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Tony's Newsletter - November 2009

First Rate Property Management finished off October with a 6.5% vacancy rate. Our inquiry rate has reduced significantly which is common this time of the year. Unfortunately, we are still having a good portion of tenants not renewing, as they either buy homes or look to reduce expenses. So I project that our vacancy rate in November and December will increase.

Lease Terminations:
In years past, First Rate Property Management has controlled its vacancies in the winter months by not allowing leases to expire during the winter months. As the market turned, we moved away from this policy as it appeared that the best thing to do to attract new tenants and fill vacancies was to be as flexible as possible. Now that the winter has moved upon us and we have a higher than normal number of tenants choosing to move, this proved to be a mistake. We are getting very few inquiries and it looks like renting up this winter will be difficult.

Fannie Mae:
I told you all that I would update you if Fannie Mae chose to become Landlords. In November, Fannie Mae announced their Deed-for-Lease Program. It allows qualifying homeowners to remain in their homes by signing a lease in connection with voluntarily transferring the property deed back to the lender. In my opinion, the positives for this kind of program is that it keeps more houses off the sales market, which should slow down the loss of value. The negative is that it reduces the number of potential tenants coming to First Rate Property Management looking for a home to rent.

Government :
More Government Help: As of the date I wrote this, it looks like our government is expanding the First Time Homebuyer tax credit of $8,000 until the end of April, 2010. This is not good news for the rental market. Additionally they are including a new $6,500 tax credit for existing homeowners who qualify for the program. I don’t see either of these helping our rental market, but of course, if it helps the economy, it will indirectly end up helping the rental market.

As the rental market has softened, we have increased our advertising. In many cases, we are spending far more than what we can charge out. So for the first time ever, we are actually losing money to advertise our clients vacancies. We want to reduce the costs, but also want to be careful not to lose leads which can prolong vacancies in this difficult market.

Well, our new website is now running. Please feel free to browse through it and let me know if you see anything we should look at correcting or improving. It’s been quite the process and very glad to be through it. We did see some email issues and we do need to make further improvements on our email server, so we may have a few more issues. So if you don’t get a timely response, please be sure to call us. Just after I promised the staff that we wouldn’t be making any changes anytime soon, we are planning on adding another site, which will be specifically designed for smart phones like the iphone.

Single Family Homes:
I just represented a buyer on a single family home that we bought for less than what the seller’s had paid for the house brand new in 1998. This was a tradition sale, meaning it wasn’t a short-sale or a foreclosure. So that tells you a little how much the market has corrected itself.

Values continue to decline, but so has inventory. So we may be seeing the bottom soon. This is still great news for buyers and somewhat good news for those of us that have bought in the previous 5 years. I think until the economy improves and we quit seeing outside forces making changes to stimulate the market, we need to be smart. I think buyers should buy with an expectation of no appreciation for the next 5 years. Buyers also need to expect lower rents and higher vacancy. So if the property cash flows, which it should with 25% down, you are in a good place. If you are an owner who bought within the previous 5-6 years, selling may still make sense, but price will probably be less than hoped and time on the market probably will be a little bit longer.

Tony Drost
Property Management

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