Market For Renters
I would like to hear opinions on the rental market and what are the best times of the year to find renters.
In December I purchased another building with property management problems. After kicking out all the deadbeats, fixing up, separating utilities, etc. I put apts up for rent and have been able to rent about 1/month with 2 more to go. I have also had so many more poor applicants than as is usually the case.
I normally do not have a lot of vacancies so I sometimes feel out of touch with the market for renters.
It seems that Dec-Feb was very slow and I was wondering:
- is this the worst time of year, what are other bad times
- have years of low rates and exotic morgages left the renter market with only low end people (all good renters bought condos)
- how are vacancy rates tied to the mortgage rates/ (I think that more people have to rent instead of buy or even sell their house because of ARMs due to interest rate increases so the renter market should improve)
thanks.
if you are planning on selling because you are worried that some deprecaition will/is kick in, then no way. the min payment is 2% but the full payment adjust every month/ 3 months and will be around 6.6-7.3 right at the get go. Rates will go up also, and so you will borrow more and more money from you house. if you were to do a option arm, get a world savings on which is tied to the best index, cosi. what exactly are you looking to do with the money? you can do equity lines to buy forclosures fast, and then flip.
Nov-Jan always seem bad because of the holidays for me. I write my leases so they expirein May-July whenever possible. Those seem to be the best months for me.
Spring and summer!
I think you are over analyzing, people just prefer to move when it is warmer. [ Edited by d_random on Date 03/31/2006 ]
Spring is always the best time to rent for us. December and January are the worst.
I believe that you can find good tenants in any income bracket but you just have to be more careful as you move down the scale. Some of our tenants are fairly poor and keep their house in great shape and always pay their rent on time. Others .. not so great yet make good money. I honestly feel it is the example their parents or role models led for them. Unfortunately, it is a continual cycle.
Thanks finniganps, appreciate the insight.
I agree with finnaganps. We have the same rules in MD. I can only keep as much of the security deposit that is needed to mitigate my actual damages.
Provided the new tenants are paying the same rent as the old tenants for the remainder of the old tenants lease term, then you have no lost rent, and no excessive wear and tear. My state law limits the damages (in your situation) to your advertising cost.
If I happen to get a new tenant at a higher rent and still have no tenant abuse repair costs, then I have no damages at all. I must refund the security deposit in its entirety and the advertising cost is just another business expense -- the cost of securing a higher paying tenant.
In your situation, the most I would deduct is the cost of advertising and I would refund the balance. [ Edited by NewKidInTown3 on Date 03/30/2006 ]
I agree completely with ttime.
You say they were…
- model tenants
- rent on time
- no problems
- very accommodating
- showed the house to potential renters
- the house is VERY clean
- you have another tenant the day after they move
- the same terms (rent + SD)
- they broke the lease because of a death
If it were me, I wouldn’t hold back a dime.
Thank you all for the input. I GREATLY appreciate all points of view.
I am deducting the amount of advertising costs from the security deposit (approx. $250 in out of pocket costs), but forwarding the remaining amount back to the tenant.
The house is immaculate, the previous tenants hired a cleaning crew and left it spotless.
If all tenants could only be as considerate.
ypochris, I just read your comment re: the 1/2 deposit. Interesting point.
But I have to run it like a business, especially being an out of state landlord. $250 in adverstising would NOT have been incurred had the tenant stayed in the house. That to me is the bottom line.
Thoughts anybody?[ Edited by davidlochtefeld on Date 04/04/2006 ]
1031 like kind exchange, FSBO, negotiating the sales commission down.
If you want to sell and cash out, it seems to me that keeping 4 out of five after taxes is a great deal.
Do you have any "carryover" from previous tax years...or expect to over the next few years from the deprecation on 5 properties? Carryover can be used to "cover" capital gains so you pay no tax...(I hear)
Of course this would be a strategy over several years...
Have you considered 1031 into a small appartment building? You would have to learn some new skills on how to evaluate multi-family but if you can find properties yeilding 9% to 11% CAP rates you should do well even in a minor downturn.
You would probably want to hire a property management company so you will need to include this in the Net Operating Income NOI calculations as well as the actual operating costs.
Just a thought.
Housing options might be an alternative to hedge against RE price decline. They are the S&P CME housing options/ futures. They are coming out soon on the CME. Not sure the cost factor on the contracts and protection given. Could be good for people who have several properties in high price decline risk areas that have had a strong run up from speculative investing.
Mark Cuban sold his company to yahoo during http://www.the.com boom and bought a crapload of put options to lock in his restricted yahoo stock price. He is a billionaire today that owns the Dallas Mavs among other things.
I have often read income should be three times the rent for younger people, but that older folks are better at budgeting and realistically determining what will work for them, and so up to half their income is acceptable. This might be considered (reverse) age discrimination, though...
Personally I choose my renters based on my gut feelings about them. I do think I tend to lead towards minority tenants when all else is equal, but I am trying to fight my tendency to give in to political correctness. Everyone deserves a fair shake- even white people...
Chris
You had better have predefined selection criteria or you are headed towards a Fair Housing nightmare. The very fact that you are discussing age and race as factors into your selection critieria equates to amateur property managers that are headed towards a legal nightmare.
1) total household income 3x the rent
2) good credit
3) good rental references
4) my rent can not be more than 25% more than the current rent or mortgag payment
Have any selection critieria you want that does not discriminate against a protected class. But a good property manager will have measurable criteria that is applied equaly across the board and aids in selecting the best tenants possible. Using your gut is about the worse advice I have ever heard.
I ask no question about their heritage, religion, who will be sleeping where, ages of anyone, relationship of anyone, etc.
My application does ask for the names and birthdate of each person that will be living in the unit. This is to determine who needs to complete a rental application - as all persons over 18 must complete one - and to determine if the total number of occupants is over 2 per bedroom.
Brenda
Yes, the payment is lower, but you will be paying 1800 dollars a month for an extra ten years, or $216,000 total, to save $100 a month for 29 years, or $34,800 plus the cash out. And most of this $100 a month could be saved after a while by eliminating the PMI. So basically you will be paying $216K to borrow perhaps 20K for 40 years. Or if you sell your current property, the equity is going to be far less.
Based on the limited data, I would tend to opt for keeping the current mortgage and trying to borrow the money some other way. But if you have a great deal that will make up for the cost, as NewKid says it might be worth it if this is the only way you can make it happen.
Chris
Principal = $220k (no prepayment penalty)
Appraised ~ $275k
New mortgage= $245k ($5k included to cover closing costs, etc...)
Out of pocket expense to refinance= $550
Intended reinvestments = payoff high interest credit cards, minor house repairs, and eventually purchase a second investment property
Please elaborate on the tax implications and why the $20k+ is not tax deductible...
What would you guys do?
Thanks guys I really appreciate the honesty...[ Edited by Soon_2B_Rich on Date 04/09/2006 ]