Less Stately Mansions

How renters (might) be able to afford a home that doesn’t look like an apartment

ONE OF THE great American rituals occurring around retirement is burning the house mortgage after the last payment is made on the homestead. Not that it’s any big financial deal. Most folks borrowed less than $50,000, the interest rate was less than 5 percent and the payments amounted to only a few hundred dollars each month.

It’s a ritual that people under 45 probably won’t know. Now the interest is double, along with the payments. A $50,000 note will buy less than half the house it used to, and it’ll be twice as far from work. And anyone following a career up and down the economic roller-coasters of the last 15 years hasn’t been able to stay long enough in one place to whittle the mortgage down at all.

It’s hard times for anyone buying. That’s even true for the Metroplex, which consistently puts up more houses (and offices and stores) than any other metropolitan area in the country. First-time homebuyers simply can’t afford the traditional house.

The price of a real estate boom is that the residential lot gets too expensive to build even modest houses. So the logical step is to make the lot smaller. Dallasites have been reluctant to take this step, and the city is one of the last in the country to accept anything other than the traditional single-family detached housing. Real estate agents attribute this to the Texas heritage of land ownership-that anything worth buying needs enough yard in which to toss a baseball back and forth. But less stately mansions have arrived, and are coming into their own as alternatives to single-family, detached housing.

MP/F Research President Ron Witten, who collects a wide range of real estate statistics in the Metroplex, explains the way the market has shifted:

Townhomes, says Witten, have never sold well in the Metroplex. Condominiums experienced a building flurry beginning in 1980. Interest rates were high, apartments were overflowing and developers offered a whole raft of cheap financing plans to get people to buy. But condominiums earned a bad reputation in the wake of the financial scandals that shook the huge complexes around 1-30 and Lake Ray Hubbard east of town. Interest rates fell, it became easier to find an apartment, and homebuilders stole the condo developer’s bag of financing tricks. Condominium building, in general, took a shellacking.

As a result, condominium developers offer even more come-ons than before. No closing costs, guaranteed buy-back after three years at the original price, no down payment, etc. For someone who wants to avoid rent, and plans to own a unit long enough to wait out the bad market, condos aren’t a bad buy.

Just be sure to get into a complex that is pretty well sold out, unless the deal is unbelievably good. Avoid like the plague those that are half-finished and have very few occupants. And be sure to check out how many occupants are owners and how many are renting from the developer. A high percentage of rental units, especially those owned by the builder, can mean a weak owners’ association and potential problems in major decisions involving upkeep, insurance, management, etc.

If you want something more substantial, look at the compromise that builders are hitting on now: zero-lot-line homes and the patio/garden homes. They offer some of the privacy and appreciation potential of a single family home with some of the convenience and affordability of condominiums. The precise nomenclature for types of this construction gets a little fuzzy, depending on what label the builder thinks will move his houses the best. But they all operate on one basic economic principle, more house on less land.

“The percent of the total cost of the home that is for land is anywhere from 25 to 33 percent,” says Stephen H. Brooks, president of Dimension/Brooks Corporation. Brooks’ company develops land for housing. With patio homes, he says, the ratio remains the same, but the size and price of the lot is lower.

A $120,000 patio home could cost $90,000 to build, explains Brooks, with the remaining $30,000 being spent on the real estate. For a single-family detached home in the same part of town, the lot would be closer to $45,000. The selling cost: $180,000.

The label, zero-lot-line, comes from placing the house very close to one or more of the lot boundaries, combining little pieces of yard in one place large enough for a porch, garden or small lawn. The yard, such as it is, can be in front, in back or to the side. Some enterprising builders are placing the space in the middle, in an enclosed courtyard.

At the top of the market for zero-lot-lines in Dallas is the Glen Lakes development off Central Expressway, between Walnut Hill and Park Lane. There, luxurious homes on small lots sell for up to $1 million.

Of course that doesn’t count all the rebuilding being done in the Park Cities, where lots are small and expensive and many of the existing homes are charming but cramped bungalows. Any family needing an extra bedroom or two will tear down their cottage and replace it with something that takes up, within the deed restrictions on the property, every square inch of lot space possible. The detached garage around the back is gone, and the front yard is short and given over to a circular driveway and some landscaping. Real estate agents joke that some streets of Highland Park fit the classic definition of zero-lot-line development.

SOME BUILDERS CONSIDER garden homes and patio homes as generally lower priced than zero-lot-line, but not as cheap as condos. They are generally two or three bedrooms with one or two baths and cost $60,000 to $130,000. Patio homes will often share one or more walls with adjoining homeowners.

Some, but not all, of the garden and patio home developers use an association-type of management, where streets, driveways, walkways, clubhouses, pools and playgrounds-even roofs-are owned and maintained by the homeowners’ group. The association levies monthly maintenance fees usually running $50 and up, and elects officers to run the development.

According to Mike Zerlin, a real estate agent for Jan Noble Realtors, the best place to buy patio or garden homes right now, for Park City families needing more room will tear down and rebuild to take up every square inch possible. The result is zero-lot-line housing.

the potential property appreciation, is Car-rollton. (Some real estate agents say Car-rollton is the best place for lower-priced housing in general.) Tucked between the booming Dallas Parkway to the east, and booming commercial growth along Stem-mons Freeway to the west and with public schools that are perceived to be better than DISD, Carrollton seems a natural for growth.

Close on the heels of the North Dallas town is growth in the mid-cities, particularly in Grand Prairie and Arlington. Piano is also mentioned as a good candidate for homes that will appreciate (although the prices are pretty steep already for a place so far north).

Because the patio/garden home construction is no more than a few years old, and because of the association management structure and appreciation potential, these units lend themselves admirably to individual investment. The original ante for a down payment and closing costs can be less than $10,000. For many investors, the rental income covers or almost covers the mortgage, insurance and taxes. Time and money for maintenance is low. And the tax writeoffs-primarily interest and depreciation-can be a welcome break: More than three to six years in the right neighborhood and the appreciation on these properties can provide a nice return.

Uncle Sam, however, is contemplating anoverhaul of tax shelter provisions of realestate. No matter what the final changes inthe law are, they won’t take effect on property purchased before Jan. 1, 1986-even fordeductions for that property on 1986 andlater tax returns. So if you buy this year, thebenefits are safe. But far-sighted accountantspoint out that tougher tax laws could hurt theresale of investment property such as condominiums or patio homes. So it’s not wiseto count on too healthy an appreciation forproperty you buy unless the housing demandis healthy, also.


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