Rental Market Flooded-Now What? - Posted by SC-nc

import · November 23, 2003, 5:04pm

Posted by Frank Chin on November 26, 2003 at 07:16:25:

RM:

I believe residential prices in NYC are insane.

The president of the RE Club here in NYC has gone out of town to do his deals. Apparently, he’s sticking to residential investing.

I looked into doing out of town deals as I have out of town properties. But my purpose of being an entreprenur is to spend more time with the family, and flying to Baltimore, St. Louis to do deals does not fit in.

Rather, business and RE markets have segments, and each segment has its own cycle. Commercial properties markets generally lead the residential market, and its been down for a while, and currently stabilized.

Rather than being a “one trick pony”, I just go and play another market for a while. So “yes”, I’m on the sidelines as far as residential, but not in “other” markets.

Frank Chin

import · November 23, 2003, 5:04pm

Rental Market Flooded-Now What? - Posted by SC-nc

Posted by SC-nc on November 23, 2003 at 18:04:25:

Hello-

For the past couple of years in my area it has been difficult finding those good renters for my properties. In the past with higher interest rates and a short supply of rental housing, folks would beg to move into one of my properties. My rentals where never vacant for more than two weeks. Rents would steadily increase.

Today and for the past couple of years, the lower interest rates have let those good renters purchase their own homes; therefore, reducing the supply of renters. It can take weeks if not months to fill a vacancy and rents have dropped off. The market is flooded with propeties for rent like I have never seen before.

I like to buy and hold property as long term rentals, and now find myself hessitating to continue aquiering rental properties with fears of not getting them rented.

So now what?

It seems my REI carrer is on hold. I want to continue moving forward but am not sure the best direction. I am hoping the current market conditions is part of a cycle and will change.

Any advise or similar experience?

Thank you SC

import · November 24, 2003, 9:07am

Re: Rental Market Flooded-Now What? - Posted by gk MO

Posted by gk MO on November 24, 2003 at 10:07:04:

What you are saying makes sense Frank…akin to being “penny wise”

import · November 24, 2003, 7:06am

Re: Rental Market Flooded-Now What? - Posted by Frank Chin

Posted by Frank Chin on November 24, 2003 at 08:06:15:

SC:

The market softened somewhat where I am, in NYC, as well. As everything is relative, instead of 100 to 150 frantic calls on a weekend - we get 25 to 30.

I still rented an apartment out -in one weekend, just this past weekend.

And instead of 33% with bad credit, its over 75%. I always contend that there’s a always a population of folks needing to rent, those renting their first apartment, those moving into the area, changing family circumstance like selling a big home when the kids moved out. I got all of them this past week.

The one constant I heard was owners of 1,2,3 families, my niche, still don’t clean up their units, or rent out tired looking ones, at high prices. Since 9/11, I antipdated a downturn, and rehabbed each unit as it became vacant.

I put in a brand new kitchen in the one I just rehabbed, paying a little more for real oak cabinets, rather than the Home Depot partical board ones. Despite the contractors advice of replacing the ugly ceiling lamp with simply a better looking one, I went ahead and installed “hi hats”, which most folks love. I bought three “hi hats” at Home Depot for $19.95 each, and an electrician charged me $225.00 labor to install it -so what’s the big deal. Then, I had built in under the counter lights for those that may have a problem paying the electric bills that came with high hats.

Then when the appliances were replaced, I got ones a little better than the bottom of the line. I got a slightly larger refigerator than is normally in such unit, a dishwasher $100.00 more than the bottom of the line, plus a self cleaning stove (another $100 above the bottom), also not found in comparable rentals.

So for another $300 or so more, I got the “WOW factor”.

Several doors, and closet doors, were replaced with new “birch” doors. So the unit had the appearance of a high end condo.

We seached thru the papers for the cheapest comparable unit, and advertised it for $100.00 less. I found that there’s always a population of prospects starting with the cheapest ones first. They often expect the crummiest unit, and sometimes ask “what’s wrong with it”?

Our answer "nothing wrong - why don’t you come by and be the judge of it.

So the rehabbed unit just knock the socks off those expecting the crummiest apartment. Ads for units renting for $100.00 more appeared in the papers for two to three weeks.

So I see the power of the market place at work. People want and deserve value.

Frank Chin

import · November 24, 2003, 4:19am

Re: Rental Market Flooded-Now What? - Posted by RichV(FL)

Posted by RichV(FL) on November 24, 2003 at 05:19:40:

SC,

Yes my market here is the same. For the entire year of 2003 the rental market has been soft. Since I manage my own properties I have found myself working harder to rent them out which has been taking more time off of my hands to find deals.

What I do is ajust rents slightly below the market and beat my competion out everytime. I also offer clean properties that are well taken care of.

Just dont sell yourself short and throw anyone in your places, remember a vacancy is much better to have than a bad tenant.

SC, one thing I have not let this soft market do is stop my search for deals. Dont let fear get to you. Stay the course, markets turn around all the time.

And the renters are still out there, its just takes a little more work to find them these days.

Great Success,

RichV(FL)

import · November 24, 2003, 12:21pm

Re: Rental Market Flooded-Now What? - Posted by rm

Posted by rm on November 24, 2003 at 13:21:07:

By making your units better than average, have you ever seen prospective tenants try to outbid each other?

import · November 24, 2003, 8:27pm

Re: Rental Market Flooded-Now What? - Posted by SC_nc

Posted by SC_nc on November 24, 2003 at 21:27:35:

Thank you RichV for your responce to my post.

The flip side to this soft rental market is that there are seemingly more motivated sellers and better opportunities to pick-up some good investment properties at lower prices. Maybe the key right now is to get the properties while priced lower, hold on to them by giving the renter more for less, until the market turns and rents can increase.

Thanks SC

import · November 24, 2003, 8:22am

Re: Rental Market Flooded-Now What? - Posted by Hank FL

Posted by Hank FL on November 24, 2003 at 09:22:41:

Would you consider allowing *pets to attract good and premium rent paying tenants.

*No pit bulls or wolverines obviously.

import · November 24, 2003, 1:07pm

Re: Rental Market Flooded-Now What? - Posted by Frank Chin

Posted by Frank Chin on November 24, 2003 at 14:07:53:

RM:

There’s three basic aims we’re trying to achieve here:

1- Getting the best possible tenants, which means getting the greatest population out the looking come to consider my unit, meaning setting a tempting price point.

2- Getting the most applicants to consider my unit over others after looking at it. With the pricing, and condition of the unit, 90% completed an application - “and half of them begging for it”

3- Have the prospect accept my terms and conditions.

Instead of applicants outbidding each other, they bid against each other in accepting my terms and conditions, i.e., the apartment as is, and rent up date of “12/1”.

This compares to situations where a tenant may tell me that he’ll rent up as of the first of next year as he’ll have to give his landlord 30 days notice ( a very reasonable request), and he wants this that and the other thing.

I know in renting the average units in the past, at market or near market rates, I have to sometimes consider the tenant’s demands and his requirements for a rent up date.

The fact that some tenants decide to grab my apartment, before vacating his current unit, to outdo another guy who’s willing to take it immediately is in effect having tenants outbidding each other, in agreement to my terms, rather than more money.

Then, I got the benefit in being able to pick 1 out of 15, thus bettering my odds of a creditworthy tenant, and collecting one more month’s rent in the process.

The additonal month’s rent collected (and up front besides) itself offsets the $100 below market rent I offering in a twelve month lease, so I haven’t really given anything away at all.

Frank Chin

import · November 24, 2003, 6:40pm

Re: Rental Market Flooded-Now What? - Posted by RichV(FL)

Posted by RichV(FL) on November 24, 2003 at 19:40:15:

Hank,

I sure would. I had a tenant ask me about possibly bringing in a cat. I told her she can but with a pet deposit of course.

I would prefer not to have pets, but in a soft market and for good tenants I’ll take them.

I feel sometimes you could be missing out on a good tenant if one refuses to take pets. Some people take good care of their pets and the enviorment they keep them in. I know we do.

Hank, I enjoy your posts here. Are you on my coast of FL? We are in the Sarasota area.

Regards,

RichV(FL)

import · November 24, 2003, 8:46pm

Re: Rental Market Flooded-Now What? - Posted by SC

Posted by SC on November 24, 2003 at 21:46:56:

Thank you Frank for your responce to my post and your great insight in handling todays rental market conditions.

The flip side to this soft rental market is that there are seemingly more motivated sellers and better opportunities to pick-up some good investment properties at lower prices.

Maybe the key right now is to get rental properties while priced low, hold on to them by giving the renter a better value for their buck, and when the market turns, hopefuly it will be followed with a better pool of tenants and rent increases.

Thanks SC

import · November 25, 2003, 1:52pm

Re: Rental Market Flooded-Now What? - Posted by Hank FL

Posted by Hank FL on November 25, 2003 at 14:52:21:

I’m in St Pete.

The pet thing makes sense to me.

So does this article by Lou Brown:

Twelve Street Smart Reasons NOT to Get Your Rent On the First ____ by Louis Brown

When I started in this buy/hold/rent/get rich business over twenty years ago, I collected rent like everyone else did?on the first of the month. Rent was due on the first, late on the fifth. After a few years, I started to realize that this did not make a lot of sense. Some residents had lots of demands on their first of the month check. I also realized I was not depending on the rent checks to be in the bank on the first in order to pay the mortgages. This meant I was fronting the money for the mortgage payment instead of the property paying for itself.
From a landlord?s viewpoint, if someone?s rental agreement expired on the first, the tenant rarely moved before then. As most residents had to be out of their existing residence by the first, most did not want to take the chance that my resident who was moving would be out by the first or that the unit would be ready. Usually this resulted in losing some or all of a month?s rent in the interim while it was made ready and a new resident was found or the first of the month came around again.

After this happened to me several times, I started to analyze this first of the month business and I came up with a way to make life easier for me and for my tenants who have too many demands on that first of the month check. What I came up with was having the rent due on the 25th of the month. My rental month runs from the 25th to the 25th. This gives me five to six days to get the rent in the bank before the mortgage payment is due. That is just the beginning of the benefits of collecting rent on the 25th. Following is a list of twelve GREAT reasons not to get paid on the first:

Get paid from the middle of the month check, not the first of the month check when everything else is due, too. This means less competition for the money available to pay bills.
Get 5 to 6 extra days to market the unit after a move-out, thereby catching someone who hasn?t made a decision or has something go wrong with the deal they made with someone else?or their new unit won?t be ready and they have to move NOW.
Get 5 to 6 days extra to make the unit ready for the tenant who has to be out of their present rental by the 1st.
Pick up at least 5 extra days? rent. If your new tenant wants to move in on the 1st, you say ? All our contracts begin on the 25th? and lead them gently into the realization that they pay not only for the time they live in the unit but for the time the landlord has the property off the market waiting for them to move in?and if they do not wish to pay, then they run the risk of someone more acceptable coming along and putting in an application to move in that very day!
Get a tighter time frame to negotiate begin date of rental agreements. The applicant always wants to start on the very latest date possible to save money while the landlord wants to begin the agreement as quickly as possible to make more money or stop the loss of money due to vacancy as fast as possible. For example: the landlord makes a statement like ?there?s always overlap in this business? puts the tenant in the right frame of mind to negotiate days. The landlord might say ? today?s the first. You want to move in on the first of next month, but all our contracts begin on the 25th. The owners won?t allow me to take the property off the market and lose 25 days. Maybe we can meet somewhere in the middle. Let?s start on the 10th. That will give you plenty of time to move small things, get utilities on, etc. Is that fair?? Effectively you?ve negotiated down to one-third of the month versus what they wanted.
Get more ?float? on your money. Most mortgage payments are due on the first, but are not considered late until after the 15th. If you collect your rent on the 25th, presuming you make your mortgage payments from rents collected, that gives you 5 to 20 days of ?float? on your money. If you do this, though, always have back-up plan like a credit line with a checkbook.
Find out sooner that you have a collection problem. When rents are due on the 25th, you?ll know by the 26th that ?Houston?we have a problem.? Now you?ll have 5-6 days to arrange other funds to make your mortgage payment if it will take that long to collect.
Get to the courthouse ahead of everyone else. I teach that you should begin your eviction proceedings as quickly as possible, but no later than five days after the rent is due. This gives you time for any state required notice period and wait/see if their promise to pay happens before you file. On the day when everyone else is just collecting and discovering problems, you are at the courthouse filing your eviction proceedings. The line is pretty short.
Get your eviction lawsuit served quicker. When you file on the first, the Sheriff or Marshall is not as busy and can get your proceeding served quicker because they are not as overloaded.
Get to the judge quicker. Since you got your eviction served early, the court calendar is not as crowded, so, in many cases, you?ll get on the calendar quicker and the court may not have as many cases if you get that far.
Get them out quicker. If you have to go all the way to a set out of the tenant from the property, it may work in your favor that the Sheriff?s or Marshall?s schedule is not as crowded, thereby speeding up the timing of your actual set out. Because you are 5-6 days ahead of the landlord herd handling their collection problems by dispossessory or eviction action, you are actually ahead of the time of month when there are lots of evictions scheduled to be handled by the appropriate law enforcement agency.
Get your property back to market ahead of everyone else. It may work out that you?ll have your property back and ready to rent sooner than others who wait until the 1st to collect rent because of the extra time you give yourself by collecting rent on the 25th. You therefore lessen the competition you?ll have in renting your unit.
So now you know why I am sold on the idea of collecting rent on or before the 25th. Some folks ask, ?hey, if the 25th is good, the 15th could be better. ? Maybe that would work better for you. We collect all rents on the 25th because that?s what I started over 16 years ago. I haven?t found a good reason to change that date. Yet another reason why we collect and proceed on rental collections between the 25th and the 1st is that our loan collections are due on the 1st. Private loans, Agreement for Deeds (Land Contract), owner financing mortgages, small loans, etc. are all due on the 1st so it balances out the work load of collections and allows us to focus. Let me know if this works for you.

Flies in the face of conventional wisdom, no ?

import · November 25, 2003, 6:18am

That’s what I’m doing -with a Twist - Posted by Frank Chin

Posted by Frank Chin on November 25, 2003 at 07:18:51:

SC:

I rode the RE up cycle here in NYC from around 1982 to 1987, with prices tripling, then the housing market stalled, then bottoming around 1992-1993. At that point (the early 90’s), I had fun going to several auctions a month, and take my pick of REO’s.

I got to love the down market.

I actually thought the market peaked in late 2000 when prices doubled from the 1992 lows here, and rents went up over 50% in the period in a few short years. I sold one property, selling for three times what I paid for it in the early 80’s, then, decided to wait a year to refi one property, and then wait another year to do another.

Turned out RE prices kept going up after I sold the place, but I rode the interest rates down when I refi-ed. Guess its the best I can do as no one can tell when or where the bottom will be, and I can’t guess right on everything.

But what I did with all the dough rolling was looking for commercial properties, and/or active businesses, absentee businesses in particular. Turns out commercial properties and businesses are more economically sensitive, and is not affected that much by the housing bubble or record low interest rates.

While residentail housing prices are still in the stratosphere here, commercial prices, rents went down, for a while now. I was looking at a business over a year ago where the landlord reduced the rents, because the two businesses on each side of him closed up.

So plenty of motivated business sellers out there - for businesses.

Right now, as I mentioned in another post, the bank I use for the business I bought is trying to interest me in a 100K revolving loan at 5.25% rate. If I could swing this, I could free up a good portion of the capital I tied up in the business back into residential REI once the market tumbles.

I’m keeping my eye on the stock market too. Seems to me capital that flowed from there (stock market refugees) went into rental housing, as magazines like Money are making all the rage. This with the record low rates are keeping housing prices articficially high - and hard to make a good return since rents haven’t kept up.

When the economy perks up, interest rates go up, all the newbie REI’s get burnt, I’ll be back in my happy hunting ground - going to auctions.

Can’t wait for the RE bust. Got all that dough waitng already.

Frank Chin

import · November 25, 2003, 6:11pm

Re: Rental Market Flooded-Now What? - Posted by RichV(FL)

Posted by RichV(FL) on November 25, 2003 at 19:11:49:

Hank,

Interesting article by Mr Brown. Thats one for the printer.

Rents due on the 25th…hmmmm. He does make a good point about mortgages though, you give yourself a few extra days if you have to collect.

Hank, St Pete is a good town. We own property in Tarpon Springs and have owned in Clearwater. Pinellas is a good county for investment property.

I hope you are still finding the deals, its getting tougher and tougher these days.

Best Regards,

RichV(FL)

import · November 25, 2003, 10:49am

Re: That’s what I’m doing -with a Twist - Posted by rm

Posted by rm on November 25, 2003 at 11:49:00:

>

That said, do you sit on the sidelines when it comes to residential, or do you simply have stricter parameters for what makes a deal a deal?