Observations from Re-Renting Rental #1

I just went through the most stressful and time consuming rental turnover I have had since I began renting out Rental #1 5 years ago. Rental markets as with real estate are very localized, but I figured I would share some observations from trying to find a new tenant this year.

It was a far cry from the experience I had with Rental #2 back in May where I didn't even have to listed it to get it rented - the current tenant had a friend that wanted to rent the place.

Previously when I needed to find a tenant for either rental I found between a "For Rent" sign in the front yard and an ad on craigslist was all I need to get many potential renters to inquire. In today's environment I found craigslist to be a lot less effective than it use to be. I believe the sheer volume of ads on craigslist limited my ad's exposure.
This time around I expanded my advertising to include Facebook Marketplace, Postlets, and hometownrent.com.
I found my pricing was less competitive this year in my comparison research. It appeared that there were many houses that were priced for rent below market - they appeared to be houses people couldn't sell for the right price and were trying rent out. I assume may take a year or two for these folks to sell there house or realize they pricing there rental too low.
I ended up reducing the asking rent to the lowest amount ever to ensure I didn't have a prolonged vacancy. Once I reduced the rent interest in the house picked up and I was able to get it rented successfully. The house ended up vacant for 11 days, the longest vacancy I've ever had. I tried to take advantage of the vacancy by getting some improvements done in the property - new kitchen countertop, new bathroom flooring, touch up painting, replacing rotted trim.

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Comments (10)

2million,

I have been reading your blog for a few years now. I have been considering buying property to rent to generate cashflow.

I was curious, what were you renting the home prior to re-renting it? Also, are all of your rentals in your local market or do you own rental property out of the area you live like out of state?

Posted by Daniel Manfre | August 30, 2010 1:07 AM

Daniel,
I started renting this property out in 2005 @ $1200. I had this property rented at $1275 previously, but reduced it to $1195 while re-renting it this year. Both of our rentals are in our local area (within 40miles).

In my mind the key to success with a long distance rental is having someone reliable, affordable, that can take care of everything for you remotely. I have found finding someone can be harder than it sounds.

Posted by 2million | August 30, 2010 9:37 AM

2million, I think this country is in the opening phase of a deflationary environment for several years to come. We are the new Japan. Real estate will never be the same as it was and prices everywhere are sinking. We're about to encounter the second leg down from here.

Posted by Steve | August 30, 2010 1:28 PM

11 days is fast turnaround. I own 7 rentals (about to be 6) and consider 30 days a good turnaround. The worst thing you can do is ask $100 more than you can get and then lose a month's rent because of it. One phrase I have added to my Craigslist postings that seems to get attention is "All credit situations considered. I believe in second chances."

This doesn't mean I will rent to a deadbeat; instead, I am willing to consider tenants who may have had a hiccup in their past, whereas many people do not. It also attracts tenants who just plain are scared that their credit would disqualify them for somewhere else.

I've had very few problems doing it this way. The only real issue was a tenant who backed out the week before she was supposed to move in (couldn't come up with the advance rent in time - red flag!). She had already paid me a non-refundable deposit, so that made the situation less painful for me.

Posted by My Frugal Miser | August 30, 2010 3:11 PM

2million-

This statement confused me: "I found my pricing was less competitive this year in my comparison research. It appeared that there were many houses that were priced for rent below market - they appeared to be houses people couldn't sell for the right price and were trying rent out. I assume may take a year or two for these folks to sell there house or realize they pricing there rental too low."

Isn't that what the market is right now then? They're not necessarily pricing their rentals too low. Sounds like the market has changed, at least for the time being. If your competitor can price lower (and continues to do so in the future), sounds like you'll have to change too or get out of the game.

Posted by Peter | September 1, 2010 8:41 AM

Peter - your right - there is a glut in the market and prices are softening. I guess what I meant was I was reading into situation that these are people that don't know what they are doing - I can tell how much they paid for their house and they priced their rentals obviously without much thought on return. These are not sustainability low rental prices given housing prices - it would make a whole lot more sense for many of these folks to sell their properties at current housing prices rather than rent them at these prices.

Posted by 2million | September 1, 2010 10:51 AM

Current houses are overpriced, on average, about 10-20%, which is why they aren't selling and why we will be in this real estate mess for several more years. Buyers know that house valuations are artificially high even now and are simply waiting on the sidelines. Meanwhile, sellers won't lower their prices. These families you see asking low rental prices do so because they cannot sell their homes and are forced to rent. What do you think happens when so many home owners convert these homes into rentals? The price of rentals FALLS. Your area is probably seeing a falling rental market yet you may refuse to accept the obvious?

Posted by Steve | September 2, 2010 3:48 PM

Steve - Could be. I don't think its a permanent fall of rental prices. I don't think these people will become permanent landlords once they understand the work/return involved for them. But thats my opinion.

Posted by 2million | September 2, 2010 5:47 PM

Coming from a renter perspective, it's the best time to find great deals on rentals. The best part about this time period is having the pick of the litter so to speak. We recently moved into a 3 bed 2 bath, full kitchen and dining, 2 car garage, private yard, water view in Palm Beach County. The price is $1100 a month. Which include the HOA fees. A year and half ago prices in that neighborhood were around $1600 - $1800.

There are just so many people who cannot sell their houses and are just trying to get some kind of rent. Also, I see alot of foreclosed units being snapped up in auction by HOA's and then they turn around and give cheap rent because it's all profit.

I do expect things to turn around though in the near future.

Posted by Scott | September 3, 2010 11:01 AM

I think rerenting still is a good business. You just need to have bigger "space" in betwing renting and renting out.

Posted by avtodoma | September 26, 2010 5:28 PM