Housing supply in Harrisonburg and Rockingham County is high in many price ranges, and has been for many months now.  As a result, some sellers are anxious to sell their homes, and some buyers are hesitant to commit to buying.  It has become a standoff of sorts!

Additionally, some buyers are having difficulty obtaining financing, as many loan programs have disappeared, or become more restrictive (100% financing, for example). 

These factors have prompted some buyers to pursue a rent-to-own opportunity, where they would rent a property for a period of time before they purchase it.  Sellers aren't always thrilled about the possibility, but some are willing to explore it.  Let's take a look at it from a few perspectives:

Buyers are typically most excited about obtaining new housing without closing costs, a mortgage, or a long-term commitment.  A buyer can, at some point in the future buy the home in which they have been living, without physically moving, and often at a sales price determined at the start of the rental relationship.  Aside from the missed opportunity of tax savings, paying down mortgage principal, and appreciation --- a rent-to-own opportunity generally works well for a buyer.

Sellers are often very lackluster about the opportunity to lease their property to a buyer and then (possibly) sell it to them at some point in the future, for good reason.  Often, the future purchase price is fixed, which eliminates the seller benefit of increases in property values.  A buyer typically is not required to buy the property, and thus the seller may be back in the same situation of needing to sell, when the buyer's lease term or option period comes to an end.  They only positive aspect of a rent-to-own scenario for a seller is the fact that someone starts providing incremental income immediately.  Cash flow can sometimes drive a seller to commit to a rent-to-own relationship.

If both the buyer(tenant) and seller are willing to explore a rent to own agreement, here are some of the main questions to consider:

• What is the rental rate?
• Is all, or part, of the rent credited to the buyer's future purchase?
• How long can the buyer rent before having to buy or vacate?
• Do both the buyer and the seller have the ability to decide that they don't want to buy/sell the property at the end of the lease period?
• Can the buyer end the lease period early and proceed with a purchase?
• Is the purchase price set at the beginning of the lease term, or at the end of the lease term?

These are just a few of the many issues and questions to consider when pondering a rent to own relationship, either as a buyer or seller!

In most situations, it's o.k. if we aren't working with an exact number for JMU enrollment.  However, many developers are currently spending a lot of money to build thousands of housing units in Harrisonburg --- many of which are intended to be occupied by JMU students.

When you dig into the numbers, it starts looking like we will have a significant over-supply of college housing in the coming years . . .

How Many Bedrooms??

Per today's Daily News Record, "more than 3,700 residential-housing units are under construction or in various stages of approval" --- of which 2,985 are apartments or townhouses.  However, many of these are not 1-bedroom housing units, but 2, 3, or 4 bedroom.  We'll assume for a moment that they average out at 2 bedrooms per unit.  This provides us with 5,970 "beds" to fill --- and the article later states that by 2013, the city will need 2,500 additional beds for JMU students.  Hmmmm.......so far that's 3,470 extra beds --- and I hope they aren't finished too quickly!

What Is Headcount?

The second problem (for developers spending lots of money on building these housing units) is that the figures being used for JMU enrollment can be a bit deceiving.  The above-referenced article references 2013 enrollment as 21,500. 

The only enrollment projection I can find on SCHEV's web site close to 21,500 is the "Total Fall Headcount".  This is defined by SCHEV as "A student enrolled for more than zero credit hours in courses offered for degree or certificate credit, or a student who meets the criteria for classification as a remedial student."  My understanding is that this would include faculty or staff taking one (or more) class(es), students studying abroad, local residents taking one (or more) class(es), etc.  All of these categories of "fall headcounts" wouldn't at all contribute to a demand for student housing.  The Total Fall Headcount shows 21,542 students in 2013.

For the best "living in Harrisonburg, needing student housing" enrollment figures, I am almost always pointed to the "Regular Session Full-Time Equivalent" data, which is defined by SCHEV as "A calculation of enrollment based on total credit hours taken byundergraduates and first professionals divided by 30 and added to totalgraduate credit hours divided by 24. Includes fall and spring semestersonly, does not include summer term enrollments. May be broken out by onand off-campus activity."  This is a calculation to get a lot closer to the number of full time students will be attending JMU --- and these numbers show 19,333 students in 2013.

Does it matter, or are we just splitting hairs?

If you explore SCHEV's Enrollment Projections, you'll see that there are a lot of figures that can be used for estimating future JMU enrollment figures.  My concern is that the figure that developers are using for their decisions is the highest number available -- and one that counts people who would not be seeking student housing.

I can understand that the City and the Daily News Record use that highest figure in many situations, but when student housing developers use it for planning purposes, it may be a cause for concern.

Many tenants look for new rental property during the summer months --- whether because of a school transition, or otherwise.  Thus, many speculate that it is, or would be, much harder to rent an investment property during the winter months.  Not this week!?!

One of my investor clients closed on two Harrisonburg townhouses a few weeks ago, both of which were vacant at closing.  Thus, he has been in tenant acquisition mode for the past few weeks, and he and I have both been surprised at the high level of interest.  In the past 48 hours, there have been 11 separate inquiries about one of the townhouses (the other has now been rented).

If you currently own investment property, and have a tenant leaving mid-winter, it may not be as much of a concern as you would think!