your neighborhood landlords, pointing out as nicely as you can that you're all in the same boat in this softer market, but that lack of care by some tenants is causing home values to soften even more. Ask for the landlords' help in keeping yards and homes in better shape, and you might be surprised. Some may see the wisdom in your logic, especially if they want to sell their investments.

If you really want to sell, ask your Realtor for a change in strategy. I personally don't believe that in a market driven by fear and overbuilding that lowering the price is the best way to go. The reason is you are chasing reluctant buyers to the bottom. Instead you want to attract the ones who want to buy but need a way to stick their toe in the water.

Offer your place as "Rent to Own." That way, renters can ease their way into homeownership without huge downpayments, and you collect better than lender's interest rates for making the home available. Should the renter-buyer decide not to buy, you keep the money that was escrowed for their downpayment. Should they buy and default years down the road, you can get the property back.

Published: May 24, 2007

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