Where Should Real Estate Investors Buy Rental Properties?

Posted by Teresa on June 25, 2013 under Rental Market | Be the First to Comment

Ask a landlord in San Francisco or New York City how they feel about running their business in their city, and you might hear a long list of complaints. Rent control, tenants’ unions and plenty of regulations make those markets tough for landlords.

But of course, there are other cities that aren’t exactly ideal for landlords, for other reasons. These are the places where buying property and renting it out for a reasonable return on your investment is more challenging. Luckily, there are plenty of markets where it’s possible to buy a home for less than it costs to rent a typical home—so in theory, landlords can buy low and rent high. Of course, if it’s cheaper for landlords to buy, it’s also cheaper for homeowners to buy!

You’d be best off by analyzing your own financial situation and seeking investment advice from a professional before adding any properties to your portfolio.

Based on information from the real estate evaluation site Trulia, the following cities were rated as the “best” and “worst” places to be a landlord.

Best Places: Where it’s much cheaper to buy vs. renting:

Worst Places: Where it’s much cheaper to rent vs. buying:

Targeting Women Renters

Posted by Teresa on January 31, 2013 under Rental Market | Be the First to Comment

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.

Will a Stronger Housing Market Hurt Rentals?

Posted by Teresa on December 11, 2012 under Rental Market | Be the First to Comment

The tighter credit standards and falling housing prices that followed the housing bubble’s burst led many Americans to become renters, rather than homeowners. Now the economy is getting stronger, and new households are again forming. But increasingly, young Americans and those burned by foreclosure are opting to rent rather than buy.

Yes, much of the U.S. is in a rental market boom. But in the face of a strengthening housing market, will that trend be continuing? And if rents and demand keep rising, but supply doesn’t keep up, will the pendulum swing back toward home ownership?

Analysts expect that a lack of financing as well as the supply of homes for sale will keep the rental market strong, at least in the short term. However, if rents keep going up and home prices stay relatively stable, your tenants could start checking to see if the grass is greener on the home ownership side of the street.

We are in an uncertain point of the economic recovery. Unemployment is dropping, but it is still above 7.5%. Forty percent of the unemployed have been out of work for six months or more. People don’t buy houses when they’re uncertain about their futures.

Younger people were hit hard by the economic and housing market crash, and baby boomers are retiring in huge numbers. Both of these big demographic groups could keep rental markets strong for years to come.

But once we either avoid or fall over the so-called fiscal cliff, some uncertainty will be abated—for better or worse. And what will happen if lawmakers actually start crafting policy to create jobs? Will a more concrete feel for the future embolden renters to become homeowners again?

If rents keep increasing, home ownership will look better and better—especially as wages stagnate. Many people will simply be unable to afford rising rents and will look for alternatives. Even those stung by foreclosures could buy again, especially when FHA loans become available to them again, three years after their proceedings.

Landlords and property managers, it’s clear that staying on top of what’s happening in your local market is the key to staying ahead of the competition. Adjust your rents and target your tenants accordingly.

Vacation Rentals Looking Up

Posted by Teresa on September 21, 2012 under Rental Market | Be the First to Comment

If you own rental property in vacation areas, or a second home that you rent out, things may be looking up. According to a report from HomeAway, an online vacation rental site, 72% of vacation rental owners in markets where summer is considered peak season reported summer occupancy rates of 76% or higher. That’s an increase of 8% over the summer of 2011.

Not only were occupancy rates higher, but average weekly rental rates were, too. Average weekly rates were $1,493, or $213.29 per night. And 87% of vacation rental owners said business was the same or better than last summer.

The report also shed light on the importance of marketing vacation rentals. It states that owners on average spend over eight hours per week marketing and managing rental properties, and bring in an average of $26,000 per year in rental income. (The average HomeAway owner rents their property about 17 weeks a year for about $1,493 per week.)

How Vacation Home Owners Use Rental Income

• Like any income – for every day living expenses, discretionary spending, saving for the future: 43%
• To maintain or make upgrades to their vacation home – to purchase furnishings, perform necessary maintenance, paint: 59%
• To pay the mortgage on the property: 47%

Of those who use rental income to pay the property mortgage, nearly half (49%) said they’re able to cover at least three-quarters of it.

If you’re like most vacation rental owners, you purchased your property for personal use or a long-term investment. About half of owners say they spent from one to 28 days in their vacation homes, while 27% stayed more than a month.

HomeAway says the following markets are seeing a rise in demand and inquiries:

1. Balboa Peninsula, Calif. (222% increase in inquiries during the second quarter of 2012)
2. Reunion, Fla. (up 137%)
3. Aspen, Colo. (up 124%)
4. San Diego, Calif. (up 124%)
5. Folly Field, S.C. (up 116%)
6. Honolulu, Hawaii (up 115%)
7. Kissimmee, Fla. (up 114%)
8. New Orleans, La. (up 114%)
9. Vail, Colo. (up 111%)
10. Gulf Shores, Ala. (up 108%)

If you’re thinking of investing in a vacation home to rent out and enjoy for yourself, you might want to look into these areas, with significant increases in traveler interest.

Promising College Towns for Landlords and Parents

Posted by Teresa on August 29, 2012 under Housing Trends, Rental Market | Be the First to Comment

Whether you’re a parent of a college student or an investor in real estate, some college towns are more attractive than others. In some of the country’s hottest rental markets, landlords who own rental housing are seeing low vacancies and higher rents, while parents of college students might be finding it difficult to buy an investment property for their kids to live in while in school.

Buying a rental property often makes more sense for parents than paying ever-rising costs of room and board or off-campus rent. But they may be competing with experienced landlords when it comes to purchasing reasonably priced properties in today’s competitive markets.

According to Realtor.com, the following markets show promise for parents and other real estate investors:

Of course, owning rental property and leasing to college students presents another set of challenges. Study the market, consult your tax, legal and financial advisors, and decide whether the pros and cons work out for your needs and personal situation.

Lots of New Landlords Entering the Business

Posted by Teresa on April 6, 2012 under Rental Market | Be the First to Comment

The rental market is seeing some new faces. Rental property investors now include people who, a few years back, may not have ever considered becoming landlords. Income tax records show 9.3 million taxpayers who claimed rental income in 2009, which is up from 8.3 million in 2003.

Several factors are contributing to this trend:

• The rental market is strong, and it keeps growing. More people are choosing to rent rather than buy homes, due to job instability, poor credit, stringent lending standards and insecurity about housing prices.
• Home prices are staying low. Prices have been falling since the bubble burst, and although experts have said we’ve reached the bottom more than once, the numbers indicate otherwise.
• Interest rates are staying low. Near-historic low rates mean taking on a mortgage makes sense for good credit risks.
• Investment returns are lousy lately. U.S. stock funds lost an average of 2.9% in 2011, and safer investments, such as bank CDs are returning rates of 1% or 2%. Investors view real estate as a better opportunity.
• People see tax benefits in owning rental property. According to Reuters, in 2009, those 9.3 million income tax filers claimed about $267 billion in rental income. However, they claimed more than that in depreciation and expenses, for a total loss of $11 billion.

Of course, things can change quickly. Housing prices will eventually recover. The jobs picture will improve at some point. Interest rates will creep back up. And rents will level off. Landlords who enter the business now when demand is high, tenants are plentiful and rents are healthy may find themselves ill equipped to deal with any downturns that will surely come.

Is it Time to Raise the Rent?

Posted by Teresa on January 16, 2012 under Landlord Tips, Rental Market | Be the First to Comment

The rental market has been very good over the past year or so, and economists say that’s expected to continue—at least for the near future. But economists also predict more renters becoming homebuyers later in 2012, as employment increases and the housing market finally starts inching its way back from the seemingly bottomless pit it’s been in.

If you haven’t raised your rents during this landlord’s market, you may be thinking about doing so, before the pendulum swings back to the tenant’s favor. Here are some simple steps that can put more money in your pocket and keep good tenants from moving:

• Study your market rents. There are a number of online tools you can use to check comparable rents in your area. You need to know whether your rents are in line with, above or below market. Obviously, if your rents are above market, you should rethink the plan to raise them any further.
• Review your expenses. Have the costs of maintenance, insurance and other business-related expenses gone up? Take this into consideration when setting your new rents.
• Determine which tenants you really want to keep, and which you think you could replace with better quality tenants. You may choose to lower the amount of the rent increase for great tenants that you’d like to stick around.
• Examine your lease records to determine which will be up for renewal in the next 12 months. What does your lease or state law say about rent increases? Do you need to give a tenant 30, 60 or 90 days’ notice if raising the rent at lease renewal? 30 days is usually not enough for a tenant to make a decision to move and let you know they will not be renewing. The longer notice you give, the better your relationship with your tenants will be.
• Formulate a plan. Decide how much of an increase is fair, based on market rents and the tenant’s history with you. If you really want to keep a good tenant, think about a smaller increase. You can also be ready to offer a longer lease at the new rate—18 months, for example—so the tenant can be assured that the rent will remain stable for a longer period of time. Have your market data ready to show tenants, so they know they’re still getting a good deal.
• Prepare a well-written notice. Be sure to thank your tenants for their business and for being good tenants. Let them know the amount of the rent increase and the process for lease renewal. Soften the blow by letting them know that your expenses have increased, that you’ve studied the local market and are keeping rents within the average range. Typically, if the tenant does nothing, the lease renews at the new rate. If tenants give notice, let them go and replace them with new tenants who will pay the new rent.

Of course, keeping a good tenant is always better than the expense and trouble associated with finding a new, qualified tenant. Keep this in mind when determining the amount of your rent increase. Follow these steps and you can be on your way to painless rent raising!

What Landlords Can Expect in 2012’s Rental Market

Posted by Teresa on January 5, 2012 under Rental Market | Be the First to Comment

For landlords in most markets, 2011 was a good year, with low vacancy rates and higher rents than previous years. What can landlords expect to see in 2012?

Strong growth in rental demand. Forecasters say demand will continue to grow for rental housing, based on a continued weak job market. Employment is expected to improve at a slow rate, which could increase demand as more people move out of shared housing situations.

A continued soft housing market. Losing renters to home purchases will probably not be a big issue for rental property owners. In some areas, such as Texas, home sales started increasing in the last half of 2011. Wherever employment growth occurs, demand for rentals will continue, and some home sale increases are expected.

Lower than normal supplies of multi-family housing. While construction permits are increasing and new development is starting to happen, most big construction projects are still in the planning phase. In most areas, new supply levels won’t be much higher in 2012. Exceptions are Washington DC, Dallas, Tex. and Orange County, Calif.

Higher occupancy rates. The economy will continue to produce renters for low- and mid-tier properties. High-end properties are still in high demand, but as wages stagnate, more renters will be pushed into lower rents, driving those occupancy rates higher.

Rent growth of 4% to 4.5%. Property owners who continue to increase rents could see higher turnover; others will likely see value in keeping existing tenants.

Top Ten Rental Markets for 2012

1. San Francisco will continue to lead the nation in apartment rental growth, followed by:
2. Austin, Tex.
3. San Jose, Calif.
4. Oakland, Calif.
5. Boston, Mass
6. New York City
7. Denver, Colo.
8. Dallas, Tex.
9. Charlotte, North Carolina
10. Houston, Tex.

New Index Tracks Where Homebuyers Want to Go

Posted by Teresa on November 18, 2011 under Housing Trends, Rental Market | Be the First to Comment

Trulia is a real estate website where home buyers, renters, and sellers can track sales and rental activity in any city or neighborhood. The website recently launched a new report that reveals where renters and homebuyers live now, compared to where they want to live in the future.

The report tracked searches on the site between July 1 and September 30, 2011. The results may reveal where demand could be increasing ahead of actual sales and lease information. Trulia’s Chief Economist said that they believe the low prices in areas like Florida, Nevada and California will draw more prospective movers – who will be attracted to buying, rather than renting homes, as rental markets continue to tighten.

The company created an index for each metro area, based on the numbers of property views by people who live elsewhere. It also took into account the number of out-of-area property searches conducted by locals in each metro region.

The Top Ten High Demand Metro Areas For Homebuyers

1. Sarasota, FL: Foreclosure jumped 57% last quarter; home prices have fallen 51.4% since the peak and are expected to decline another 6.5% through Q2 2012. For every person in Sarasota looking for a home elsewhere, 6.03 people from out of the area are looking at Sarasota real estate.

2. Riverside, CA: High unemployment and poor economic conditions led to 55.4% drop in home prices from the peak and they are expected to decline another 14.8% through Q2 2012. For every person in Riverside looking for a home elsewhere, 4.36 people from out of the area are looking at Riverside real estate.

3. Charleston, SC: Real estate prices are down 23.3% since the peak and are expected to decline another 1.6% through Q2 2012. For every person in Charleston looking for a home elsewhere, 2.25 people from out of the area are looking at Charleston real estate. Retirement destination.

4. Fort Lauderdale, FL: Median home price went from $400K to under $200K in five years. Real estate prices are down 48.4% since the peak and are expected to decline another 9.2% through Q2 2012. For every person in Fort Lauderdale looking for a home elsewhere, 2.15 people from out of the area are looking at Fort Lauderdale real estate. Lots of retirees.

5. Cape Coral, FL: The market is bad here, but bargains exist. Real estate prices are down 59.3% since the peak and are expected to decline another 12.2% through Q2 2012. For every person in Cape Coral looking for a home elsewhere, 2.09 people from out of the area are looking at Cape Coral real estate.

6. West Palm Beach – Boca Raton, FL: One in four home sales in past year was a foreclosure. Real estate prices are down 50.2% since the peak and are expected to decline another 9.6% through Q2 2012. For every person in West Palm Beach looking for a home elsewhere, 1.99 people from out of the area are looking at West Palm Beach real estate.

7. Fort Worth – Arlington, TX: Home prices going up. Real estate prices are down just 5.9% since the peak and are expected to increase 2.7% through Q2 2012. For every person in Fort Worth looking for a home elsewhere, 1.97 people from out of the area are looking at Fort Worth real estate. Mostly from Dallas.

8. Oxnard, CA: Mecca for retirees. Real estate prices are down 40% since the peak and are expected to decline an additional 6% through Q2 2012. For every person in Oxnard looking for a home elsewhere, 1.92 people from out of the area are looking at Oxnard real estate.

9. Las Vegas: Two out of three homes underwater. Real estate prices are down 60% since the peak and are expected to decline an additional 11.4% through Q2 2012. For every person in Vegas looking for a home elsewhere, 1.88 people from out of the area are looking at Vegas real estate.

10. Orlando, FL: Hit hard by the housing crisis. Real estate prices are down 53.4% since the peak and are expected to decline an additional 11.4% through Q2 2012. For every person in Orlando looking for a home elsewhere, 1.87 people from out of the area are looking at Orlando real estate.

Survey Shows Baby Boomers Interested in Investing in Rental Property

Posted by Teresa on October 11, 2011 under Housing Trends, Rental Market | Be the First to Comment

A new survey focusing on baby boomers and their home buying plans was released today by Coldwell Banker Real Estate. The survey of 1,300 agents and brokers finds that 87% of respondents have clients who already own or are looking to buy investment property. About 22% of agents responding said that at least half of their baby boomer clients fall into this category.

Jim Gillespie, CEO of Coldwell Banker Real Estate, said that baby boomers drive the U.S. economy; while they are a diverse group and cannot be generalized, their attitudes towards real estate can be telling. Right now, the economy is delaying boomers’ decisions to sell their existing homes, whether to downsize or relocate.

Coldwell Banker Real Estate’s data indicates that the boomers who can afford to are looking for a retirement home or a second home for investment, and many see now as the time to take advantage of lower home prices.

Additional survey findings:

• Younger baby boomers (ages 47 – 55) are more interested in purchasing a second home than older baby boomers (ages 56 – 64), by a margin of 34% to 22%.
• 31% of younger baby boomers are looking to sell an existing home and buy a larger home, compared to just 6% of the older group.
• Downsizing is more appealing to older (80%) than younger (52%) boomers. For the majority of older boomers, the reason for downsizing is not to save money, but to simplify their lives.

Interest rates are historically low, so younger baby boomers are actively seeking income streams for retirement. Perhaps they will be joining the ranks of the nation’s landlords, trading fixed annuities and bank CDs for property management guides and a set of handyman tools.