Developers Meet the Rental Demand:
As you can see by our recent posts, our vacancy rate is outstanding in the 1% range and rents are improving. No question, the rental market is once again strong. The developers and builders took notice and are here to meet that demand. During the real estate bubble in 2005 and 2006, we saw an increase in construction, but in many ways, that increase was to meet the demand of the investors, not necessarily the renters. This time, I suppose it is meeting both. Last year I posted a list of multi-family dwellings planned to be built. Not counting 4 plexes, but a little over 500 units were built in 2012 with another 240 still under construction off of Eagle Road. For 2013, we have about 1,400 units in early construction phase or with plans to start soon and possibly another 1,400 units looking for a developer or approval.
With so many rental units being introduced, what affect will this have on the rental market? I wish I could predict that, but there are quite a few variables. A few that come to mind are: 1) completion dates spread out, 2) unemployment and job growth, and 3) population growth. But also the home sales market is also another variable, such as any changes in interest rates and average sales price. So what does one do to take advantage of the current strong rental market and/or safeguard against a possible declined rental market? Well, I've got some ideas, so feel free to email me directly and I'd be happy to share them.
After the bubble burst, we saw more and more houses becoming rentals. Many of these homeowners were leaving the area and couldn't or weren't willing to sell at the current market value, so they chose to rent the home out. Initially, we had a surplus of homes that weren't selling, so those also became rentals. But, now with values improving, we're seeing a lot of rented homes getting sold. Unless these tenants buy a home, they will be part of the variable I listed above and will help absorb the new rental inventory.
With that said, the demand for rental homes is about as good as it was in the late 90's. Although values are improving, rents continue to improve as well and with the right house, performance can be decent. What's the right house? Above I mentioned how so many homeowners rented their homes when values were down. In most cases, that made a lot of sense and in these cases only, performance wasn't a real factor. It was more of a need to supplement a monthly mortgage payment while they waited for values to come back up. The right house tends to be a newer basic home (but not bare bones). Also to get the most for your money, they tend to be two-levels, as tenants also look for the most space for the least amount of money. And lastly, their main search criterion is bedroom count. And from there, they sort by price. So the home I just described, allows you to get the most house for the most rent. A custom home costs much more and typically the rent difference is not enough to get the most for your dollar.
Tony A. Drost
First Rate Property Management, Inc
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