Posts Tagged ‘rental market’
As real estate agents, at the end of the day, we’re in business to make money, and our bottom lines don’t discriminate. Complaints about the market changes over the past few years just make me shake my head. I like to look at change not as an obstacle, but as an opportunity. For agents, one of the biggest changes is the opportunity to make money in rentals.
Here are a few reasons I think every agent should think about taking on a few rental listings:
Big opportunities
While I’m sure it’s not “The Year of the Landlord” everywhere, when sales slow down people still need places to live. And while most agents focus on residential sales, the reality is that there are a ton of renters out there.
Here in Manhattan, our rental market is truly on fire. New York is an exceptionally rental-centric city, where about 70% of available housing is for rent. In February 2012 Citi Habitats’ research reported a vacancy rate of a mere 1.25%. In the same month, the average apartment rented for $3,376, just $18 shy of the market’s peak back in May 2007.
This trend may seem like an anomaly; however, statistics show the rental market is thriving in many markets. A recent Reuters release reported the national apartment vacancy rate is at a 10-year low.
If agents can open their minds to using their market expertise in a different way, they can take advantage of rental activity to help grow and sustain their business.
Simpler, faster transactions
While one “for sale” property can take six months to even a year to close, depending on price and market conditions, good rental agents can expect to close four, five, or even six rental transactions in a single month.
Buying or selling a home is a huge investment decision that requires a lot of paperwork and includes many interested parties; sellers, buyers, lawyers, mortgage brokers, banks, etc. If you add all of the unexpected issues that can arise and endanger a deal, rentals should be an obvious thought.
In rentals things are a lot simpler and faster. Rental deals are less complex and take less time to close because:
- you’re primarily dealing with one party, the renters, clients who likely view their move as temporary;
- most renters want to find a place as fast as possible and view renting as a small, necessary investment; and
- in many markets, landlords require minimal paperwork, just a credit check and income verification in most cases, because their objective is to fill vacancies quickly .
Future owner leads
Another great reason to consider rentals is that almost every buyer was once a renter.
Agents looking to stay in the business more than three years need to remember this. Working with someone on a rental today and letting them know you also help buy and sell property generally builds connections that can benefit you down the road.
As I said, I’m completely biased. Rentals have been good for my business. But I do think one mark of a good agent is their ability to change with market conditions, and change quickly. Diversifying your business model is key to weathering the ebbs and flows. If you cultivate strong skills in both rentals and sales, you will truly be unstoppable – no matter what’s happening in the market.
About the Author:
Caroline Bass is a Senior Vice President and Associate Broker with Citi Habitats in New York City. Recently selected as one of Forbes, “Top 30 under 30 in Real Estate” for 2011, Caroline has closed an estimated $30 million in rental deals since joining the business in 2005 and has worked with some of New York’s most high profile clients including Tim Gunn.
In previous years, it was embarrassing to say you rent. Today, in most cases, it is embarrassing to say you own. According to the US Census Bureau, the U.S. homeownership rate has fallen about 1.5% over the past year (from 66.9% to 65.9%). For every 1% drop in the homeownership rate, it represents approximately 1 million new renters entering the rental market.
In some cases, homeownership rates have fallen below some European countries. Italy for example, has an 84% homeownership rate. Along with Spain with a 78% homeownership rate.
High unemployment rates, difficulty in getting financing, changing demographics and increased foreclosure rates are adding to the deceleration of homeownership. In 2011, there was a 4% increase in the amount of renting households compared to 2010.
In the United States, homeownership is the least in states like California (56%), New York (54%) and Washington at (64%). States with the highest homeownership rates are Michigan (75%), Mississippi (75%), South Carolina (75%) and West Virginia at (79%).
Rental vacancy rates dropped to 5.6 percent in the third quarter of 2011, down from their record high of 8 percent in 2009, according to Reis Inc. This increase in rental demand is putting upward pressure on rental prices throughout the United States. As more foreclosures and new apartment buildings enter the market, the rental rates should stabilize and reach equilibrium.
Renting is the new buying and this trend doesn’t seem to be slowing down anytime soon.
RentBits, Rental Property Search
The stars are aligned to make 2012 an extraordinary year for rental income. The decline in homeownership is translating into rising rents and the multifamily apartment sector, though booming today, was late catching the wave. If it weren’t for the new investor-driven single family rentals in many markets, rents would be zooming even higher than they already are.
The New Normal in Homeownership Creates Demand
Changing attitudes towards homeownership have been pushing up rental demand since 2004, before the housing bust. The number of homeowner households declined by 805,000 from 2006 to 2010 and the number of renters rose steadily for six consecutive years, increasing 3.9 million during that period, according to Census data. The net increase of in 2012 alone was 1.4 million new rental households, a 1.5 percent decline in the national homeownership rate and a 4 percent rise in the number of tenants.
Much of the rental demand is from younger households that are postponing or even canceling homeownership in favor of renting. The decline in the homeownership rate has been sharpest for those household heads under 30 years of age. Owner rates have fallen by 4.4 percent (to 21.9 percent) for those under 25 years of age and by 7.0 percent (to 34.7 percent) for those aged 25 to 29 years, according to Freddie Mac.
Multifamily Struggles to Keep Up
Multifamily rental housing can’t keep up with the demand. Census Bureau reported that third quarter vacancies for rental housing were only 9.2 percent, 1.4 points lower than a year ago and .5 percent below the first quarter. We haven’t seen a 9.2 percent vacancy rate since 2003. A Reis Inc. survey of professionally managed buildings in metropolitan markets found vacancy rates stood at 5.9 percent during the third quarter, the lowest since 2007 for that class of apartment.
Apartment developers and investors are a conservative lot and they took a wait-and-see attitude towards the rapid and dramatic changes in the rental market. Now, however, things are popping. In November starts of residential developments with two or more units saw a 25.3 percent increase from the previous month , the construction of apartments, town houses and other multifamily developments, evidence that rising demand for rental housing has encouraged developers to begin building again. Newly issued building permits, a gauge of future construction, climbed 5.7 percent in November from a month earlier to an annual rate of 681,000, a 24.3 percent increase from November 2010 and the highest rate since March 2010. The overwhelming majority are for multifamily units.
Even so, developers can’t keep up. Two-thirds of developers surveyed in the third quarter by the National Multifamily Housing Council said construction activity is underway, and 20 percent are breaking ground on new projects at a rapid clip. The other 47 percent reported an increase in pre-construction activities-acquiring land, lining up financing, getting building permits-but not much actual construction yet. Yet even with this increased activity, more than half (54 percent) think new development remains considerably below demand.
Single Family Fills the Void
In the dorky world of real estate economics, single family rentals are the newest kid on the block. Just recently have databases serving the residential investor tracked single family apart from multifamily, but it’s very clear that in many markets today single family rentals are taking up the slack. From 2005 to 2010, single-family rentals grew at 21 percent versus just a 4 percent increase in total housing units, according to Zelman Associates.
Single family demand is closely linked to foreclosure activity in the hardest hit markets as families displaced by foreclosure prefer to rent a single family home rather than crowd into an apartment. In hot foreclosure markets attractive to investors, such as Nevada, Arizona and Florida, single-family rental units have increased 48 percent, while apartment units were virtually unchanged. According to the Census Bureau, since 2004 there are 3.60 million homes built for sale that are being utilized as rental today.
2012 Rental Outlook
The national median rental rate rose to $1,004 in the third quarter, up from $981 in the third quarter of 2010, according to Reis Inc. Although overall rent growth will vary greatly by metro, on a national median rent increase will come in somewhere between 2.5 to 4.0 percent for 2011, depending on whose data you use.
However, 2012 could be even better. Fannie Mae is currently projecting that average asking rents on a national basis could experience an annualized increase of between 2.0 percent and 3.0 percent. Others are less conservative. The National Association of Realtors forecasts multifamily rents to rise 3.5 percent next year. Axiometrics’ research forecasts a national rental growth rate of 5.5 percent. Christina Aragon, Director of Marketing and Customer Insights at Rent.com, predicts the vacancy rate will hover at a only 5 percent and rents will explode. Now, Aragon expects rents to spike 7 percent or so in each of the next two years.
As we all know, there is no such thing as a “national” real estate market. Numbers like those cited above are merely estimates of national medians across hundreds of local markets. Relying on a national real estate forecast to predict prices or rents in your market is like using a national weather forecast to tell you whether it will rain in your backyard this afternoon. The big picture may or may not be relevant to your market situation.
Local Market Rental Outlooks
However, the good news is that many of the hottest markets for investors, rents are going to the most. Increases will likely top the 10 percent mark annually for the next couple of years, according to John Burns Real Estate Consulting quoted in CNNMoney. In San Diego, rents will rise more than 31 percent by 2015 and in Boston, they may jump between 25 percent and 30 percent. Seattle rents will climb 4.5 percent next year and 6 percent in 2013.
A number of metro areas have actually had double-digit effective rent growth. High-density, west coast metro areas such as San Francisco with 14.8 percent and San Jose with 11.7 percent year-over-year effective rent growth rates are not totally unexpected. Charlotte with 7.2 percent rent growth; Miami with 5.6 percent; and even Denver with 6.6 percent effective rent increases, are less predictable examples. Axiometrics expects San Jose, San Francisco, and Austin to remain among the top 10 markets in effective rent growth in 2012 and Las Vegas is expected to become one of the most improved markets in 2012.
Local economies, especially jobs, will drive local demand. Over the next three years, Local Market Monitor expects rents to rise 18 percent in Houston, 15 percent in Grand Rapids, 25 percent in Rochester, 16 percent in Dallas and 19 percent in Tulsa.
Landlords increasing rents by 2 to 4 percent this year may find tenants won’t be surprised. Consumers expect home rental prices to increase by 3.2 percent over the next year, according to a recent Fannie Mae survey. Some 41 percent said rents will increase next year, 48 percent expect rents to stay the same and only 6 percent expect them to fall. The November numbers showed a slight retreat from October, when 43 expected rents to rise and 47 expected them to stay the same.
“Most Americans expect no improvement in their personal financial situation in the next 12 months and will likely remain wary about undertaking the significant financial obligation associated with homeownership until their view of their income, expenses, and job security heads in a more positive direction,” said Doug Duncan, vice president and chief economist of Fannie Mae.
By Steve Cook, Bigger Pockets Blog, December 28th, 2011
Site Search
Sign Up
Recent Comments