As rental vacancy rates continue to drop. Housing prices froth, it’s time for landlords to get a game plan for selecting the best renters for their portfolio…
Housing on a Tight Rope
Debates are raging about whether US housing is swelling into another bubble. Historic data suggests this is highly unlikely for a number of years. The truth is that much of the country still isn’t back on par to where we were before the dip. Right now foreclosures are still being processed, home prices are heading up, mortgages are tougher to get than they used to be, and rents are heading up. It’s a landlords market. If single family home sales and price growth did slow, it would be even more of a landlord’s market.
This market is allowing rents to be raised dramatically, and is proving to be incredibly profitable for owners of multifamily apartment buildings properties.
However, it is worth noting that homeownership is at incredible lows. Nationally this rate has been marching back towards the 50% mark. Still with new and shadow single family inventory coming online, buyers desperate for properties, and the economy badly needing more transactions expect, expect mortgage lending to be loosened to facilitate more action.
For now rental vacancies have been dropped back to levels not seen in 2 decades. But there could be changes in the works. So while it is a landlord’s market now, it is important for real estate investors to know when it is time to hit the gas, and pump the brakes when it comes to leasing and raising prices.
Sky High Rents
Rents have risen to amazing highs thanks to millions of captive renters, and new leasing strategies. Profit margins have also risen due to more efficient property management. But even though there may be bidding wars over some rental units today rental property owners need to keep an eye on the big picture. Let’s face it – the truth is that in many places it is already twice as cheap to buy a home as it is to rent. It doesn’t take a genius to figure out that as renters get bombarded by offers of mortgage credit that some will start making the leap. So find some balance in between squeezing tenants out and maximizing income. On this subject it is also worth considering the sustainability of Airbnb short term rentals, even where it is legal.
Looking Beyond Rates
There is more for rental property owners to consider than just the top line rental rate and upfront deposit when selecting a tenant too.
Thorough screening is important. That means credit and background checks, rental history, income, and debt to income ratios. But it is also critical to be able to look at the big data and hone in on what really makes a tenant the best pick. That isn’t always just the one with the biggest deposit or willing to pay the most rent, or even best credit score.
Again; you need to look at net operating income. Who will actually deliver the most of it? This also has to factor in who will take best care of the unit, be the least problem, and will be the most loyal. After all, long term tenants are still the most profitable.
So taking all the data who is most likely to deliver the best NOI over the next few years?
This can be a confusing time for landlords. It is one of the best times in history to own rental property, and to add more of it to an investment portfolio. Rents are up, and right now landlords have their pick of renters. It may not stay that way forever. So who you put in your properties now could largely dictate your returns for the next few years. The savviest investors will put this in the hands of experienced local property management professionals that have the data and know how to decode it for the best returns.