Monday, September 28, 2009

The rental glut

I've been noticing "for rent" signs are sprouting roots near me. Some houses have had for rent signs out front for months. I checked to see what they were asking and it seems in line with what houses were renting for earlier this year. But rents are falling. Everything I read says so and everything I see would seem to confirm it.

Why?

1) Investors are flooding the market with rental properties, especially in the low cost areas east of the 215 fwy. A large percentage of sales are still going to investors so the inventory of rental properties is still increasing.

2) High unemployment means people are sharing or moving in with family members. This lowers the number of potential renters.

3) The housing credit and low cost FHA financing is taking many of those renters and making them home owners. Those that do have jobs can buy a house and in many areas the payment will be equal to or even less than renting.

This trifecta has got to be taking a toll on the rental market and it will continue to for quite a while. Will the investor rental market take a dump? Or are they picking them up at a price where they could sell them and still make a buck. In many cases I think that's what might end up happening. If the employment situations stays bad for a few years we may see a lot of these rentals up for sale. I'm sure a lot of the newbie investors will get burned. The experienced ones will probably make out like bandits.


And on a totally different note, here's a video that should really tick you off. Another morality issue? Or is this just theft?

13 comments:

FairEconomist said...

The price bubble is basically over in the outlying areas. But, even at fair prices, is there any good use for all these upscale housing tracts? I don't think so, and I think the rent signs demonstrate it. The best use of these tracts is as single family permanent housing, and if we're not seeing enough people buying at replacement cost with record low interest rates and massive federal subsidies there just aren't enough people who want these places. Demographic exhaustion. And if they don't want them as owners, they aren't going to want them as renters either.

who me? said...
This comment has been removed by the author.
Allison said...

I need to renegotiate with my landlord. After deciding not to buy, we rented. But for what I pay in rent, I could buy a 300k house now. And, I could buy a house the size I'm renting for like 150k. The price HAS to be headed down.

Martin Burtin said...

Judging by this, I think the "bottom" has arrived:
http://www.redfin.com/CA/Pauma-Valley/15229-Topa-Rd-92061/home/3097035

If the listing is fixed when you view it, it was for 4+ acres, 4350 sq ft home, for the price of one dollar.

rays97runner said...

Will be adding one more rental to the list probably next week in Victorville. This house is ten yrs old and 1400 sq ft. Its not too far from the Mojave exit off the 15fwy for those who are familiar with the area. I think the key is not to be unrealistic when setting the rent. My house payment is $385, $515 with taxes and insurance. With a payment like that I can set the rent pretty low. Even if it sits empty, I can make that payment. The next door neighbor pays $1200 in rent for a house 100 sq ft bigger. I believe I can get $800-$1000 a month. Somebody down the street is asking $1200 for the same floorplan as mine. He may have been able to get that 2 yrs ago, but now it's a bit high. Large apartment complexes are going to suffer the most. Several apt complexes within 1 mile are are charging $700 for two bedroom apts. Who's going to pay that when they can get a house for $100-$200 more. As for the supply of renters, All those people walking away from their mortgages have to live somewhere and due to the credit ding they probably wont be buying houses for 5 yrs or more. The rent Im charging will be half of what they were likely paying a month for a mortgage on a similar home in the area. Of course I would have to overlook their bad credit.

gprofessionals04 said...

Real estate market is suffering badly due to recession. Real estate developers started making business out of selling more of rental properties these days. That is the reason rents are falling. You have mentioned some practical reasons for the same.
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Adrian Smith said...

Good for them. The banks strip people as much as possible, then get bailed out by the government, and we the people get stuck with the bill. Every little bit we can poke away at the hideous beast is worth it.

Sigma said...

rays97runner:

At that low cost of rent, especially when accepting renters with bad credit (otherwise they would've just bought a house @ $500/month like you said) , do you run into any rent collection issues? Trashed home? lots of complaints, etc? I'm sure it always sounds rosy and simple but there's a reason rent is so low out there.

Empire Realty said...

Rental homes are for cash flow, right now we are getting the highest cash flows we have ever seen.

When one can get a $500 cashflow out of a $50k investment the rents need to drop 50% before they draw any blood.

No worries!

rays97runner said...

Sigma,
I hope to avoid problems with cash collection and damage as much as possible but its always a risk. A renter could potentially do far more damage then his security deposit covers and it can take months to evict someone for nonpayment. I will do background checks and also check employment. When i say overlook bad credit, I mean overlooking a foreclosure. If the potential renter has additional credit issues, I would move on to the next application. Rents are cheaper in the high desert because there are few local high paying jobs and many people dont enjoy the extreme climate. That being said, many good responsible people chose to live in the high desert because of its affordability. This will be my first rental so im sure its going to be a learning experience, but I've asked many questions of those with experience and done extensive research. I've talked to owners and renters throuhout the neighborhood and have concluded it should be a good investment. The houses in the neighborhood that are rentals all appear to be as well maintained as the owner occupied houses. The worst looking houses are bank owned or about to be! Im in my mid 30s and I believe these prices and interest rates may be a once in a lifetime oportunity. If I had more money, I may have bought elsewhere but I probably would have just bought two here. Wish me luck, i may need it!

Sigma said...

rays97runner: Good luck and let me know how it goes.

Andy said...

Real estate market has been fluctuating ever since we have entered the recession but things have started to improve as Laguna Beach Realty is much of an indication of something like that and I do expect rental property at lower prices soon.

VectorzSigma said...

Anyone got insight about the city of Wildomar? What do you think about it? Good or bad area? Beside the commute issue.