Friday, January 23, 2009

DFW Divergance - Apartment and Single Family Rentals

The latest news is that apartment vacancy rates are up. The latest news reported by Steve Brown of the Dallas Morning News is that apartment vacancy rates in DFW are now over 8%. The most common reason given for this trend is that job growth is down so more people are sharing accommodations and/or adult children don't have jobs so they are not moving out of their parents home.

We have not seen a similar trend in our single family portfolios. Our overall vacancy rates are the lowest they have been in eight years, with a vacancy rate of less than 5%, which is what we consider full occupancy since about 5% of our tenants move out each month. Our January leasing activity is very strong, both in the amount of showings and actual leases. I have polled our local competitors and I have similar positive results from them. Our current vacancy rate has caused us to push rents up wherever possible and also be more agressive in removing tenants who default on any of their lease obligations.

Why the divergence from apartments? Part of the reason is there have been relatively few single family homes added to the rental pool in the past year. Investors have not been adding to their portfolio so supply is not keeping up with natural growth in demand as a result of the increasing population in our markets. Most of the growth in the single family rental pool is from reluctant landlords sitting out the currently soft sales market. This lack of growth in single family rentals is a stark contrast to the published net addition of apartment units (over 12,000 units in DFW alone) in 2008.

Let me finish with the same thing I always state - all real estate is local. I had a client call and tell me to not raise the rent on a tenant because everything they have been reading says that rents are going down and vacancy rates are up. Telling us not to raise rents when the market allows is like telling your stockbroker to return the stock dividend to the company you own shares in because you heard the company was having a rough quarter.

Remember, our compensation at Prime Properties is directly tied to an occupied house with a good tenant, paying rent. The more rent we can get for the home the more money we make. Our goals are to minimize turnover, but also to get as much rent as the market will bear bringing the most benefit to our clients and ourselves. We spend our full time life understanding how to do this for each specific house we manage, so if you own two houses in the same town, we might tell you to raise the rent on one house by $20.00/month, but on another $50.00/month. So please, read the news and educate yourself, but it is very important to rely on our experience on how to get the best performance on each individual house you own because we are much closer to the issues on each house, in each neighborhood, in each town, in each state.

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