State of the Market for Informed Homeowners and Investors East Side Providence

Ok - in response to your questions, keeping your readership in mind:

What's the state of the market:

First of all, let me say that our (my husband, Christopher Wall are a real estate team) focus in Providence is primarily the East Side of Providence, which includes the area in and around Brown University.  We deal in the rest of Providence and can speak to in general about those trends as well, but our focus is the area that is known as the "East Side".  Therefore, our responses to your questions will be based primarily on that area.  

As background, the East Side of Providence is the "blue-chip" area of the city.  To understand the area, it is important to know a couple of things. First and foremost, this is a college "town", a city that is driven by several well known Universities.  On the East Side, you have Brown University (Ivy League)  and the Rhode Island School of Design (world-class art institution).  In Downcity (as the locals call it - really, the downtown - city area) you have Johnson and Wales (Hospitality - Food Industry) and in the West part of the city of Providence, you have Providence College (Dominican - Liberal arts).  More later on how that impacts the city in a negative way (high property taxes) and in a positive way (great for diversity, intellectual thought, and investment).  

The other important thing to know is that the geography of the city and the mentality of the local Rhode Islanders ("oh, I have to drive to Cranston - about 10 minutes away - I better pack a lunch"!) keeps the micro-neighborhoods of the city very distinct. The West End of Providence has an entirely different feel  from the East Side of Providence and one has to cross over I95 to get there as there is no street in Providence that leads directly from the East Side, going straight  through Downtown to the West Side of Providence. The East Side also has a natural barrier by the way it sits next to the Seekonk river on its Eastern side and to the west, the canal that separates it from the Downtown.  This physical barrier creates a scarcity of housing (people want to live on the East Side for all that it offers - great demand) and physical limits, i.e. "geography is destiny" or "location, location, location." This desirability keeps prices up. That is very, very different from the rest of Providence and something an investor should note. 

So back to "what's the state of the market"?

For all of 2008, the median price of  Single Family Homes on the East Side rose 3.8%.  I'd say that is pretty good.  Our real drop in this segment came in 2007. Condos and multi-families have not fared as well as noted below.

Please note that the data I am providing comes from the MLS system and does not include for sale by owners or other private transactions which may account for 5% of sales at most.

Here is what I will say about the state of the market in 2009 on the East Side of Providence and my advice for the informed homeowner or investors. 

Any single family home in renovated condition and priced under $400,000, your first time home buyer segment is moving very, very quickly.  There is pent up demand from first time home buyers and the Obama Stimulus plan has made an enormous impact.  We have been involved in several bidding wars which we have not seen in quite some time.  Nothing moved at all until after February, now there is a lot of heat in the first time home buyer segment on the East Side.  I always advise our clients that they will not go wrong purchasing a first time homebuyer single family home in a quality location on the East Side of Providence.  That is where the demand is and when there is much demand and little supply, well, you know the story.  

The midrange of the market - the $500K - $850K is not moving as quickly.  One would think that those people who are selling their first time homebuyer - smaller houses - would need their next house - the trade up.  There is some of that, but not as much as one would like.  What I have noted some of these people are deciding to rent for a little while and figure out what to do.  They are not jumping in the real estate market but are approaching it with caution.  Also, Rhode Island employers are not hiring and the local economy is suffering which also contributes to slower movement. We are not seeing many relocating executives these days. 

Another factor in this segment is a dilemma many families with children face about where to send their children to school. There are many quality pre-school programs on the East Side, but until very recently the quality of the public elementary and middle schools was a big question mark for many parents. Thankfully, lead by our two young and talented East Side City Councilors and a dedicated group of parents the elementary and middle schools on the East Side have witnessed a dramatic, positive transformation in recent years. The Vartan Gregorian and Martin Luther King Elementary schools now provide two excellent choices for public education on the East SIde. The completely remodeled Nathan Bishop Middle School will re-open this fall with a solid enrollment from East Side families. The Nathan Bishop renaissance is a great example of the positives of Providence at their best: community involvement, a dedication to preserving historic buildings and an emphasis on "green" renovation. Bishop was initially slated to be torn down, but the parents led the charge for the study that showed renovation of the existing historic school was more cost-effective and environmentally friendly than demolition. Now parents faced with the unwelcome choice of paying private school tuitions or moving to the suburbs have a cost-effective, quality education alternative.

The upper tier of the single family category - $850k - $5M (our highest priced single family house currently) is just about dead.  I can't help but think of all the stock portfolios which these individuals own and how they have plummeted.   Don't expect this segment to turn around until you have a major increase in the stock market.  

What about single family foreclosures?  Forget about it.  We don't see much of that on the East Side and when we do, rest assured they are bought up quickly since they are a very safe investment in a safe area.

This is a whole other story.

There are times when a condo makes sense for someone as an investment.  When you called me the first time, I was out with a client who is the mother of a daughter who is going to Johnson and Wales for the next 3 years and wants to save money on room and board or rent (which runs $1000 a month).  With interest rates as low as they are and the prices of condos the lowest we have seen in a while, it only makes sense to do it.  As a rent alternative, and as long as you purchase in an area where you are assured of resale in a short time frame (areas right around Brown University), then it can be a no-brainer. Better yet, if  the student can quality to purchase on their own with a gift from mom and dad, then there is that $8000 tax credit too.  

As an investment vehicle, you do see a few foreclosures in the condo market.  If the numbers make sense (very low purchase price) to offset the non-owner occupied tax rate (appx. $23 per thousand of assessed value) and condo fees, then you could rent the condo out for profit.  I'd say these are fairly hard to come by however.

In general, I prefer the single family to the condo.  There is stronger resale in the single family market and no problems with pesky condo boards.  The condo products that are primarily on the East Side are converted multifamily homes and we sure have an abundance of them.  The bulk of the conversions were done in 2004 and now the resale valuations are down significantly and there continues to be an over-supply of these units.  This segment carries more risk of price depreciation.

You may ask, what about luxury condo products, like the Downtown Westin, or Waterplace Park?  If you have beaucoup bucks and want to walk to everything, be close to the train station, downsize and live in the city, then go for it.  For the average person, the prices are inaccessible and don't make sense.  With the downturn in this segment, you can just rent them for a while and see if you like them.  With the lack of sales and an abundance of inventory, these products are being rented, not sold.  In fact, one project, Capital Cove, just signed a long term lease agreement with Johnson and Wales University for student housing. I wonder what that will do to the condo project's future desirability with college kids having lived there for 3 years. 

Ah, the multifamily. 

This is where I come back to the beginning - the couple of things to know about Providence - College Town and Taxes.  The two go hand in hand.  As a state, Rhode Island is a wee-little.  As a city, we are also small, and our main employers are the Universities, Hospitals and Municipal Government. What they have in common is that they are non-profit institutions and off the property tax roles. That means our property taxes are very high, since a city has to support its infrastructure and the property owners are footing the bill.  Rhode Island has some of the highest property taxes in the nation. While single family homeowners are impacted, multifamily property owners holding property for investment are hit even harder.  

In Providence, here is how it works.  Let's say you own a 3 family property that is assessed at $400,000 and rent it out, your tax bill is approximately $9200 a year, pretty hefty and hard to turn a profit. However Providence has a homestead exemption so if you live in the 3 family in one of the units, your tax bill cuts in half to $4600.  For a first time homebuyer who does not mind living with renters and managing rental property, this is a great way to go.  The rental market here is very strong because of the universities and the high cost of housing.  So doing this is a great way for someone to live on the East Side of Providence and offset their mortgage.  

For the investor, it becomes a bit more tricky.  Plain and simple, the numbers just have to work.  

The greatest opportunity for the multi-family investor on the East Side of Providence is the student rental property and you just have to have the stomach for it. The area that I like for this is the Fox Point neighborhood which is close to Brown and Rhode Island school of design but also close to Wickenden Streeet, a popular area with students and younger people.  Some landlords choose to pay for the heat and utilities themselves, then charge by the bedroom.  This makes it easy for students to pay one bill and keeps it simple.  On the East Side of Providence, student rental apartments are leased for an entire year, not just the school season.  By the bedroom rent can be $400 - $500 a bedroom depending on the location and if heat and utilities are included.  If dealing with student rentals appeals to you, then this is a great place to do it.  Those institutions are here to stay and there is a consistent demand. 

One thing to note with multi-families, is the change in the fire code. In what will forever be an sad and devastating part of Rhode Island history, 100 lives were tragically lost in the "Station Night Club Fire" in Warwick, RI in 2003.  As a result, statewide laws became more stringent regarding the fire code.  Any building over 4 stories must have sprinkler systems and any commercial property which is anything above 5 units, must be have a hard wired system.  These are costly items to an investor.  As for rents, they are high.  A one bedroom in a good location goes for $850 to $1000, two beds $1150 and up.  Some of the higher end rentals (College Hill/ Benefit Street) areas can go for $2000 and up.  

Moving on ....... Sell me on Providence - as a destination and as an investment: 

Well, this is not hard to do at all.  How do I love thee Providence, let me count the ways..........

I've lived in a lot of places, Baltimore, Los Angeles, NYC, Fairfield County CT as has my husband Chris, in Kansas City, Bermuda, Connecticut, Vermont, Washington, DC, Wyoming and Louisiana and we both feel the same way about our beloved "Little Rhody".  Providence is small and accessible and easy to get involved in the community.  With the universities, you have a diversity of backgrounds in the population and much intellectual stimulation.  Brown and RISD (the way Rhode Island School of Design is known) offer continuing education classes with world class instruction.  We have some of the best restaurants (in a contest with Boston - Providence won) because of Johnson and Wales cooking school and the chefs come from this program stay in Providence.  It is architecturally beautiful, historic, and full of charm and life.  It is vibrant and walkable. It is close to beaches, Cape Cod and a 50 minute ride to Boston by car or train line.  

What an informed homeowner or investor needs to be aware of and this is very important, is the neighborhoods in Providence and even on the East Side change very quickly, even street by street.  There were some condo investors during the boom of 2004 that were lured here from Boston and sold products for conversions in the Mt. Hope neighborhood of the East Side, far down on North Main.  They may have been sold on the "East Side" but not all of the East Side of Providence is created equally.  One has to be careful and really get to know the neighborhoods and streets very, very well.  

For the record, we also own investment property here ourselves, two multi-families that provide some cash flow and what we hope will be good retirement income. These are not student rentals, but well located buildings rented to professionals.  We are of the buy and hold philosophy, slow and steady.  Providence's East Side, with its growing, vibrant community and stability from the Universities is a great place for solid, low risk appreciation and .......it is a great place to live!