After the housing crash, more renters were created. As the housing and job markets recover, will most of these new renters become homeowners? Maybe not. Many factors that moved people into homeownership have changed since the economy collapsed, and the trends show that the rental market will continue to be strong—and fueled by women—for the foreseeable future.
Why women? Specifically, single women, according to economists. It all comes down to education, marriage and children. Back in 2000, the number of men and women in college was pretty even; today, there are three million more women in college classrooms, and four million more female college graduates in the workforce. Women over 25 are having a harder time finding educated men to settle down with.
Therefore, women are putting off marriage, children and home ownership. They don’t need three bedrooms, two baths and a yard when they’re single and childless. And even women with children are more likely to be single these days—and they also prefer renting in-city apartments to buying or renting single-family homes.
More than ever, women are driving the rental market. They like renting a nice apartment in a neighborhood they wouldn’t necessarily be able afford to buy a home in. Rentals come with lawn care and maintenance, and in many apartment buildings, gym facilities and other amenities women want.
Studies show that renter household formation is the strongest it’s been in decades. Most landlords and property managers simply aren’t seeing a big push of tenants becoming homeowners. And with 23 million young adults under 35 living at home with their parents, it’s likely that s job growth improves, millions of new renters will enter the market, increasing demand, lowering vacancies and causing rents to rise.
Remember, women want safety and security in their housing. That’s why it’s more important than ever to consistently conduct tenant screening on every applicant before signing a lease. You need to know whether the name on the application is really the person you’re leasing to, as well as if there is any criminal activity in his or her background. Screen for acceptable credit scores, too, so you know you’re leasing to the best possible tenant.
If you’re guessing that New York City or Los Angeles is the bedbug capital of America, guess again: it’s Chicago. And in response to this “honor,” the city’s aldermen are introducing legislation to address the problem of increasing infestations of bedbugs in city residences.
Unfortunately, the proposed law is targeted at landlords, and calls for fines of up to $1,000 a day if they don’t deal with bedbug infestations. As one property manager said, this type of one-sided legislation simply “opens the doors for tenant rights lawyers to take advantage—and only they win.”
Landlords with experience know that bedbugs are a shared responsibility. The pests can certainly cause tenants many sleepless nights and the misery of painful bites. And most landlords are willing to take the necessary and costly steps to get rid of bedbugs.
However, when tenants fail to do their part to fight bedbugs, it becomes an unfair burden to any landlord. Two ways tenants can help are inspecting their units frequently and being more vigilant against bringing bedbugs home after traveling.
According to the proposed ordinance, landlords would be required to hire pest management professionals “as many times as necessary to eliminate the bugs.” They would also be required to maintain records of their efforts. Current Chicago law requires landlords to treat bedbug infestations only when two or more units are affected, and doesn’t require any record keeping.
Landlords say that education and vigilance are much more effective against bedbugs than legislation.
Start your tenant relationship off right by knowing who you’re leasing to. Protect your rental property and assets with tenant background checks. Proper tenant screening will ensure you are leasing to the best possible tenants.
Some of the housing markets hit hard by the housing bubble were Phoenix, Las Vegas, Tampa and several markets in California. As prices fell to rock bottom levels, real estate investors made major purchases in these markets. And now, as prices begin rising, investment groups are looking for the next place to find a bargain.
In Phoenix, the percentage of homes purchased by investors in November 2012 was 28%, down from August’s mark of 36%. Meanwhile, year-over-year home prices in Phoenix were up 24% in November, compared to 7.4% nationwide.
Investors are looking for new markets to buy homes and convert them to rental properties. According to a recent JPMorgan Chase research report, major institutional investors are planning to invest as much as $10 billion in the single-family rental market. Their targets? Three bedroom, two-bath homes in the $100,000 to $125,000 range. They’ll make repairs, rent them out, and bet on the price appreciating in the next several years.
That figure equals about 80,000 homes, out of approximately 12 million single-family rental homes across the nation, which are mostly owned by individual investors.
Some of the bigger players are:
- The Blackstone Group, which has spent $2.5 billion on 16,000 homes. It is purchasing around 2,500 homes each month.
- Colony Capital, which is investing up to $150 million per month this year, after purchasing 5,000 homes last year.
- Waypoint Homes, which expects to own 10,000 homes by the end of the year.
Many groups started in Phoenix, then went into California, Atlanta, Tampa, Orlando, Chicago, Las Vegas and Charlotte. Some are buying at a faster pace, perhaps because home prices are rising faster than expected. If prices rise above a certain point, they won’t bring high enough rents to make a sound investment.
Real estate markets in Atlanta and Tampa are now seeing the impact of investors coming in, with dozens of offers on foreclosed homes, many by cash-paying buyers. Good buys are becoming harder to find. Individual homebuyers are seeing more competition from small and large investors, resulting in bidding wars and reducing inventories of homes for sale.
Nationwide, investors purchased 19% of homes in November, according to the National Association of Realtors, which is down 23% from January and February 2012. Areas where investor sales are leveling off include Tucson; Oakland; Tacoma, Washington; Washington D.C. and Durham, N.C.
This pattern is expected to continue as home prices rise and investors exit out of markets, then return when prices stabilize.
If you’re a landlord, you know there are some drawbacks to the business, like tenants who don’t pay rent on time, problems with noise and tenants who don’t take proper care of your property. It’s true that at times, your phone rings late at night with tenants’ plumbing and heating emergencies. And it’s true that some tenants must be evicted, which can cost you a bundle of time and money.
All of these problems will probably occur to most landlords at some point. But what could make each of these tenant problems worse? If they were happening in the same building in which you live! Messy, noisy tenants are one thing, but when they live next door, it’s a bigger nightmare. Tenants who constantly pay rent late are even harder to be nice to when they live downstairs from you.
Having tenants for neighbors can be unpleasant, but for many landlords, it’s a way of life. When you own a multi-unit building and have to live somewhere, why not live in your own property?
Here are some pros and cons of being a live-in landlord:
- You can keep an eye on tenant behavior, and put a stop to things like criminal activity, a business running out of the unit, or actions that are in violation of the lease.
- If the property needs any exterior repairs, you’ll know immediately.
- Undesirable tenants may keep looking when they hear you live in the building.
- You’ll care more about the property and take better care of it.
- Your tenants are not far away when it’s time to collect rent—and they can’t hide from you.
- Communication might be easier when you see your tenants on a regular basis.
- You can take advantage of owner-occupied mortgages, insurance policies, etc.
- You can subsidize your own housing costs.
- Tenants might knock on your door at all hours to complain or report a problem.
- Noisy tenants will affect your peace and quiet.
- It’s harder to live next to a tenant with whom you have issues.
- If a tenant locks him or herself out, they’ll be knocking on your door.
- Shared areas might not be maintained to your liking.
- Not all expenses are tax deductible.*
Live-in landlord situations can be successful, if both parties work toward it. Be sure to keep the communication flowing, respect your tenants’ privacy and address little issues before they become big problems.
The contents of this article are intended for general information purposes only, and should not be relied upon as a substitute for obtaining legal, investment or tax advice applicable to your situation.