ReRenting Rental #1 - The Rental Market Wasn't Good
The tenants moved out of Rental #1 less than 1 month after Rental #2. After re-renting Rental #2 in July I was starting to think that re-renting Rental #1 might not be too bad. After all we re-rented Rental #2 remotely and we made arrangements so that were were in the US to handle re-renting Rental #1 ourselves.
This house had been rented for 3 straight years so I knew there was a pile of maintenance, repairs, and general upkeep that needed to be done on the house to re-rent it. However, I had no idea what I was instore for.
I opted not to start showing the house till the tenants had moved out and I was able to clean up the house. I felt the house would not show well in its current state and it would be much more attractive empty and cleaned up before prospective tenants walked through it.
I started advertising the house with the rent raised 6% above the previous rate that had been in place for the past 3 years. However, in the end we reduced the rent to the original rent it had been rented at to just try and get someone in the property.
We had 11 people inquire about the house, 5 walkthroughs, 2 applications submitted. The first application was withdrawn because the prospective tenants found a much larger house for less and we accepted the second application. The house was vacant a total of 22 days, and it took 21 days from the first showing to move-in.
I felt the rental market for this renting experience was far the worse than what I had experienced although I feel like I got out of it relatively unscathed - the house was only vacant for 3 weeks and I was at least able to maintain the rent rate. I had always seen great demand for both of our rental properties; I was shocked to see a very poor response when we put this one on the market. I think this was due in large part to what seemed to be a large number of homes that homeowners where opting to rent for far less than comps in area because they couldn't sell their homes. It was a bit of a rude awakening for me - I never thought the housing crisis would affect me negatively because I wasn't planning on sell any real estate. It turns out that I was wrong.
Comments (3)
I'm glad you got renters in place; hopefully they're of high quality.
Are your rentals all still covering debt servive, taxes, insurance and a maintenance reserve?
I'm considering purchasing a single-family rental similar to what you've been doing. The house is directly across my back yard in a neighborhood that is middle class and almost entirely owner-occupied. The cap rate wouldn't be very high, but I think cashflow would cover debt, insurance, taxes and a repair reserve of about 1.5% of home value. Since the property would be literally a stone's throw away, I could keep a pretty good eye on the tenants.
Would you mind preparing some detailed rental property analysis for us, a few years into your experience?
Posted by CPA1298 | August 29, 2008 1:01 PM
I had a similar dilemma a few years ago regarding my rental. The person living there at the time was getting married, and wanted to move into her future husband's rented townhouse instead of staying at mine b/c it was almost new. The home was due a kitchen makeover, so I decided to bite the bullet, remodel the kitchen, and got them to sign 2 year lease. They fulfilled the 2 year lease and actually stayed an additional 2 years until they had their first child.
Perhaps upgrading your rentals with a newer look could help the demand? Renters love new paint and new appliances.
Posted by Matt | August 29, 2008 5:31 PM
Unfortunately, the housing crisis seems to be affecting everybody : (
Posted by Big Winner | August 30, 2008 9:54 AM