Fallout from the foreclosure situation: rents are falling fast

It’s been all over the news lately: rents are declining. The foreclosure crisis is creating more and more vacancies; many people who would otherwise sell their homes are forced into becoming landlords (renting out their properties in lieu of selling at a loss), and overconstruction in the condo market has caused more supply than demand. Some articles claim that falling rents are the sign of something even worse: deflation. I’m no economist, but I know enough to understand that deflation is a very, very bad thing.

However, on the bright side, articles like this one in Business Week claim that the hardest hit properties are luxury high-rises, especially in places like Manhattan, which is a ground zero of sorts for all that’s wrong with the economy right now. The article reports that landlords have lowered rents as much as 20% to lure tenants into their properties. I’m hoping that more modest accommodations are largely untouched. From a quick search on Craig’s list, rents don’t look significantly lower than last time I looked. I do, however, notice a lot more ads for “house for rent” than usual.

According to a related report, also on Business Week, my metro is in the list of 25 large metros where rents declined most in the end of 2008. It’s lower on the list, but still made the list. According to the entry on my metro area:

Rent drop: -2.1%
Q4 2008 rent change: -2.5%
Q4 2007 rent change: -0.5%

The unemployment rate climbed to 5.6% in November 2008 compared to 3.7% in November 2007. The apartment vacancy rate jumped to 5.5% in the fourth quarter last year from 4.4% in the same period in 2007. Landlords on average are giving 2.7 weeks of rent concessions.

Rent concessions. Yikes. My tenants are in a lease until the end of June, so hopefully they’ll just stay put. Interestingly, when my previous tenants moved out, I was able to easily find tenants who were willing to pay $50 more per month. Perhaps I was undercharging my previous tenants. However, I’ve always been of the mindset that I’d rather keep good tenants staying put than try to get $25/month more. Turnovers are a lot of work, and can be costly as well, with screening fees and turnover-related maintenance.

Or, maybe this whole economy thing will be fixed by the end of June and rents will start going up again. Here’s hoping 🙂

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4 thoughts on “Fallout from the foreclosure situation: rents are falling fast

  1. Thanks for posting this–how do you find out some of that information? I’m trying to figure out of my rent is set right, because when I bought the place I just left the rent at what it was, because the tenant was staying. In August when I have to get a new tenant, I am switching over from including all utilities in the rent to breaking out the electricity (it’s metered separately, but on the same bill.) So while I’m at it, I want to make sure that my bottom line is healthy, and it’s really hard to tell. According to the tax documents that I just filed, my net gain was only a couple hundred dollars for the year, but that factors in half of the cost of a couple of major improvements I would have been doing anyway (attic insulation and water heater replacement). How do I figure it out? Thanks for any input you’d have on that one.

  2. I have found the most consistent way to figure out the rent in your area is to look at your competition. I keep a close eye on Craigslist, the mls and some local realtors that list rentals. I see what comparable rentals are going for and price my properties accordingly.

  3. I would like to comment about the real esatte business whether its buying and selling homes fixing them up what have you. I do not have anything against real esatte investing. But lets be clear this is a business just like if I own a used car lot a health food store a convenient store any variety of businesses. Each type of business has its own little little quirks of sorts real esatte is no different. To many folks look upon real esatte as an investment and that is why they fail to succeed in the real esatte business’ when in fact it is clearly a business thats how one should look upon real esatte. A good example of this is commercial real esatte. When ever I drive around I see many almost empty or completely empty stripe shopping stripes. I don’t mean big box stores that are empty. I talking about a small commercial buildings that might house ten or at most fifthteen small mom and pop businesses along a major thoroughfare. I have seen dozens and dozens of partially or completly vacant stripe shopping stripes and I don’t live in detroit. I live in the suburbs of chicago and this is not something recent. I have seen this five ten fifthteen years ago so what does that tell you about investing in commercial real esatte. Their must be many problems with these type of properties.

  4. We don’t own a rental house yet. When we do we will def. be hiirng a property manager. Asking their previous clients is a good idea too. My manager is going through a rough time with his property management company (he has I think 5 rental properties). They were good initially but now after the one person he was dealing with he is getting all kind of problems. It would be good to check who exactly you will be dealing with as well I guess.

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