RNB 2010 Rental Forecast Brief

When looking for rentals, today’s renters first evaluate their wants versus their needs. As the economy struggles with high unemployment rates and the future brings economic uncertainties, renters are looking to downsize into the best deal on the market. Renters are no longer willing to rent overpriced, oversized homes coupled with hefty utility bills. Many renters feel they need to take a more conservative approach toward saving more money by spending more time researching local rental rates to negotiate the best deal.

For the past two years, rents and home prices have declined, and investors are capitalizing on this downward trend by purchasing heavily discounted foreclosures. Naturally these investment properties increase Placer County’s rental housing supply, forcing landlords to compete in a rental market with an 8% vacancy rate. As the foreclosure rate slows so will the supply threat, especially because we have seen almost no new construction. Rental rates are directly connected with vacancy and unemployment rates; when the unemployment rate goes down, then vacancy rates go down because more jobs mean more people in the community. A higher population equates to more renters and less housing supply which in turn drives up rental prices (supply & demand).

Until we see the US economy bounce back, rents will continue to remain very low. So what can we do now? Tenants are looking to save as much as possible and willing to downsize. Larger homes on the market (4 to 5 bedrooms) are taking the largest hit, losing anywhere from $100 - $300 per month compared to the last two years. These homes need to be priced right and show in pristine condition. Many landlords believe that an abundance of upgrades will increase their property’s rental value, when in fact, we have found that very few renters are willing to pay a premium for the upgraded homes. Instead, we have found that when compared to a similar sized home with less upgrades, the upgraded home will rent for the same price - but will rent much faster.

Renters are aware of the recession and declining rental prices and have begun to negotiate more and more. Landlords with larger rentals have been hit the hardest as opposed to Landlords who own 3 bedroom 2 bath bread-and-butter properties. These smaller properties still remain attractive and are renting fairly easily. Every day a property sits vacant on the market is money lost. Landlords need to be aware of the current market rents and can supersede negotiations by correctly pricing their properties.

RNB Property Management specializes in the management of single family residential homes. Our agents have the experience and expertise to help you evaluate and accurately price your property so that you can maximize your cash flow.

By Robert A. Ortiz, President/CEO
For more information regarding
RNB Property Management, Inc. please call 916.435.2424 or visit us online at www.RNB2day.com

Diamonds in the Rough

Conditions favorable for income property purchase

Current conditions in the real estate market are resulting in favorable circumstances for those looking to buy income property. As more subprime loans reset in 2008, anticipate another wave of short sales and foreclosures to appear, and with the Feds announcing that their priority is the economy, expect interest rates to stay relatively low.

Low interest rates and almost bottom-out prices are creating new investment opportunities and a healthy correction for the real estate industry. Investors have no trouble finding bread and butter properties that create cash-flow with a down payment of 20% or less. The only problem is that the best of these properties under $250k go pending very quickly, and investors are competing with multiple offers that are often above asking price and sometimes involve all cash.

As homeowners lose their homes, how is the rental market affected? We all require the basic necessities of life, and one of them is shelter. With the rise of foreclosures, the transition from homeowner to renter has become more common, and it’s been difficult not only on FICO scores, but on many egos. Most homeowners refuse to move out of their 2500 sq ft home into an apartment or condo, preferring to rent a house, and even then, most will not even consider anything under 1300 sq ft. These new renters are willing to pay a premium for a house that is clean and shows well. 

FICO: More than a number

Screening Tenants 

There may be some concern, as a landlord, that if potential renters defaulted on their mortgage, they will default on their rent. The truth of the situation is, the majority of transitioning homeowners were doing just fine paying their mortgage until their loan reset.  Their new monthly payments almost doubled, while their income remained unchanged; one can easily see how their new mortgage payments became an issue for them.

So how do you screen these tenants? Rather than focusing on the FICO score, look at their other trade lines, such as car loans, credit cards, etc. If the majority of their trades are in good standing with zero to very few 30, 60 and 90 day late payments, and/or they have only a foreclosure, you may be screening a sound prospective tenant who has a history of paying on time. On the other hand, unfortunately those who have tried to survive through a foreclosure nightmare by sacrificing their trades in good standing have made it almost impossible to qualify for a rental. So, if you decide to consider an applicant who has foreclosed, don’t neglect to verify your other objective rental standards. Although many have made a huge financial mistake that has cost them homeownership, we have found that many ex-homeowners still take pride in their homes.

Optimistic Outlook

With a struggling economy and record-setting foreclosures, many paint a picture of bleak times. For those with a more optimistic viewpoint, looking to purchase a new income property or fill a vacant one, there are many “diamonds” waiting to be found. The current real estate market, as with the rest of the economy, will undergo changes, but for those with an optimistic view, the current inflation can be looked upon as an opportunity that can include good prospects in buying rental property at favorable interest rates, along with an increase in rents.

By Robert A. Ortiz, President/CEO
For more information regarding
RNB Property Management, Inc. please call 916-435-2424 or visit us online at
www.RNB2day.com

Single Family Residential Rental Survey - 3rd Quarter 2007

We all know real estate prices are continuing to fall and that foreclosures and short sales are on the rise. But what does this mean for the rental industry? Most would-be buyers are convinced the market has not yet bottomed out; in the meantime they will choose to rent. The thousands of home owners who have lost their homes due to foreclosure or short sale will rent. And a select few have found that an alternative to losing their 3200 square foot home to the bank is to rent it out. They then opt to rent a 1300 sq ft home to live in, saving up to $800 a month. For the present, renting also remains a better alternative to buying as underwriters tighten their restrictions, and interest rates slowly rise. The demand for rentals is increasing, but what about the supply? Surprisingly, new home construction continues, thus a significant amount of surplus homes for sale are beginning to transition into rentals. This trend may actually create a surplus of rentals in 2008. Today’s balance in supply and demand has created an active and healthy rental market. As the holidays approach and the school year begins, expect the average number of days-on-market to increase and the demand to rent or buy a new home to decrease. In every market at any given time there is always opportunity for today’s investor.
For an investor looking to buy an income property, the real estate market is great and looking to get even better. For those investors ages 55 and greater, the Sun City community homes are a great investment opportunity. Expect to find sound tenants with excellent credit and rental histories and as the baby boomers continue to retire this market will continue to improve.
Putting opinion and preference aside, let’s look at the facts: According to InfoTracker’s third quarter rental survey, in comparison to second quarter numbers, rents have increased in Rocklin’s 95677 by +8.5% and decreased -5% in 95765. West Roseville rents on average have increased +4.8% in 95678 and +5.5% in 95747 compared to a -7% decline in East Roseville’s 95661. According to an article published on Forbes.com in July 2007 entitled “The Fastest-Growing Suburbs in America,” the city of Lincoln ranks as number one with an +8.3% increase in rents and a 236% increase in population from 2000 to 2006. Although rents are increasing in key sub markets and home values are continuing to depreciate it will still be more than a few years before we see single family income properties in this area pencil out as they once did in 1999.
In today’s dynamic real estate market, the rental market is a very popular alternative to owning.  If the current trends continue and interest rates remain reasonable, count on new investment opportunities to appear in these growing sub markets. Although we can all speculate on the future of tomorrow’s real estate market, the numbers provide information on the direction of today’s market. Utilizing this information, investors will make their move and the mass of speculators in turn will follow.  With the holiday season and school year approaching, look to a professional to rent up and manage your property so you can capitalize on the highest rate of return on your investment.

By Robert A. Ortiz, President/CEO

For more information regarding RNB Property Management, Inc. please call
916-435-2424 or visit us online at www.RNB2day.com or
Property Management Rocklin