Adjusting to Local Rental Market Downturns

Random Ramblings
1

Beginning in September, our local rental market–especially the furnished rental market–tanked. The vacancy board filled up with clean, vacant, unrented houses all the way through December.

25% drop in revenue. We stopped doing any renovations or unnecessary improvements. Put the handyman on call only. Minimal office staff. Canceled some insurance, termite control policies, advertising. Did not renew some home leases.
Also bought the cleaning lady a tool kit and drill so she could do minor repairs without calling the handyman. Sent her out on yard work on slow days.

When the phones stopped ringing, we started calling our CURRENT tenants: “We’ll discount your rent $100 a month if you stay 3 more months, more if you stay longer.”

“Yes, you can go to your 2-week training seminar and not pay rent. We’ll resume your rent when you return.”

“We’ll hold your deposit on your credit card, but not run it.”

For the first time ever, we now have a whole group of tenants who pay weekly, or bi-weekly, when they get their paychecks. We still get the monthly rent, just in payments. We had to set up an invoice board to keep track of the paycheck payers.

When the phone does ring, we say our new mantra-- “What can we do to rent you a unit? How can we help you with your budget?” We are onboard with our tenants’ concerns.

We just had an out-of-work Alabama coal miner (there’s coal there?) and a job-seeking Arkansas librarian show up. We have a high-end new home cabinet maker here from Arizona; he said the new home market there is dead. This country’s workers are on the move!

Today for the first time in 4 months our vacancy board shows ZERO. We are leaner, meaner (tenants get reminder phone calls BEFORE the rent is due) and actually more profitable. Now we get to worry about paying more taxes.

What are you all seeing in YOUR neck of the woods?

Furnishedowner

2

Furnished,
Sorry to hear you had a rough spot. In our business, currently we have no vacancies. We still can’t acquire homes fast enough. We frequently get calls from people looking for rentals (we’re not advertising either). Any money we get just goes into making the next deal happen. We’re closing on a 3/1 brick house this Friday. We’ll be bidding on another foreclosure tomorrow. I haven’t been rehabbing for about a month now. It’s been a nice break. I’m putting off some items (insulating and upgrading the electrical on our existing homes) until we get thru tax season. Rental demand in my town seems fairly high for SFHs. Most of this demand is from Sect 8 applicants so we just need to find the best of them and keep them.

3

I’m seeing a lot of ads stating 1st month free, no deposit, etc… There have been a lot of homes that couldn’t sell being rented out. Also, an investor just built 2 apt. buildings which added to the supply. I live in a pretty small town. So all this supply really drove down the rental rates. I still can’t believe the multi-families prices. A 2-family goes for around $150K with gross rents only$1200/mo. 4 families are in the $200K range and get only $2000- 2400/mo… I’m glad I didn’t get sucked into those deals. I’d be hurting right now. I have to thank Propertymanager’s book for showing the true cost of rentals. I keep my eye out for a potential deal but there’s just too much competition for such a small customer base.

4

I had to lower my rents 50-75 dollars pretty much across the board. It seems about one out of ten applicants qualify to rent our places, when a few years ago it felt more like one out of five.

So rental market has definitely went downhill in Raleigh.

5

The job market here is in a world of hurt, which means no income which means no decent tenants.

I dropped the rent $200 and took almost 60 applications in order to rent my last vacancy. There are lots of hopeful applicants with no income, no rent money, and no deposit (but they swear they will get the rent money some how). I’ve been getting applications from families of 4 with $600 a month to live on.

The past year, I’ve lost a bunch of tenants because they lost their jobs. I’ve had to drop rents $150-$600 a month to get the units filled.

Solid middle class families can now rent a house that sold a couple of years ago for $850,000 and get it for $1200-$1400 a month. They are my tenant base for my nice middle class homes, and they have no interest in a nice middle class home when they can afford a 3800 sq ft McMansion with a 3 car garage, hot tub, and stainless steel commercial grade kitchen. It’s a great time to be a tenant, if you actually still have your job.

There have been a couple of new businesses open up, with menial minimum wage type jobs. They announce they are taking applications, and there is a line all the way around the block. Guys in business suits, carrying brief cases, are out in line hoping to get an $8 an hr clerk’s job.

Nosler, which is located here, is expanding, and I am getting applications from their new hires. I just rented a house to their new engineer who is moving into the area for the job. One industry in the USA is thriving.

6

So out of four respondents, only justin419 reports a good rental market.

We others have to work harder and smarter to weather the downturn.

We are starting to quote “$1195 a month” for a 1-bedroom instead of “$1200”. Just like the stores do. Psychologically it sounds like a lot less. I learned why once but have forgotten the reason why our brains grasp that 95 as less than a 00, when it is on the end.

New rents…$895, $1195, $1495, etc. People seem to perk up their ears when they hear it as a bargain rent.

Furnishedowner

7

The population in my area grew from 50,000 to 80,000 during the boom. Apparently, the extra 30,000 people were all here making a killing in construction.

The bottom fell out of the real estate market and those 30,000 people all moved away.

While things were booming, we’d drive around town, looking at thousands of new housing starts, and ask “who is going to live in all those houses?” Turns out, the answer is “nobody”.

I suspect that Section 8 is out of money. With a huge chunk of the population out of work, I am not getting very many inquiries from Section 8 tenants. Or, what the heck, maybe they can all afford to rent a better house than what I am offering. They all certainly think they deserve a 3800 square foot house with a 3 car garage.

I am getting lots of applicants who intend to support themselves with college grants. Talking to them, I can’t imagine that they are going to last very long in college. That’s not free money like welfare; you’ve got to work when you are in college or your grades aren’t good enough to keep that grant.

I’ve had applicants that I know are intending to double up, but they always insist that all the extra people who are there with them looking are simply friends keeping them company. I know the “friends” are moving in, too, and I’m not getting any application from them, so I reject the whole mess of them.