Where are the tenants?

Question

I'd love to hear some feedback on this topic. In this forum and another I'm on I'm starting to hear more and more investors say that they have more vacant units these days than previously.

So my question is where are the tenants? Are the folks that have gone through foreclosure moving in with family instead? Are renters choosing apartments over houses? Maybe they are moving out of the area instead?

I noticed here in MI/Ohio area there are a number of for rent signs and some have been there since summer! It's a little un-nerving to say the least especially since our plans are to invest and hold in property to rent. Granted Ohio and MI are both starts that are suffering significantly from lack of jobs, etc., and heaven help us if the Big 3 don't get their bail out loan.

Are any of you noticing a decline in tenants for your rental units? Is it any different than say a couple years ago or do you just see it as going in cycles or perhaps it's because of the time of year?

Account Closed · Answer

If you can afford it; sometimes you would have to lower the rent to keep it rented out.

Mark N.A · Answer

If you buy at the right price you can afford to lower the rent and still maintain cash flow.

I have a 3/1 that I lowered 20% to keep a good tenant.  My latest 3/2 acquisition I had to lower the rent 25% from the original asking price before I could fill it.

This may be one advantage with SFHs over apartments where tenants share info and a rent decrease would be demanded by all.

For me, there are three legs to this stool:  1) location, 2) upgrading my units to be the best in their area, and 3) offering more bang for the buck (being able to lower rents as the market dictates).

Of course, if we hit the skids of another great depression I may rethink my strategy while standing in the soup line....

Tom C · Answer

Mike,

"My advertising does not change during the year. I have a newspaper ad in the paper 365 days a year; I have signs at vacant rentals; and I'm on the Section 8 list (as well as lists from other government agencies)."

Can you recommend those other government agencies?

Michael Rossi · Answer

Kel,
            
            Here in Central Ohio, the market had been steadily significantly improving for rentals.  Last month, I only had 1 vacancy!

Unfortunately, this month, I have 7 vacancies.  Part of that is the time of year.  However, a significant part of it is that people are beginning to suffer.  Contrary to what you hear on the news, inflation is increasing on almost everything (except fuel).  My wife and I stopped at Long John Silver's today to pick up an 8 piece chicken family meal for lunch.  I have personally picked them up many times and they were typically like $9.99.  Today that same meal was $14.99 with a coupon ($17.99 without)!  I am hearing from tenants that they simply can not afford to live with the increased prices.  I know that at least 2 of the tenants that moved out this month, left because they simply couldn't afford the rent and their other expenses.
            
            I believe that things are going to get interesting in the rental business in the next few months and years as the economy worsens.
            
            Mike

Michael Rossi · Answer

Fred,

Tenants double up when they can't afford the rent.  They move in with relatives or with other friends that also can't afford the rent alone.  I'm seeing an increasing number of applicants that are in this situation.

My advertising does not change during the year.  I have a newspaper ad in the paper 365 days a year; I have signs at vacant rentals; and I'm on the Section 8 list (as well as lists from other government agencies).

Mike

Fred Shandler · Answer

Where do tenants go when they can't afford rent?  To a cheaper apartment?

Also, does the advertising of your vacant rentals change in the winter (more aggressively)?

-Fred

Dave P. · Answer

Here is a great commentary on this topic by Calculated Risk: 
            
            http://calculatedrisk.blogspot.com/2008/11/apartment-market-weakens.html
            
            Mike hit the nail on the head, doubling up with relatives becomes very common as recessions worsen.

Omar N. · Answer

That was my first question when reading your  post...where are you.  In my area (metro NYC) the rental market is picking up steam.  Just my observations, not based on data.   The winter is a hard time to find tenants b/c people dont like moving in the cold, judges dont like evicting or foreclosing during the holidays, etc.

Not that you want people who have foreclosed/evicted are ideal tenants.  But that might be the other part of this problem:  quality tenants.  In screening prospective buyers Im hearing alot of stories about credit taking hits recently.  Good luck in that area.  It sounds as if it will be tough sleding.

Kel S · Answer

Well that is good to hear that you both feel it's the time of year. I imagine those looking to move would likely start thinking about it come spring or just as soon as the kids are out of school.

It just got me pondering it after reading a few threads about investors having a significant number of empty properties.

Michael Shadow · Answer

Omar hit the nail on the head.  It's always slower this time of year because people don't like to move in the cold.  People also like to be settled for the holidays.

-Michael