Lots of rentals available in target area. Is this a concern?

Question

There appears to be lots of rental options for single family homes in my target area. Is this something I should be worried about? If so, how much? I got this image from trulia.com. I'm looking for a house hack converted to a rental when I move out in Royse City, TX.

Trent Stone · Answer

All that matters is supply vs. demand. If there is insane demand, then don't worry at all. If a giant Amazon plant just closed or something, then yeah, run for the hills. How long have those rentals been sitting? If nothing has been sitting longer than a month, then you're golden. If those have all been sitting for a year, then yes, be concerned. What I did when I first started investing was to contact 5 property managers and ask them for market specifics about the type of rental I wanted in specific areas. I quickly learned who was a good manager and I got invaluable market knowledge for free. I HIGHLY recommend doing the same thing, they will tell you exactly what the rental market looks like for your property. Good luck!!!

Joseph Cacciapaglia · Answer

You need to look at the rented data to see how many weeks or months of supply are on the market. If there are 50 homes, but 75 homes rent each month, then there is nothing to worry about. If there are 50 homes, but 10 rent every month, run away. You can also look at the average days on market for the recently rented properties, and for the ones that are currently listed. We like to stay below 21 days.

Trent Stone · Answer

Yes, %100 something to look at. The new construction will completely change the rental economy and you need to plan for it. Right now in a small city by mine in Utah they are on track to put up 35,000 new doors in a 5 year period. Sure rents look great now, but you couldn't pay me enough to invest there because I know a market correction is coming and I know there will be an enormous amount of excess inventory soon. Know your market, make sure you have a very solid, conservative cash flow to account for fluctuations in the sales and rental markets, and make sure you have more than one exit strategy. Plan a few years out at least. Pay attention to gentrification projects, housing growth and appreciation, job growth, and economic growth, etc. i.e Are any big companies planning to build or shut down near by? Very important to know, but not hard to find out.

Corey Slaughter · Answer

Thanks Trent! That makes a lot of sense I just checked some of the comparable rentals and they all were on trulia for less than a month. I'll be sure to contact some property managers as well to get some information from them. Also, there is a some pretty considerable housing development going on in this area as well (whole new blocks under construction). Are the supply demand concerns the same with this?

Trent Stone · Answer

Yeah, the extra supply isn't always a bad think, but be keenly aware of how it will affect the supply/demand curve. Also, make sure you are comparing similar asset classes too. If they are multimillion dollar highrises and you are looking at $1,000/mo, you probably won't be impacted as much. But, as Grant Cardone says, "If the cranes are at play, stay away!". He's a big advocate of staying away from the new construction for the most part just because of how it will change the rental market.....It's not a no-no, but just be very aware of how it will impact your property.

Corey Slaughter · Answer

Okay so it sounds like you have to be quite careful with extra supply coming in. Thanks again for the Info I have some homework I need to do about this area.

Corey Slaughter · Answer

Makes sense, Joseph. I'll be sure to make sure that there is plenty of demand for rentals!

Lots of rentals available in target area. Is this a concern?

Lots of rentals available in target area. Is this a concern?

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