Good deals for investors, words of wisdom for tenants
The current real estate market has some challenges and opportunities for both renters and property owners. A vacancy rate of 3.8 percent for the third quarter of 2012 was reported by the Colorado Division of Housing, which is was lower than it’s been since 2008. The third quarter ends in September and includes those late summer months which are typically tighter as renters try to get settled before the coming school year.
“Today, the vacancy rate is closer to five or six percent,” said Cindy Hoppe with Bray Property Management. “There are enough properties available for rent.”
Rents have dropped slightly and today’s tenants often move if they can find a better deal elsewhere. An exception would be if a landlord has a fenced back yard and allows them to have a pet.
“Pets are so important to people,” Hoppe said. “People are willing to take a lesser area if an owner will accommodate pets.”
The high unemployment rate, along with stagnant wages, means that more tenants are doubling up. A few years ago, a young couple might have rented a three-bedroom home by themselves. Today, they’re considering getting a roommate. HUD allows two people per bedroom in a rental unit, so landlords may find themselves with more people living in their four-bedroom rental house than they had in mind.
The real estate market has created some problems for tenants, along with a few scams. One of the biggest scams involves foreclosed properties, with scammers listing them available for rent. They often advertise on Craig’s List and do all negotiating online or over the phone and get prospective tenants to send them deposits on property they don’t own.
“Don’t respond to a listing that’s too good to be true,” Hoppe said.
With some property owners underwater, owing more on their home than what it is currently worth, some rental properties are also underwater and in danger of foreclosure. Often, tenants don’t know that their landlord has not been paying the mortgage until the foreclosure notice gets posted.
“Tenants do have some protection. Just because the house is being foreclosed, that doesn’t mean they’ll be instantly evicted,” Hoppe said.
As part of the Dodd/Frank Wall Street Reform and Consumer Protection Act, tenants are given 90 days prior to being evicted. If they have a signed lease that was signed before the foreclosure and extends beyond 90 days, they may be able to remain in the house for the duration of the lease and have an additional 90 days eviction notice once the lease expires. If the new owner plans to occupy the house, however, the owner does not have to honor the lease, but does still have to give the tenants 90 days to vacate the property.
In Grand Junction, there aren’t many large apartment complexes available to rent, which means that many renters look for single-family houses. Because there are more three-bedroom than four-bedroom homes available, when a four-bedroom rental property comes into the rental market, it doesn’t stay vacant for long.
Prices are still low and interest rates continue to be at historic lows, which makes this a good time to pick up investment property. Usually, a 20 percent down payment is required, and investors can get even lower rates if they put down 25 percent. The large down payment, combined with low interest rates, means that owners have a positive cash flow after paying the mortgage, expenses and taxes. Rents may have fallen a small percentage, but they’re still not low enough to hurt investors who bought and financed when prices and interest rates were both low.
Although paying for a property management service to screen tenants or manage rentals may eat into a property owner’s profit, it may save her money in the long run. A good property management company should be able to tell prospective owners how they screen applicants, how often they visit the property for inspections, how they will market the property and how quickly the owner will get her money. A property management company has access to credit scores, as well, which individual property owners don’t have.
Property management companies also stay on top of current legislation to make sure that all laws and regulations are followed, which could protect both the tenant and the owner. A property management company establishes the business nature of the deal with signed leases and clear expectations of what is expected of both the tenants and the landlord.
Bray Property Management will find and screen applicants for those who want to manage their own properties but just need help finding tenants. The company also has a team of 14 handymen in the field who handle maintenance issues for clients who want to utilize the full property management service.