E-Renter News

Depending on where you live and own rental property, you might be thinking the rental market may never rise from its current valley of lower rents, higher inventories, and less-qualified tenants.

But fear not—the tide may be turning, finally. Here’s why:

• The economy is improving. Job losses have stabilized and unemployment is steady. Earnings are up at several major U.S. companies, and retailers have seen increased sales. Even oil prices are rising again—another positive indicator.
• Demand will increase. The 20 – to – 34 age group, made up largely of renters, will grow by 5 million over the next decade, according to reports from real estate investment firms.
• Sharing housing will decrease. When the job market improves, renters will move back out of mom and dad’s house or away from sharing apartments with friends.
• Landlord concessions are drying up: More desirable neighborhoods in New York City, which has been experiencing a renter’s market, are seeing an end to landlord concessions like free rent and WIFI. Where property owners were paying broker’s fees to entice new tenants, the tenants are again paying the fees. And two months’ free rent has become two weeks’ free rent.
• Developers are getting back into the development business in more stable markets (as in, not Las Vegas, Phoenix, and parts of California). Real Estate Investment Trusts (REITs) are expected to start $1 billion in new multifamily projects, a huge increase over 2009. It seems they are betting that by the time the projects are completed in 2011 and 2012, the recovery and demand will match new supply.

While all these signs point to long-term, not near-term, improvements, they might add up to a reason for cautious optimism for stressed-out landlords and property managers!

In some good-for-a-change housing market news, S&P/Case-Shiller reports that 2009 home prices actually increased in several of 20 metropolitan areas studied. Overall, prices dropped 2.5 percent, mostly because of hard-hit areas like Las Vegas, Tampa, and Detroit, where prices declined 20.6 percent, 11 percent and 10 percent respectively.

But in San Francisco, Dallas and San Diego, prices rose by 4.8%, 3% and 2.7%. Overall, there is an indication that year-over-year declines in some markets are reversing, which may mean the market is beginning to show signs of stabilization. In fact, Las Vegas actually showed an increase in home prices in December, 2009—the first such increase in three years.

Do these price reversals mean the economy is finally on a rebound? Maybe not. With unemployment still high, and all indications pointing to a slow recovery in the job market, we probably should not plan on rapid home value appreciation and another housing boom any time soon. More likely the government’s involvement through the home buyer tax credit and buying up mortgage-backed securities is bolstering the housing market.

What does this mean to investment property owners and buyers? Is now a good time to get back into the market? There is no single answer to that question; like most investment questions, it’s best to ask your professional financial advisor. The experts say that while mortgage rates won’t stay this low forever, we’ve probably seen the last of the housing market buy/flip mentality for a while. We should all put our “buy before the price doubles” mentality on the shelf. At least for now!

In a word, yes! Here are a few reasons why:

Right now might be the best time in years to buy—in certain markets. But crunching the numbers becomes more important than ever—if real estate prices have dropped, has employment dropped, too? How far have rents fallen? Will you be able to rent a newly purchased property for enough to cover your P&I, insurance, repairs, taxes and other expenses? Even if real estate is 20% or 30% down from the heights of 2006-2007, you still need to make sure the numbers will work. A bargain is not a bargain if you can’t rent it. But in some markets, bargain real estate can work for the right buyer.

Real estate builds wealth—when purchased at the right time and for the right reasons. This means not buying with the expectation of great appreciation—one reason for the high rate of foreclosures we’re seeing now. Steady month-over-month profit that grows over the years you own the investment pays off with less risk than the expectation of making a big payout when you sell.

More people are moving from homeownership to renting. Americans are re-examining the idea that everyone “must” own a home. For plenty of folks, that dream turned out to be nothing short of a nightmare. Many former homeowners will be renters for a long time to come, both because of the bad experience they’ve had and because of foreclosure’s subsequent hit to their credit scores.

Depreciation expenses are valuable to landlords. Each year, rental property owners may deduct depreciation, or the annualized loss in property value from their income taxes (please see your tax professional for advice and legal limitations and regulations). Even if the value of your property increases, you still get this annualized deduction.

Real estate does appreciate over time—in most cases. Even in the hardest hit areas of the U.S., the long-term picture shows that real estate values do go up. If you are planning to get rich quickly, real estate may not be the right investment for you. But for the long term, it’s a great investment for many landlords.

Please consult your legal and financial professional advisors regarding investment and legal issues. This is not to be considered legal or investment advice.

Many Former Homeoners Moving Back to Rental Housing

The fourth quarter of 2009 saw U.S. homeownership fall to the lowest point in nearly ten years. While pending sales of existing homes ticked up 1%, the National Association of Realtors saw reason to hope that the real estate market is steadying.

Still, the number of Americans owning their home reached a low not seen since 2000, when the percentage stood at 67.3%—exactly where it was in the fourth quarter of 2009.

Some experts see the decline as a positive shift away from recent years, when homeownership was considered attainable by everyone, regardless of credit history, income, employment status, or ability to repay a mortgage. The current mess in the housing industry, overbuilding by construction companies, and entire financial industry collapse of late 2008 is blamed in part on “creative” mortgages to feed the homeownership frenzy.

That frenzy peaked with a high of 69% in 2004 when the combination of low interest rates and easy credit moved families out of rental housing and into houses of their own. Fast-forward to 2007 through 2009, for the results of the bubble: nearly four million homes lost to foreclosure.

The homeownership rate would likely have fallen farther, without the federal first-time buyer tax credit boosting sales. The credit is scheduled to run thorugh April 2010.

The news signals that homeowners are moving back to alternative housing situations: while some are moving in with family, many others are becoming renters—again.

Some Tips to Help Fill Vacancies

Smart landlords know that when the rental market shifts, the usual ways of doing things won’t always work. Being flexible helps, but tapping into your creativity is what will set you and your vacant rentals apart from the competition.

Staging is a tactic real estate agents swear by to help gain an edge. Staging is simply adding a few well-placed accessories to a vacant unit to make it look homey in photos and to prospective tenants. The idea is to make the rental look warm and inviting, so the tenants can imagine themselves living there.

Staging has been shown to decrease the time to fill a rental, and can even help increase its value in the mind of the tenant. Here’s how to stage a home or apartment:

1. First, make certain that the unit is spotless. If walls are dirty, scrub them thoroughly. Carpet should be professionally cleaned. Wood floors should only look old and well-used in a period home. Otherwise, dings, scratches, and worn spots should be repaired.  Bathrooms and kitchens should especially shine.
2. Fresh paint is almost always a must when preparing for a new tenant. If you paint your own properties, do an impeccable job—otherwise, call a pro. And of course, a neutral color is best. Warm white or ivory are good choices. Stark white can look cold.
3. Get rid of odors. Nobody wants to live with the previous tenant’s dog or cat smell, or their stale cigarette smoke. Often a fresh coat of paint will eliminate odors.
4. Before taking photos or showing the unit to prospective tenants, bring in a few personal touches. Either use items you already own or invest in the following:
   • One large and one small interior potted plant
   • An exterior potted plant if there’s a porch to place it on
   • Neutral wall art for the living room
   • A few candles
   • New kitchen towels and coffee mugs
   • Throw rugs
   • An overstuffed chair or two
   • Lamps
   • Side table
   • Books
5. In the living room and bedroom: Arrange a large plant, a chair, side table, lamp and rug in a grouping in both the living room and a bedroom. Add a stack of books, a small plant, or a candle to the table for a nice touch. Hang the art in the living room. Make sure the proportion is correct for the size of the wall. Keep it neutral with a modern piece.
6. Kitchen: Stack a couple of new folded kitchen towels on the countertop. Add two colorful matching coffee mugs to brighten things up. Add a throw rug in front of the sink.
7. Bathroom: Place a small potted plant on the vanity and a candle on the edge of the bathtub.  A small stack of new, white towels will make it look like a spa.
8. Exterior: Trim shrubs and branches, cut the grass, pick up trash and perform and repairs or touch-up paint that is needed. Place a large outdoor potted plant near the door.

Even a small effort to make your rental property look warm and inviting can help your prospective tenants want to live there--instead of the home or apartment down the street!

Consider these Dos and Don’ts

Furnished apartments and homes for lease are not common these days, but they certainly exist. And some landlords we know have considered adding basic furnishings to gain an edge in this tough rental market.

Consider these dos and don’ts before you start furnishing your rental properties:

Do consider it a yellow flag if your tenant needs furnishings because they don’t have their own due to lack of good financial habits or “bad luck.” On the other hand, folks who are going through a divorce or moving to your area ahead of their family (for employment, for example) could be viable tenants who need basic furnishings.

Do keep things basic. You don’t have to furnish every knife and fork. Most furnished rentals (aside from vacation and corporate) include a bed, dresser, nightstand and lamp; sofa, chair and bookcase; dining room or kitchen table and chairs.

Do remember that, while investing too much cash in furnishings is not the best idea, if you go for the cheapest furniture, you’ll attract tenants who are okay with cheap furniture.

Do realize that any and all of the furnishings could disappear in the night. Conduct proper tenant background and credit screening before offering a lease.

Don’t hesitate to include the value of the furnishings in the security deposit. You’ll be covered if any items are lost or damaged.

Do get it all in writing. Include a list of furnishings and their condition with the lease. Obtain the tenant’s signature on the list during the move-in inspection, and before they move out, conduct another inspection to determine damages.

Don’t be insulted if potential tenants turn down your lease because they don’t like the furnishings. You can’t please everyone.

Do consider adding furnished rental units to your mix if it will help reduce your vacancies or increase your cash flow!

Flexible Options for a Tough Rental Market

More and more landlords and property management companies are offering tenants month-to-month leases. In a rental market as tough as this one, landlords are willing to try nearly anything to fill vacancies.

Besides, more tenants have poor credit, evictions, and foreclosures in their histories. Bending the rules and becoming more creative may become more necessary these days.

Month-to-month leases offer both sides the option to break the rental agreement with 30 days notice. If no such notice occurs, the lease renews itself for another 30 days.

How can month-to-month leases help strapped landlords?

• You can choose from a larger pool of applicants;
• You can take advantage of your location if it’s a college town or popular vacation spot;
• You can rid yourself of a problem tenant after only one month;
• You might be able to charge a premium for the risk associated with lower-quality tenants;
• You’re not locked into a long-term rent payment and can raise the rent when the market adjusts back up;
• It’s easier to evict.

Of course, the tenant can leave at the end of any month, with the loss of rent, associated expenses to fill the vacancy, and other turnover headaches. Still, month-to-month leases offer flexibility that may help many a landlord survive this challenging rental market.

Did They Plummet or Stabilize?

Depending on which analysis of which report you read, U.S. home prices either plummeted or stabilized in 2009. Market reports stated that U.S. homes lost $489 billion in market value during the first 11 months of 2009.

Some would read that as “plummeting.” Others would compare the figure to 2008, when homes lost $3.6 trillion in value, and consider the loss a great success—or at least a “stabilization” of the market.

Some markets (Boston, Denver, Providence, RI) even posted gains in home values in 2009. This upward trend appears to be nationwide for the second half of the year. In other words, had the downward trend of the first six months continued, the overall loss would have been much greater. In reality, many areas have seen slight increases in home values since June. This has significantly helped reduce the number of homes that are “underwater,” or where the mortgage balance exceeds the value of the home.

Should home values continue to stabilize—or rise—more homeowners should be able to apply for refinancing. Lower interest rates, more secure mortgage terms, and lower payments could help slow down foreclosures.

Increasing mortgage rates could create a lower demand for home sales. And, studies show that 25% of folks who will move in the next three years are looking to rent or buy.

Is a healthier rental property picture on the horizon for 2010? Nobody knows for sure, but we can all hope that continued stability in home values will lead to less rental inventory, lower vacancy rates, and more stable rents for income property owners.

Zillow.com has established itself as a one-stop website for home values, recent sales, and general real estate information on every house in a requested area. The site’s (company-provided) statistics are impressive:

• 8.9 million unique monthly users (as of August 2009)

• Year-over-year growth of 64%

• Median household income of users of $90,518

• Median user age of 47

House hunters have become familiar with Zillow.com as a place to search for homes to buy, relying on the site’s huge database—90 million homes in the U.S. Now, the site is offering information on homes for rent, too. The addition is timely: a recent poll reports that 25% of people who plan to move in the next three years will search for both homes for rent and homes for sale.

The posting fee is $9.95 for a 180-day Featured Listing, with “extra exposure”—not too bad, considering the number of users they claim.

Landlords who post a for rent listing will enjoy editable content, including open house dates, unlimited photo availability, contact information, and trackable reports on traffic and page views.

Users can search by monthly rental payment, narrowing choices to those they can afford. Homes for rent appear on Zillow’s maps with purple icons. Red icons are for homes for sale; yellow means recently sold, and blue indicates for sale by owner.

Join E-Renter USA at the TRENDS Conference & Trade Show, December 8, 2009. This event, the largest rental housing management conference & trade show in the northwest, will be held at the Washington State Convention Center in Seattle, WA from 7:30 a.m. until 4:00 p.m.

The TRENDS show brings together Rental Property Owners, Rental Property Managers, Leasing Professionals, Investors, and Maintenance Professionals for a day of instruction and excitement. Forty workshops, over 200 exhibits, and a $1500 Grand Prize drawing make the TRENDS show a not-to-be missed event.

E-Renter USA is proud to sponsor and exhibit at the TRENDS show. We’re also proud supporters of Search and Rescue Associations. Stop by our display and meet Guy Seeklus and Luke, a trained Search and Rescue dog.

We’ll see you at the TRENDS Conference & Trade Show on December 8 at the Convention Center in Seattle!