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By Teresa Bitler

Depending on the local economy,nowcouldbeagreattimetobealand-lord.Highforeclosurerateshaveforcedone-timehomeownersintothemarket,increasingdemand.Insomecommuni-ties,propertiesaresnatchedupwithindays of being listed. The general re-ductioninavailableinventoryhasalsodrivenuprentratesasmuchas10per-cent—evenmoreinsomecities.

WEAK ECONOMY, SOFT RENT? In areas with a weaker-than-av-erage economy, though, the oppositemay be true. People who are joblesscan’t rent, resulting inaglutofprop-ertiesandstagnantrentrates.Tomakematters worse, some cities overbuiltduring the housing boom and nowhave much more inventory than de-mand. Asisthecaseatanytime,prospec-tive investorsneedtoresearchthe lo-cal community thoroughly andknowwhattheymaybegettinginto.WallyCharnoff,managing partner ofRentRange,anonlineservicethatpro-vides reports on rental and vacancy

rates,saturationrates,comps,andhis-torictrending,saysknowingthelocalmarketisessential.“Therentalmarketisverylocalized.Iwouldsay,overall,rentsareup,vacanciesaredownand,insomeareas,there’sevencompetitionforrentals.” On the other hand, he cautions,there are areas where that’s not thecase,soyouneedtoresearchthecom-munity and its rental history beforeyoumakeapurchase. Ifyoudo,nowis an excellent time to invest becauseproperty prices are down and rentratesareup,providingahealthycashflow. TheDenverarea isanexampleofamarketdoingexceptionallywell,ac-cordingto JohnBraswell,presidentofFullServiceRealEstate.“Vacanciesarealmostnil,”hesays.“Itdoesn’tmatterwhetherthepropertyisasingle-familyresidenceoraone-bedroomapartment.Itwon’tbeonthemarketformorethan30days.” He attributes the demand to sev-eral factors. Foreclosures and morestringent loan qualifications havedriven former homeowners into therental market while many would-bebuyershavedecidedtowaituntilthey

aresurethemarkethasbottomedout.Also,henotesthattherehasbeenverylittlenewhousingconstructionrecent-lyintheDenverarea. “Properties that rented for $1,200twoyearsagoarenowrentingforap-proximately $1,500,” he says. “I havewalk-ins looking to rentalmost everyday.”

STRONG ECONOMY, RISING RENTS? Damien Barr, co-founder of Kan-gaRent, is experiencing a similar sce-nario in southeast Florida, includ-ing parts of Palm Beach and Miami.“There’s tremendous growth here inpeoplelookingforrentals,”hesays.“Adecentrentalgoesveryquickly.” Clean properties in good neigh-borhoodsarereceivingmultipleoffers,and supply is dwindling, but it’s stilla challenge to rentout“lessdesirableplaces.” In general, though, Barr re-ports, rent ratesareupby roughly10percent. A property that rented for$1,200 a year ago would now go for$1,350.“Rent ratesareup,andvacan-cies are down,” he says, summing itup. Barr anticipates the trend willcontinue because at some point peo-plewho aren’t currently paying theirmortgagewillbe forcedto leave theirhomes through foreclosure. The ad-ditional renterswillcause furtherde-mand,whichcouldresultinevenhigh-errentrates. The housing market is definitelyinfluencing the rental market, saysRobertEisensteinofHomeRunHomes.A growing number of people are inforeclosure, have sold their homethroughshortsale,orcan’tqualifyforthenecessaryfinancingtopurchaseahome.Thosepeople stillneedaplace

Trends in Rentals

Look for Community Appeal

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INVESTOR STRATEGIES

toliveandwill likelyenduprenting.Inaddition,peoplewhocanqualifyforahomeloanorwhohavethemeanstomake the purchase are deciding, foronereasonoranother,torentinstead.“More people are renting homes andapartments,” he says. “Demand inmetropolitanNewYorkhassoared.” Eisensteinhasalsonoticedaspikeinrequestsforrent-to-ownproperties,possibly indicating that while peoplehavebeenforcedtemporarily toentertherentalmarket,theywouldeventu-allyprefertoowntheirownhome. But, it’s the local economy thatseems to be having the biggest im-pact. Natasha Bowen, vice presidentofMemphisCashFlow,saysthatastheeconomytookaturnfortheworse,de-mandforrentalsincreased. “Historically,wehavealwayshadahighrentalmarketinMemphis,”shesays. “It rose higher as the economyworsened,andwe’veseenaslight in-creaseinrentalratesthisyear.” According to broker John Crowe,Austinalwayshasastrongrentalmar-ketaroundtheUniversityofTexas,butbecausethecityisactuallyexperienc-ingjobgrowth,peoplearemovingintotheareaandlookingtorent.Inventoryhas decreaseddramatically andwhatremainsonthemarketis“ugly,”needsmajorrenovationorhasa“funky”lay-out. In thepast,Crowecontinues,youcouldseefivepropertiesintheAustinareaandthentakeafewdaystomakeadecision.Notanymore.Youhave tocome with a rental application filledout,and ifyou like theproperty,youneed to immediately submit it to thelandlord. “There’s no opportunity tomullitaround,”hesays.“Thewindowoftimehasreallydecreased.” Rent rates are up by as much as20 percent for clean properties in at-tractive neighborhoods, and Crowefindstenantsarekeepingalowprofileout of concern that their lease won’tbe renewed or their rent will go up.Twohundredmilesnorth,thesceneis

completelydifferent.“The icing looksgood, but the cake is spoiled under-neath,”saysbrokerMarkKreditor.Theformer president of the National As-sociationofResidentialPropertyMan-agers explains that while everythingseemsgoodonpaper,there’sanover-supplyofproperties. Kreditor counsels the landlordsheworkswith toupgradetheirprop-erties to attract tenants and providegood service to retain them. “Defec-tive properties and defective tenantsgohandandhand,”hesays. Forawhile,rentratesmaycontin-ue to rise inareas thatareexperienc-ingasurgeinrentersandareductionin rental inventory, but as it becomesmoreexpensivetorentthantomakeamortgage payment, watch for renterswhocanmake theshiftback tohom-eownership. At that point, rent rateswillplateauorevenadjustdownward. Still,asegmentofthemarketwillbe forced tocontinue to rentdue toaforeclosure in their financial historyorbadcredit.Or,theymaynotbeableto qualify for a loan under themorestringent requirements. Anyway youlookatit,therentalmarketappearssettoremainstrongfortheunforeseeablefuture.

RESOURCES

Crowe Homeswww.crowehomesaustin.com512-459-3400

Full Service Real Estate Inc.www.fsbosp.com720-690-9506

Get There First Realty, CRMCwww.gtfrealty.com214-522-5700

HomeRun Homeswww.homerunhomes.com www.lease2buy.com

KangaRentwww.kangarent.com561-803-7779

Finding Qualified Tenants

There may be more renters in the market now, but are they there because of foreclosure, bankrupt-cy or default? Finding tenants with good credit can be a challenge. So, what do you look for? Consider the credit score, but evaluate why it’s as low as it is. Was the applicant’s home foreclosed on due to job loss? If he has a new, secure job, he could make a good tenant, especially if he eventually wants to purchase your property. An eviction is another story. Broker Mark Kreditor evaluates applicants based on credit, criminal history and jobs. It’s the last matrix that gives him trouble. “The tenant could look good on paper on Mon-day and lose his job on Tuesday,” he says. That’s why John Braswell, pres-ident of Full Service Real Estate, looks beyond the credit score. He wants to see renters with ties to the community, such as children in the local schools and family in the area. They have a vested interest in re-maining at the property. A lot of people have decimated credit, says Damien Barr, co-found-er of KangaRent, so when he works with someone with a lower credit score, he puts together a package that offers a bigger picture of their situation. The package would in-clude a letter from the applicant’s employer indicating job security, personal references and even a written statement from the applicant detailing the circumstances that lowered his credit. Most applicants won’t have a package like that, but by verifying their employment, calling personal references and interviewing them about their current situation, you can obtain the same assurances.