Winter 2012 Newsletter: Volume 23, Issue 1
"YEAR OF THE LANDLORD"
I cannot remember a better year for statistics to support the rental property business. Rents were up, occupancy was up, home sales remained slow (though up the past 6 months), and new home starts were curtailed. The industry hit on all cylinders this year except in one area that is very dear to North Texas landlords — compliance. Along with occupancy and demand, we unfortunately still face the challenge of delinquency and eviction. We went to court over 500 times in 2011, and that is ridiculous. It's fortunate that almost every owner carries eviction protection coverage to pay for these costs. I'm amazed at the amount of effort it takes to motivate tenants to pay rent. We're still working until midnight on the rent due date, and we're on the road the next morning physically posting reminders. Though our efforts are without question more than what any other management company could commit to, we still see 2-3% of our tenants leaving each month.
Texas homeowners continue to pay the nation's highest insurance rates, with the average premium at $1,511. GTF strongly encourages owners to carry liability insurance on their homes and replacement value property insurance with a loss of rent provision in place. We encourage tenants to purchase inexpensive renter's policies, but we believe less than 10% ever actually do buy the policies.
For the 8th straight year the crime rate in Dallas has dropped. Murders are hovering at 1967 levels. Overall crime was down 4.1% with violent crime dropping 8.8%, and a 3.5% decline in property crime. Despite these statistics Texans still pay very high insurance rates, and your tenants often won't lease a home unless the yard is fenced. I also believe a large percentage of the people walking into our office are carrying a concealed weapon (even though our sign says this is not allowed.)
Markets 2011-Could be Worse
Most analysts were relieved that 2011 wasn't worse for our markets as Europe was certainly challenged. The DOW rose 14.7% while the S & P remained flat. Part of the DOW is IBM and McDonalds, two stocks that had stellar runs in 2011. The NASDAQ rose 2.7% as the market and the world remain enamored by how Apple Computer continues to change our lives. I'm most amazed when tenants pay rent from their iPhones. CD rates along with interest rates in general remain historically low while longer term muni bonds remain attractive to income investors. I believe 2012 will be a good year for corporate America, and the recent recession allowed many companies to streamline their operations (reduce payroll).
| Activity Statistics Dallas/Ft. Worth Market |
|
|---|---|
| Previously owned homes sold in DFW | Oct 2011 +10% Nov 2011 +13% Dec 2011 +5% |
| Avg # days to sell Avg # days to lease |
88 42 |
| Total 2011 Sales Average Prices |
flat +1% |
| Apartment Rents Average Rent Rate |
+5% for 201 $804 |
| Apartment Occupancy D/FW | 93% total occupancy |
| New Apartments Under construction |
7200 up by 80% #1 in the country |
| 2012 Home Value 2011 Median Price 2012 Rental Value Homes on market 2011 Condo Sales Unemployment |
+5.8% predicted! $147,000 +4.5% predicted -23% -8% 7.4% in the D/FW area |
The Landlord's Edge
One of the best ways to save money in 2011 is to petition your tax value when you get your statement from the city. I do it on all of my properties every year, and sometimes it works. I recommend Dave Aarant at 214-912-9152 who only charges if he gets your values lowered. Dave often visits the home and takes photos when needed to support his case. Income investing seems to be the natural trend, and we have posted to our web site (www.gtfrealty.com/investment) leased rental properties we own that are for sale at tremendous discounts, and most have long term tenants. Please view the pictures online of these homes and see the deals offered.
Texas payrolls gained 20,800 jobs in the final months of 2011 as the state jobless rate fell from 8.4% to 8.1%. The national average was 8.6%. Hiring has picked up all around, and that means there are more renters with money in their pockets to move. Despite all the good news nearly 3% of all Texas homeowners are behind on their mortgage payments so it is a very similar statistic to our rent roll delinquency. It's important for owners to become more selective with their tenant selection criteria as the market firms. During the first 8 months of the year Dallas area payrolls expanded .06%, a full percentage point lower than the statewide average of 1.6%.
December foreclosure filings in the D/FW area were down 12%, the 10th consecutive month of reduced foreclosure inventory. Just two years ago over 70% of apartments were offering one free month's rent to lease, and that statistic has been cut in half. We offer no free rent.
I'm always amazed at how two different real estate research firms can come up with opposite statistics. One firm says home values will rise 5.8% in our area in 2012, and yet another says we will see actual declines in home values through the first half of 2012. Overall the disparity is 5.8% up and –.4% down. Believe whom you wish, but always be wary of statistics. I tend to comment on statistics after the fact and I think home prices will remain challenged in 2012 so don't spend your 5.8% gains just yet. The other important fact about statistics when applied to real estate is a trend can affect one value home in an opposite direction of another value home. It's very hard to find "overall market statistics" that apply to all values and locations of our market. Challenged neighborhoods typically only get more challenging, and unlike other markets with limited land supply, North Texas tends to ignore improving areas in exchange for building newer areas and that's why we lose money.
What I want to also point out is that the core strength of the rental market is in new construction. New units near the downtown core (Uptown/West Village) are truly the only areas that follow typical "other city" characteristics. The area is landlocked, close in, and the rentals being built are contemporary. In these areas rents have gone up 16% in the last two years and yet most of you haven't seen any rent increase, just maybe better occupancy. My point is you probably will encounter resistance and possible vacancy if you raise rents without making improvements. New countertops, contemporary light fixtures, and hardwood type flooring are a start towards competing and reaping benefit to this stronger market. North Texas renters still have choice, and the supply of homes continues adding the constant need to improve and compete on the quality of the make ready. Nothing costs more than vacancy.
FINAL THOUGHTS
We had a good experience with our new software this year, and the company continues to listen to our requests for changes and improvements. Nearly all owners receive checks electronically, and it is predicted that first class mail will slow in 2012. Since launching our tenant payment portal about 40% of our residents participate, and we hope to double that this year. GTF is also a test company for a new payment product whereby your residents can electronically send money paid in cash at a 7-11 store directly to GTF making it easier to process cash paying tenants from any 7-11 store. We're excited to have been selected to test this new portal payment system. Our service director, Rick Moore, has launched an online series of FAQ's (frequently asked questions) so your tenants can easily find self help remedies to common maintenance issues. It's our ongoing desire to reduce service calls by talking tenants through any remedy they do themselves from unfreezing a disposal to lighting a pilot light. Rick also added service personnel in his department to better serve your tenants, especially when it gets hot outside. As we enter our 4th decade, I'm resigned to the fact that our business is now guided by technology, and our average tenant is much younger than I am (and far better suited to embrace our services when they are web based.) As Bob Dylan said, "The Times They Are A Changin'" and GTF will be best positioned to help you benefit through these changes.
Mark H. Kreditor, MPM
Broker
