At least Memphis is in a growth market. The tech sector seems to be booming.
What is your market doing?
Source: Multi-Family Executive
Read more here.
Rental Rates
Ordinary Americans Priced Out Of Housing
I wonder where all of this “Institutional Buying” of single family properties is eventually going to end up?
“If there was any doubt that the US housing “recovery” is anything but the latest speculative play by deep-pocketed (namely those who already have access to cheap funding) investors, who are now engaged in rotating cash gains out of capital markets and into real estate, on their way hoping to flip newly-acquired properties to other wealthy investors, then the most recent, September, RealtyTrac report will put that to rest.”
Are we creating a nation of renters? Is that a good thing?
Read the rest here.
What’s The Rent?
Smarterlandlords want to maximize their investments by maximizing rental income. That means they need to be charging top dollar for their rental properties. Problem is, how do they know what to charge? Here are some tips and tools to help.
- Talk to other landlords. Most have no problems telling you what they get in rents because they want to verify what they are doing as well. Where do you find other landlords? You can find then at your local REIA.
- Scan Craig’s List. Most landlords will put “for rent” ads up on this site. You can refine your search in a variety of ways and target your market.
- There are several other tools available online. Use them to establish a base. But be careful. Some of the data on these sites can be a bit misleading. So know your market. Here are a few of the most popular.
- Hotpads.com – The place to find your place. Do a search here like you would for Craig’s List.
- Rentmetrics.com – Claims to be real time rent comparable data for real estate professionals. I took a look around for my area and was impressed.
- Renometer.com – Paying too much or charging too little? Cool site but it gave me quite a range for my area.
- Zillow.com – Search the for rent section to see what you can find. This site is nice, but it also gives me quite a range.
Remember however that these websites only show what rent was being asked for. They do not really show you what the landlord actually got in rent. So again, use these sites as a starting point.
- Finally, depending on your market, you may have to drive around and look for “for rent” signs and give them a call. Some markets are just not going to be as accessible on the internet.
Once you have done your research, try putting your property on the rental market for as high as you think it can go. If it does not rent in a week or so, you are likely asking too much, drop the price until you find a renter. Only then will you truly know how much the rent is.
What to Watch to Know Your Market
Last time I wrote about the importance of knowing your market. You never want to go out and just buy an investment property for the sake of buying a property. Rather, you want to make a calculated investment decision. And in order to do that, you need to know your market. 
But what exactly does that mean “know your market?” What should you be watching?
Here are four items that I watch almost every day.
- What is the Rent? – What are properties in your market renting for? You simply have to know what type of income you can expect before you can make any purchase decision. How do you watch them? You scan Craig’s List, read the classified ads, call for rent signs pretending to be a potential tenant and talk to other landlords at your local REIA club.
- Where is the Rent Going? – Are rents in your market steady, going up or going down? This factor obviously can drive many an investment decision. If you see rents going up, perhaps it is time to ratchet up your buying, if they are going down, perhaps you should consider another market.
- What are Properties Selling For? – As buy and hold investors, we are generally concerned with one thing, positive cash flow, hence our focus on numbers one and two above. Price is also a very important factor in that cash flow calculation. You need to be keenly aware of property values and prices in your market, because when a deal comes on the market you have to spot it and act quickly sometimes to beat others to it. You can’t do that unless you know your market. My Sunday paper prints listings of sales every week. Working with a realtor from your local REIA group can also be very handy here.
- Know Who is Buying In Your Market – No I do not mean by name, but what the buyers’ goals are. Are they owner occupants or are they investors or both. Knowing this information may help you determine your next move. If there are many owner occupants they may be driving prices too high for a reasonable cash flow return and it may be time to find a new market. If there are a lot of investor types, you may have found a good rental market, but the competition may be stiff to get properties. I like to watch the daily property transfers here. Your location may have a similar publication or website.
If you watch this information continuously, you will soon develop a very good feel for your market. You will become a much smarter real estate investor.
Rents Are Up, Housing Still Down
Rents are starting to go up. According to the Federal Reserve Bank of Cleveland:
Rents are starting to accelerate. Rent of primary residence rose 3.1 percent in December, and has risen 3.5 percent over the past six months. Owners’ equivalent rent (OER) rose 2.2 percent in December and is up 2.3 percent over the past six months. Interestingly, all but one of the regional OER components we use to compute the median CPI posted an increase near 3.0 percent in December (the median component was OER: Midwest, which rose 2.9 percent).
Rents are simply responding to the laws of supply and demand. Demand for rental properties is up as the number of renters has increased significantly due to the foreclosure crisis and a reduction in the amount of available credit for home loans. The market is responding to this increased demand for rental units. According to the US Census Bureau, the number of permits for the construction of multi-family units are up over 50% since December of 2010.
Single family home construction continues to be in the dumps. New single family home construction permits are down over 75% from the boom time highs, as this chart shows:
What does all this mean for the average investor? First, if you own rental property, keep it. Rental inflation and thus rental profits should increase over the coming year. Second, continue to buy and hold rental properties if you can. Third, if you’re a flipper, buy and hold investors are going to be your buyers. Fourth, continue to be very careful with retail flips. Very few areas are viable retail markets right now so choose wisely.
It is more and more obvious to me that real estate investors are going to be the ones that get us out of this mess. I just hope the banks and our government begin to realize it as well.
Will 2012 = Less Vacancies & Higher Rents?
The vacancy rate for apartments in the US fell to a 10 year low at the end of 2011. According to Reis, Inc., the vacancy rate fell to 5.2%. That rate is down from 6.6% a year ago.
And as the supply of available apartments decline, guess what goes up? You got it, rents! The average monthly rent for the US as a whole increased 2.3% over the past year to just over $1,000.
If you are planning on going to Yale University in New Haven, CT, start shopping early for a place to live as they had the nation’s lowest vacancy rate. New York City, Minneapolis, Portland Oregon and San Jose California rounded out the top five.
California took the top two spots for effective rental rate increases. San Francisco and San Jose were number one and number two with Chattanooga, TN, Austin, TX and New York filling in the top five slots.
Jobs are the key to these rent increases. Both San Francisco and San Jose are seeing new jobs in the tech sector, while Randy Shelly with the Chattanooga REIA explained to me that “he is not surprised” as the Chattanooga area has had a new Volkswagen plant come on line and an Amazon.com distribution center make plans to expand.
It seems like 2012 may be shaping up to be a good year for landlords. I can say that here in Memphis any apartment I have that becomes available has been re-rented fairly quickly in what are supposed to be the slow months of November and December. But, I have not generally been able to push rental rates up yet. What have any of you readers experienced?
UPDATE
Here is a link to an article in the Daily News which somewhat echos what I said above. Rents have been pretty much stagnant in the Memphis area as have vacancy rates according to the article. Perhaps the decrease in vacancy rates I have experienced is due to my particular sub-market.
