Summer 2011 Newsletter: Volume 22, Issue 3
WEATHER-HOT, MARKET-WARM
It was my hope to continue to write newsletters with statements about the widespread demand for rentals. Unfortunately the June leasing volume was about half of May, and July was equally average. The hot Texas summer has not carried over to our rentals, and the number of homes for lease overall has increased at least 20%, far from putting enough supply pressure to see significant rent increases. I find the only place you can always find great demand in rental housing in North Texas is new construction (5,000 units being built) because N. Texans always want to lease something new. Our message to so many of our owners faced with a vacancy is to do complete and excellent make readies so homes look, smell and appear new (even if they are old!).
My personal portfolio consists of the most challenging rentals. My desire for occupancy has proven to me time and time again that I can rent my properties with the least time empty (and the most money saved) by investing in the quality of the make ready and the features in the home. No tenant wants to lease a home with a stack washer dryer connection; it's just not the type of appliance somebody owns. I always go out of my way to provide appliances; and in doing so I keep my rentals filled.
Delinquencies and evictions continue to grow as those struggling seem to be struggling even more. Nationwide, a recent survey said 25% of all renters spend MORE than half their income on rent. We typically feel anything more than 1/3 is a warning sign of a possible problem. 51.2% of Americans spend between 30-50 percent of their income on rent. No wonder the court rooms are standing room only and take hours to process eviction hearings. Be thankful you have eviction protection at GTF.
Stocks Were Solid
The 1st half market statistics were fantastic (unless you're holding bonds from the Greece). International debt volatility has shaken many money markets abroad, but the main US indexes continue to remain in positive territory. The Dow index year to date is up 7.2% and the NASDAQ is up 4.6% and the S & P 500 up 5%. It is amazing to watch the markets throughout the day as there are wide swings in stock values making it a great environment if you're an excellent day trader. The presidential race has brought our economic woes to the front page news, and it should be expected that there will be stock market swings as Americans are reminded of the true realities of the federal deficit and other challenges.
| MLS Activity Statistics Dallas/Ft. Worth Market |
|
|---|---|
| Previously owned homes sold in D/FW Year to Date we are down 12% |
April 2011 -20% May 2011 -25% June 2011 FLAT |
| S & P Dallas Sales Prices | -4%, same as US average |
| Consecutive months of falling home sales |
12, every month we sell fewer homes. So sad. |
| Average days leasing a home | 46 days > 90 Days to sell |
| US Home Prices | -33% from their 2006 peak |
| Distressed Home Sales | Foreclosures continue to drop every month! |
| % of Homes bought "All Cash" | 30%, up from 12% in 2009! |
Industry Trends
An amazing survey of North Texas home valuations since 1985 showed that 9 of 14 areas surveyed have actually LOST value in 26 years of analysis. This certainly proves the high risks of real estate ownership in North Texas. It also supports the age old adage that "junk is always junk" and location, location, location are still the three factors you should consider in buying rentals. So often my clients are from out of town and have never seen the property or the neighborhoods they have invested in.
Just as North Texans want new things, they also want safe feeling locations so don't invest in marginal neighborhoods if you're expecting rapid appreciation. It just doesn't happen.
Texas always looks better on paper from afar. One amazing statistic is that since the economic recovery began in this country 48% of new jobs created in the US have been in The Lone Star State (Texas). Texas is all about adding jobs, but the inventory of empty real estate far exceeds the number of new jobs created so it is still a challenging place to make money as an investor unless you are very lucky. But real estate allows investors to leverage their investment so it continues to be a source of opportunity for those willing to take extreme risk though borrowing.
It seems that every month another city in North Texas is instituting some type of mandatory property registration or inspection. These tedious processes are another revenue source for cities to generate money out of the pockets of investors. GTF is committed to staying on the very best side of these inspections and these inspectors. Our staff is very familiar with most programs and rarely run into trouble if we show up with a smile and comply. I always say these programs are designed not for good landlords like you, but for those who think they can manage their rentals alone. It's politics and GTF is very good at showing the cities and their inspectors that we are the "good guys."
Glimmers of light are emerging in the home market as only 11.9% of N. Texans now owe more on their home than its present value, down from 30% in 2009. Foreclosure volume is down 7% in 2011 so things are NOT getting worse. To put it in perspective, in Las Vegas 66% of all mortgage holders are under water.
Apartment statistics are often translated into rent home statistics. You can't compare what happens in a new apartment to what should happen in your older rental home because new will always outperform. With that said, though 5,000 new apartment units are being built, rents are up 3% this year and are expected to rise 4% next year. So why do many older home owners have to lower rents to get occupancy? Because new will always perform well in N. Texas while old will always be punished. That is why the make ready of your rental is the most important investment you can make to lose the least amount of money. Factual statistics support our observations year after year. Rentals have to look better than homes for sale because a buyer expects to renovate.
Get There First Updates
Though 74% of surveyed renters still think ownership is superior, we want to make tenants feel good about renting your property. Every month I sweat over the renewal letters being mailed because there is risk when alerting a rental agreement. All it takes is an email to mayur@gtfrealty.com if you receive renewal proposals and do not want to alert the tenant. Allowing a month to month rollover is the path of least risk. Despite this, 95% of our owners prefer a term lease and a very slight rent increase.
After successfully rolling out the owner portal to make payments, the tenant portal was launched last month. Already hundreds of residents are paying rent electronically which will automatically process the payment directly into your checking account with the click of a button. We are hopeful this process will speed payments to make it even faster to process and fund our owners which we currently do within 24 hours of receipt. We are also testing the use of I-Pads in the field so our service department can be in touch with our customers and clients in order to immediately handle maintenance requests. Air conditioning problems still persist, and there is nothing more important to repair or replace quickly to keep a tenant happy this time of year.
I hope the market gets hotter as the weather certainly has. My best wishes for a safe summer.
Mark H. Kreditor, MPM
Broker
