The Rental Market is Picking Up

Tuesday, January 5, 2010 , Posted by Johnny Fuery at 5:35 PM

Originally Published 2007-07-02 18:28:23

I closed two new lease contracts this past weekend, and I have the following observations. Some are old favorites that are always true; some are only pertinent to the current market in the San Francisco and Sacramento areas, where I manage property.


  • Summers are always a better time to market a home. This is true for selling or leasing. So, as a buyer or renter, it's probably a better idea to look for a place in the late autumn or winter. It makes sense, psychologically -- no one wants to move around Thanksgiving or Christmas (or the equivalent winter celebration for your faith/country of origin)!

  • The Sacramento market is flush with individuals and families down on their luck that need a home. I received over two dozen calls on a place I had on the market for a total of 36 hours. Of those two dozen, more than 50% of the callers were former owners. One or two were natural, i.e., divorce or other life-changing events, but most of them were the direct results of the housing crash. I didn't ask a lot of questions about why -- whether they chose to let the bank foreclose on negative equity loans (where the owner owes substantially more than the market value of the property) or it was simply a case where adjustable rate mortgages suffered substantial increases in interest rates and payments. (I'm not immune to this, either -- it's been a tough couple of years on that front.) In either case, the fact that there are so many displaced families is directly indicative of the opportunity for short sales, makes prospective tenants particularly keen on lease-option deals (where the owner gives the tenant an option to purchase in exchange for a hefty up-front fee, extra monthly cash flow, or some combination thereof), and may mean that the hemoraging the housing market has been doing has progressed beyond the deepest of the valleys on is on it's way back up, however slow and uninteresting the creep (inflation + 1% is fine for us long term investors because of leverage).

  • Fair, honest, and amicable landlords are really hard to come by. Folks who have just endured financial wounds are even more grateful to work with well-meaning and up front property managers.

  • Speaking of good landlording, if a potential tenant has 10 years of perfect credit history followed by a six month black hole and a bankruptcy, doesn't that mean they're back on their feet now? Long histories of late payments are worrisome. Short-term financial tumult that has passed deserves a closer look. Just remember that "no checking account" definitely means "no deal". What responsible person doesn't have a checking account? (It is interesting that cash-only finances are now indicative of lower socioeconomics, isn't it? As a landlord, it's simply a question of cost. I have to charge more if I'm constantly chasing down a cash payment, because it costs quite a bit more in terms of time, effort, and accounting.)

  • The rebound in the rental market means that we're going to see inflationary pressures coming from housing. Not only are we going to see price pressure on energy and food, but it's going to show up more directly in housing in the next few quarters. 25 calls in two days means I didn't charge enough (despite the fact that it's a minor increase over the last contract on that particular property), and that means I can raise rents across the board. And believe me, seeing as how my rising mortgage payments have been forcing me to work a lot harder at the day jobs for the last two years, it's something that the business requires. Landlords across the board are anxious to raise rents because we need to do it just to stay afloat, and the increase in displaced owners means the market will bear it.

  • The fact that I'm noticing a hotter rental market and the accompanying inflationary period probably means that the broader U.S. market as a whole is experiencing the same thing. That means that more people will be asking for raises, upward pressure on interest rates will continue, and there's little reprieve in sight for your revolving credit card debt. Sorry. :-\

Comments

On 2007-07-04 16:53:53 Personal finance said:
The housing boom affects also the renters. Since the homes are overpriced and a lot of people can't afford to purchase one, this puts a lot of pressure in the rental market.

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