Charlotte Property Management Weekly: When Will Rental Rates Rise?

Every property owner I’ve ever met (including yours truly) wants to charge the highest rent possible. Every tenant wants to pay as little rent as possible.




Sorry, there is no huge revelation here. This is pretty much the way any market works. The girl who sells cans of peas wants you to buy them for $100/can, and you want to buy 3 cans for a dollar.



This is what a free market is all about. What are buyers and sellers willing to accept price-wise?



Then supply and demand are thrown into the mix. If the girl is selling the peas for $100, and five other people are selling them for a dollar, the $100 price is not going to fly. But let’s say the pea market heats up (it becomes the rage in Europe) and the $100 girl is the only one who has peas to sell now. You come home and your wife tells you she is dead set on serving her famous pea soup with a side of pea pilaf for your anniversary dinner. Now, $100 may seem like a great deal!



The same is true of the rental market. When the economy is great (and especially when properties are in a hot geographic area), rental prices are able to rise because homes are snapped up as soon as they go on the market. The supply of homes is low and demand is strong.



Conversely, when the economy and real estate market are slow, the rental market suffers. The people who can’t sell their homes put them on the rental market, which join the many homes that are already on the rental market. This creates a glut of homes (increased supply).



With many rental houses to choose from (low demand), much like the many sellers of peas example, the prices must be lower. This has happened for the past few years. To be competitive and fill their properties, sellers have had to drop their rental prices.



Which leads to the question we really care about: When can we raise the rents to my properties? In short, soon. Why is that?



Many investors and home owners are sick of losing money every month on their rental properties. Some can no longer afford to be in the real estate investment game. As national sales numbers have shown, short sales and foreclosures continue to dominate the market. Many home owners are letting their houses go and this activity is a growing national trend.



As banks continue to take growing losses on bad loans, they will loan out even less. A recovery is not imminent; defaults will continue to abound.



However, in terms of the rental market, short sales and foreclosures will accomplish 2 things:

1. Removing rental homes from the market as owners let their investments go back to the bank (lower supply)

2. Adding foreclosed homeowners to the tenant-pool who now need to rent (increased demand)



The rental market will recover much sooner than the housing market (which is years away). I believe early 2011 will bring rental price increases, after years of holding the line or being reduced. The market is shaping up to reward the investors who hang on during this difficult period with higher rents and lower vacancies.



So, hang in there! Rentals will be back in 2011 and, in the meantime, “pea mania” has not hit the States and are still available on the cheap.



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: The Only Property Management Question You Need

Wow! Only one?




As a Charlotte property manager, we have potential customers contacting us everyday about managing their rental homes. Their questions typically boil down to two:



1. How much can my house rent for?

2. How fast will it take to fill with a tenant?



These two questions are not mutually exclusive.



This leads the property manager to ask the true follow-up question:



How fast do you want the property to be filled?



Duh, today or tomorrow would work! What type of question is that?



It’s the only question.



Here’s the logic: if you put the average Charlotte house up for rent for $100, we could have someone locked up today to rent it. Conversely, if you put your house up for rent for $10K today, it would take us years to fill with a tenant (if ever).



The equation is:

$100 Rent = Tenant move-in today

$10K Rent = Tenant move-in in 5 years

Today ($100) < How Fast you Want a Tenant to Move-in ($X.XX rent) < 5 Years ($10K)



If you want a tenant to move-in within 3 months, a good property manager should be able to tell you what price you should list your home for rent for ($X.XX). Chances are, you won’t be willing to accept the monthly rental price that would have your home filled within two weeks (nor would it be wise). But at least you would have the information to make the choice you want based on your needs.



With all other things being close to equal (marketing of the property, etc.) in an efficient rental market, rental price should determine how fast a tenant moves into your property. Speed is a function of price.



The only real question is, “How long do you want to wait for a tenant?”



Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com.

Charlotte Property Management Weekly: Solving the High-End Home Sales Stagnation with Rentals and Rent-To-Own

Realtors everywhere are breathing a sigh of relief with the upswing in home sales in April and May. Things seem to be picking up a little, they have some money in their pockets, and there appears to be a light at the end of (what has been) a very dark and long tunnel of diminished sales activity.



Though, with the end of the tax credit, it looks like the roadrunner might have just lathered some white paint on the wall ahead as pending home sales are dropping fast.


Owners of higher end homes in Charlotte, defined here as over the FHA maximum of $304K, never really saw this light. They have beautiful homes that are priced relatively low (much too low they would say- and I would agree!). Their houses are still are not selling and the monthly nut on them is just sucking the life out of them. Unfortunately, banks are now requiring so much more (700 credit scores and 10% down minimum) from potential buyers of these homes that there can’t be a fluid market.


So where does that leave them?


Most of the owners of these homes don’t want to go the foreclosure or short sale route. They also don’t like the fact that they know their homes have value that the market won’t recognize at present. Their sterling credit scores and reputation with their former neighbors mean something. They are just not willing to walk away when they can still afford the monthly payment, as unsettling as paying it every month is.


Many are realizing that they need a solution to get them past the next few years. They are starting to explore rental and rent-to-own options. They’ve heard the horror stories that people tell about renters, but they can also do basic math.


What do I mean by that?


Let’s take an $800K home, for example, and say the monthly cost is $4K. The current market value is $600K. They can rent it for $3K. We’ll assume a 2-year lease.


Not rented:

1. Loss of $4K+ (monthly payment, utilities, other holding costs)

2. Maybe sell it for $600K sometime during the time it is on the market vacant


The math: If not sold, they are looking at a loss of $100K+ in 2 years (24 months X $4K + holding costs) OR (if sold) a $200K potential “loss” on the sale


Rented:

1. $1K loss per month ($4K - $3K) on monthly rent versus their costs

2. Assume (medium-to-bad case of irresponsible renters): $15K of damages when the tenants leave (if they don’t buy)


The math: Loss of $39K ($1K X 24 months + $15K damages) if they don’t buy OR the realization of market value (around $800K depending on what the home appraises for at the time of sale) in a year or two if the tenant buys (through a rent-to-own scenario).

So, the results look like this:

Keeping their home vacant on the market: $100K - $200K loss
Renting or Rent-To-Selling their home: >$39K loss


Is it any wonder why the rental or rent-to-own option is gaining traction for higher-end homes in this economy?

Brett Furniss is the President & Owner of BDF Realty (“Charlotte’s Most Innovative Property Management & Investment Company”), and Rent-To-Sell Realty (“When You Need a New Solution to Sell Your Home”) which specialize in rent-to-own (lease options) and rent-to-sell homes. You can contact him directly at Brett@BDFRealty.com.