Atlanta Rental Market Update – Vacancy Rate
Mark and I read a lot about what is going on in the real estate business and in politics. We do this so that we can digest the information and figure out how we can use the trends to assist our clients. Earlier this month, we read that the vacancy rate is at an all time high for the past 20 years. We are at a national average of 7.5 percent and the highest recorded is 7.8 percent back in 1986.
While I have not received new vacancy rates for metro Atlanta, the rate was 6.3 in an article I read from April 2009. I would guess that number has increased. So what does this mean for you and me? It means that because the competition is at the highest rate we have seen in decades, we have to get smart and aggressive with our marketing efforts.
At this time, none of our 2 bedroom homes nor condos are getting rented. Why should they when people are giving away 3 bedrooms for what 2 bedrooms used to cost? If you have a 2 bedroom like I personally do, then I recommend that you lower the rate and have it in great condition. We personally will be renting a two bedroom house less than our cost just so that we don’t have to pay for a vacancy insurance policy, utilities, and risk damage due to vandalism. Some cash coming in is better than no cash coming in.
I have been saying for a while that if you currently have a vacancy, you need to consider what you can do to as far as concessions. Also, if you currently have a tenant in the property and the lease is coming due, be prepared to make rental concessions to keep them in the property. The reality is your neighbor who has a vacancy is probably willing to give them concessions if you aren’t. We are seeing a lot of move in specials, rent reductions, free rent and other incentives out there in the market.
We have had success with offering discounts if paid before the first. We have not had as much success with offering incentives like free stuff (flat screen TV, etc) with rental.
Raising the co-op to another agent has worked some as well. We have some investors that agree to raise the co-op. The great part about that is you only pay that if the tenant was brought by another agent, but we have seen viewings increase when that happens. While it will not make someone rent your property if they don’t like it –the increase in showings means that you have more opportunity to rent your home faster. As more and more agents are not having as much success selling house, they are turning to rentals to keep their business going. Two years ago, agents would not have wasted their time showing a rental, but today a large majority of our calls are from agents looking to place someone for some fairly quick and easy income.
All this to say, if Solid Source PM manages your property and you have a vacancy, evaluate your bi-weekly activity report. If you are not receiving 3-5 showings, then the price needs to be corrected to increase the traffic. If you are getting showings, but we aren’t getting applications, we need to find out what we can do to increase the conversions to applications. Is there something that we can fix with the home? Are we getting applicants, but they aren’t qualifying. Some of these issues we can fix, others we can’t but lets work together to see what we can do to get these filled.
Atlanta Rental Market Update
At Solid Source Property Management, we are busy! Karen, Michelle & Marie have been working overtime the last 2 weeks as we have had a spike in activity. People are trying to get settled before the school starts again. We expect this to continue through to the end of the month and then taper off once school starts. So what does that mean for you if you have a vacant property?
The good news is that people are looking. The bad news is that they are pickier than ever. (If you missed my last update, read my June 17th post for more about the market.) So make sure that you have your properties in order – clean, mowed, and in great shape!
I was looking over the reports of our advertising results for the last 2 month’s. As a comparison between the two months, it struck me that while the amount of potential tenant requests have remained fairly consistent between May & June, the number of viewings and actual rental contracts have dramatically increased. (Unfortunately this is a new report, so I wasn’t able to view May versus April, but I would expect that April would have shown less requests. I am looking forward to watching these trends over the next few months and will report trends as they develop.)
More interesting to me about this report was the time of day that information requests are made. In the 8:00 evening hour, there are more than 3 times the average number of requests- followed by a tie for 6 & 4 pm and then 10:00 pm. The 5, 7, & 9 evening hours see a significant drop in requests. I wonder why? In any event, this tells me that when our office is closed and we are not able to respond personally, our marketing presence is still working strong and we are capturing information that allows us to follow up with those people who are interested in our properties.
When you have rental property, having a marketing plan and system is extremely important, especially in today’s market. We need to maximize every lead and opportunity. So at Solid Source Property Management, we have several ways to get information about our properties to the public. In addition to the extensive on-line advertising that we do, we also provide 24 hour information messages for each vacant property through a sign in the yard. The prospective tenant can listen about the property and then patch through to Karen if they want to view it. We also answer our phones with a live person. A lot our competitors don’t, their calls just go to voicemail.
We call and follow up with people who have seen our properties and request feedback and information. This allows us to address any concerns quickly as well as provides us with an opportunity to try and find them another property that they might not have known about if the first property doesn’t fit their needs.
We also pay a high referral fee to other agents who show our properties which is about 2-3 times more than our competitors. Each of these steps means that we are positioned to get the most out of every request and in turn are able to fill our client’s properties as quickly as possible.
Atlanta Property Manager Discusses Impact of New Foreclosure Law
You may have heard about the new law which came into effect in late May. It states that if an owner of a property goes into foreclosure, the tenant’s lease is to be honored by the new owner and provides for a 90 day extension to the lease term. Therefore, if there is no lease, the bank can terminate with 90 days versus an immediate eviction. While in theory this sounds like a reasonable plan of action- it certainly has issues that are not yet clarified.
As a property manager, it makes our lives a little easier. Once we confirm that the owner has foreclosed, we simply turn the lease documents over to the foreclosing attorney along with the security deposit and notify the tenants where to send the rents and that we have transferred their deposit over to the new owner’s representative.
For the tenant, this is much better than having an owner who forecloses and the security deposit is lost forever. Once the new owner takes over, they may elect to negotiate a move out- cash for keys so that they can put it on the market for sale, etc.
What the law really doesn’t address is the following – banks make really poor landlords. For example when there is a repair on the property, who is the tenant going to call – the attorney or will there be a designated person at the bank? I guarantee that there is not a 24 hour maintenance hotline. No one will be dealing with their issues over the weekend which in effect, places the banks in a position of possible Landlord/Tenant violation. Banks are not in a position to be a long term landlord, but that is where we are placing them.
On a positive, the banks will be able to capture some of the revenue rather than have a vacant property. They will be able to get their marketing plan in place while the asset is (hopefully) being maintained. They will have less cost of mowing and vacancy insurance.
It is our belief that they will eventually become tired of managing the properties and hire management companies. For now they are relying on the asset managers to handle some of these tasks for them, but they too will grow weary of these services or accidently get themselves into trouble by violating landlord tenant laws and find themselves in a lawsuit. I certainly will be interested to see what happens over the next few months.
Atlanta Rental Market Update
The Atlanta Rental Market has undergone a very large shift. Rental rates are dropping significantly – $100 – 200 over market rates of last year. Vacancies continue to rise. More tenants are renewing their leases, but often are asking for rental concessions and getting them due to the competition in the marketplace. We are finding houses with 4 bedrooms or more are typically renting faster than our 2 & 3 bedroom properties.
All properties need to be in excellent condition & priced correctly to rent quickly. We are recommending that owner’s update any dated fixtures/lighting, make it look and smell its best, as well as provide incentives for on-time payment. We are also suggesting that owners consider putting some inexpensive staging items in the home like colored shower curtains with matching towels and candles. This increases the emotional response and seems to have a significant impact for approximately $30-45.
As the rental market is very volatile, we are constantly evaluating our rental rates. Unfortunately with reduced on-line advertising alternatives (Rentals.com has bought out most of the smaller more cost effective sites here in GA), we are finding rental comps to be more and more challenging and not as consistent as they once were. In addition, on-line advertising costs has significantly increased, while traffic has decreased. All of this has impacted our ability to attract higher numbers of inquiries.
On a positive note, the applicants that we are getting are slightly better candidates than those of a year ago. We are easily getting double deposit for more risky tenants. It appears that one of the reason for the increase in demand for larger houses is we are finding more and more multi-generational families are applying together. It will be interesting to see how long this trend continues.
For the smaller homes, the competition has always been apartments. Below is an excerpt from another real estate agent that specializes in Multi-Family dwellings – Dale Henson.
“At the end of 2008 average occupancy in all garden apartments in the 11-county market area was 8.6%, down 250 basis points from 91.1% at the end of 2007.”
“The fundamentals of the Atlanta apartment market will very likely not begin a positive turn before mid-2010 or early-2011”
“[The large number of new apartments coming on the market that were started in 2007 & 2008] coupled with a decline in demand due to economic conditions, will push occupancy down to 87% at best by the end of 2009.”
What this means for you and me as investors/owners is that it is going to take some time for the market to turn. Rents will continue to be soft and we will have to become very aggressive in our approach to this issue.
Atlanta Real Estate Agent Concerned about Landlords Not Paying the Mortgage
I was reading a post from another agent with Solid Source Realty, Inc. sharing his concern about property owners failing to pay their mortgage while the tenant continues to pay the rent on time. He suggested credit reporting for Landlords to insure that they were credit worthy.
As a professional property manager and a member of NARPM, my colleagues and I have often discussed this issue especially in the last 18 months. As the economy continues to decline, we are finding more and more property owners not living up to their responsibility and leaving the tenant high and dry with little time to regroup. Typically their security deposit is non-recoverable as well, so there is no money to relocate and in today’s economy – every dollar counts.
This is why tenants should not rent for an individual owner, but a professional property management company. At least a management company should be a firm of licensed real estate agents who holds funds in escrow and is not distributed to the owner. In addition, there is typically a provision that states that once the foreclosure auction is advertised, we can withhold the rent until the owner clears up the foreclosure.
One thing tenants need to be aware of is that there are a lot of owners that can get a stay of foreclosure action through working with the bank for a loan modification. So just because notices of foreclosure show up, doesn’t mean that the house will automatically go into foreclosure, but you should contact the owner or property manager right away to determine the best way to proceed.
Our firm always looks through the major foreclosure reports to see if an owner is listed. If so, we contact the owners and work with them to see what can be done to protect the tenant and figure out expectations. While a management company works for the owner, we are bound through license law to treat all parties honestly, fairly, and provide accurate information. What this means is that we will work with all parties to insure the best possible outcome.
If the worst does happen and the property does go into foreclosure, we can typically refund the security deposit and sometimes part of the rental amount depending on the situation. Of course there are certain conditions that need to be met in order for this to happen.
While there is a lot of press about the owners that allow foreclosure to happen when a tenant has been paying rent, a more common issue is an owner who has allowed a tenant to become behind on their rent. Most often – although not always, a tenant will not pay and this produces additional financial pressure on the owner having to carry two mortgages while the tenant continues to stay in the property. There is very little discussion about this issue. It would be nice to be able to track those instances along with the owners who blatantly don’t pay when the tenant has been paying all along.
5 Rules of Property Management in GA
As you can image, I receive a lot of questions about property management and lately have been receiving more and more calls from real estate agents and individuals thinking about getting into the business. I wanted to take this time to share with you the top 5 rules of property management.
Rule #1 – You have to have a real estate license to manage another person’s property. The only exceptions are if you are an employee of a firm that owns their own properties (like the employee of an apartment complex) or you are managing your own property. You cannot manage your investment homes and another person’s without being a licensed real estate agent.
Rule #2 – Once you are a real estate agent, you must operate under a Broker that allows you to manage property. The broker must agree to take the responsibility of the licensee’s actions, review all contracts, property management agreements, advertising, etc. This can be a great risk to a broker which is why most brokers do not want to engage in property management.
Rule #3 – Understand trust accounts. There are a lot of issues that go into management of other people’s assets. That is why rents and security deposits are held into trust accounts. Payment of vendors has to be handled with care and under the terms of the GREC rules and regulations.
Rule #4 – Have written policies, procedures, and guidelines. Communicate those to your owners, tenants, applicants and vendors. These guidelines should address what you will and won’t accept for a prospective tenant, how maintenance issues will be handled, how owners will be paid, who to contact with questions, what you require from your vendors, what is required of an owner and a tenant, etc.
Rule #5 – Make sure that you have the proper insurance to protect yourself, your owners, and your tenants. Litigations in property management are higher than in a traditional real estate firm. The main reason is that the longer the relationship, the higher chance of miscommunication. You want to make sure that you are adequately protected so that you don’t lose your livelihood.
Obviously there are many other factors involved when talking about property management, but these give at least some idea of things to consider before you decide to start up a property management business or if considering hiring a property management firm. At Solid Source Property Management, we started out as investors managing our own property before we decided to become licensed.
Because we had several years in the business, we had developed all the processes, procedures, and guidelines. It was because of our diligence and business plan and model that we able to show that to our broker that we had what it took to take the risk and allow us to manage other people’s property. Subsequently, when we became brokers ourselves, we fully understood the trust we were given and are thankful that we had that opportunity.
The market today is much different than when we started 4 years ago managing other people’s properties. We never would have imagined that owners with tenants would not make their payments; that tenants would leave properties in some of the conditions we have seen; that foreclosure rates would have increased like they have; that rents have become as depressed as they are. It is a totally different marketplace.
While we still believe that rental real estate is the key to long term wealth – we share with people the good and the bad to make sure that it is the right opportunity for you. If you are interested in learning more about getting started in investing – register for our free class on Investing Strategies – Getting Started in Rental Real Estate.
If you are already an agent – come to Agent Appreciation Day at the Fox Theater on May 19th to learn how you can “Escalate Your Wealth!” We hope to see you soon!
City of East Point Wants Someone Else Pay Old Tenant’s Water Bill
We manage a home in East Point, Georgia for an owner in California. After months of vacancy, we finally have an approved tenant who wants to move into the property. This particular tenant is a Housing Choice Voucher recipient (formerly called Section 8). Through the process, the DCA – the governmental agency that oversees the housing choice program required that all the utilities be turned on. So, we contact the various utility companies and try to arrange for service. Not a problem until we get to the water department.
Apparently the former tenant who was residing in the house when the owner hired us to manage it (because of lack of payment from the tenant) never turned on the water and therefore ran up a $350+ water bill. Of course the tenant’s lease, as most leases do, clearly states that the tenants are responsible for all utilities. We have no way of knowing that the tenants didn’t transfer the utilities.
To make matters even more complicated, the house was purchased from a bank after it was foreclosed from the builder, so the owner never established service, the former builder was bankrupt, and therefore, there was no way to be notified that there was illegal usage of water. In fact, the city of East Point didn’t even know about the issue until they went to read the meter to establish the service and found that there was a large amount of water that was used.
The city of East Point did not want to grant water service due to the bill from the previous tenants. We spent 3 days calling to try and reason with them about the urgency of this matter. The inspection is scheduled for Monday and we needed that water on. We didn’t feel it was fair or correct to make someone else pay for the previous tenant’s usage. After all, they stuck our owner for a lot of unpaid rent already. It took several month’s to evict them from the property where they were able to basically live rent free for approximately 5 months.
We provided the water department with all the documentation that stated that the former tenant was responsible. Provide copies of leases, judgments against them and eviction paperwork. We called for 3 days trying to get the issue resovled and were told over and over that the only person who could authorize the turn on was the finance manager who conveniently has been unavailable. It is now 4:00 on Friday and we still have no schedule for the water. We call the Mayor’s office, the Clark Howard Team, and WSB TV to name a few to see if we can get some assistance. Finally at 4:30, we get a call to state that the Finance manager will allow the water to be turned on Monday, but we have to have a representative there. We can’t just have it turned on and then off at the street like every other water company. So I have to pay someone to go to the property and wait for the water company to show up.
I have several issues with this whole ordeal.
#1 – Why should a person be responsible for a bill that another person incurred?
#2 – Why didn’t the City take responsibility for the usage a long time ago? We actually winterized the house back in the fall, so I know there has been no usage since then.
#3 – Why did it take 3 days for a response and it was conveniently after we contacted the Mayor’s office?
#4 – Why can only 1 person make a decision to do the right thing for a customer? We were trying to get water established. We were trying to serve our client. We didn’t get any more management fees for spending 3-4 hours just on this one issue.
#5 – It isn’t like we could go to another vendor – they are a monopoly. I can’t believe that they treat people this way. They are basically bullying people into paying for their mismanagement of the billing. Any other utility company would have realized the usage and turned it off then pressed charges or turn them over to collections.
I am outraged by this whole scenario and hope you are too. How many other people have just decided to pay it because they didn’t have the time or energy to fight this? Get involved in your community and make your voice heard. Let me know of any similar experiences you have heard about or had.
Investing Strategy – Buying Pre Foreclosures
Pre foreclosures are an attractive option for many real estate investors, because they represent the potential for rather large profits. Although investing in pre foreclosures can be a good investing strategy, you’ll need to be aware of the risks as well as the rewards, to determine if this is the right strategy for you.
The main reward of investing in pre foreclosures is that you can often obtain the properties at well below market value. Owners of these homes are usually motivated to sell them quickly to avoid foreclosure. They will often be willing to entertain low purchase offers so they can simply get out from under the home’s mortgage and start over.
Buying a pre foreclosure for substantially less than market value gives you the opportunity to sell the property at a large profit. You’ll need to figure in repair costs to determine if an investment is profitable, because most owners in pre foreclosure don’t have the funds to properly maintain their properties. However, the owner should allow you to inspect the home before purchase, so you can make a reasonable estimate of the repair costs before you commit to the investment.
One of the main difficulties of buying pre foreclosures is that it can be difficult to contact the property owner, particularly since you will have a lot of competition. Having a marketing system and a pre-qualifying strategy will help reduce the time spent and increase your odds of spending time on properties that meet your criteria. Since you will have to conduct quite a bit of title and lien research before pursuing a pre foreclosure, you risk wasting that time if you are unable to meet with the property owner to discuss the sale so having them contact you will help increase your odds.
Be prepared if you cannot sell the home quickly, you will want to make sure that you have alternate strategies. You may need to be prepared to incur the costs of renovating and owning the property for an extended time. It’s a good idea to have a backup plan, such as renting the property to tenants, if the home does not sell as quickly as anticipated.
Fair Housing Laws
As a real estate investor, you are quickly becoming an expert on mortgage loans, remodeling, rent collection, and other aspects of owning real property. New investors find that they have to gain expertise in these areas very quickly in order to grow a profitable business. But one aspect that investors often overlook is the role that Fair Housing rules play in real estate transactions. Without knowledge of these rules, you can easily find yourself in enough trouble to wonder why you ever started investing in the first place.
Essentially, Fair Housing rules are quite simple. If you are selling or renting out a property, you are required to offer the property to anyone who has the financial means and the credit rating to qualify for the property.
There are seven characteristics you cannot use in determining if you will rent a property to a particular person: Marital status; gender; race; national origin; color; religion; and handicap.
While most of these are common sense to the average investor, there are a couple of these characteristics that frequently cause problems for landlords. Marital status can be an issue for landlords who rent studio or efficiency apartments that are only large enough for one occupant. If a married couple wants to rent one of these units, it might seem sensible to tell them that you can’t rent the unit to a married couple. However, this is not permissible under the Fair Housing rules.
Another characteristic that often causes issues is a prospective tenant’s handicap. Even if you don’t tell the person that you are declining their purchase or rental application because of the handicap, you can still run into problems if the applicant cannot access the rental unit. Landlords are expected to make reasonable accommodations to allow handicapped persons access to at least some of the rental units. This doesn’t necessarily mean that you have to remodel an entire apartment building to accommodate one applicant, but you do need to be able to show that you’ve made reasonable efforts to make some of the units accessible. If a prospective handicapped tenant qualifies and is willing to pay for the changes to the unit to accommodate his or her requirements, a landlord is required to accommodate the request. Of course the tenant is also required to pay for the unit to be returned to its original condition at the end of the lease term.
One issue that gets landlords’ in trouble is when they don’t treat all applicants equally; they want to provide a move-in special, but they don’t offer that special to all applicants or prospective tenants. They change the special rather than provide consistent information about the unit, the price, application guidelines, and the amount of the rent. The best way to prevent this is to have written application guidelines.
If you are concerned about following all the rules and guidelines, you can also employ a professional property manager to perform your screening for you. There are other advantages to hiring a property manager as well. They have access to a wide variety of marketing tools, screening tools, and provide a buffer between you and your tenant.
So to clarify – treat everyone exactly the same and you will eliminate the issues with fair housing.
Investor After
This was a home that we helped our investor find and purchase in January. It was a filthy mess. We cleaned up the house, repainted, replaced the flooring, changed a lot of the light fixture, and put the home in rental service.
