Part of the slow down at the moment is the holidays. Fewer renters want to move right before the holidays, so homes tend to be harder to rent during this time. Once January begins, the same properties suddenly receive a lot of applicants.
While the holidays are a factor, there is also a small tapering off the rental prices compared to last year. In the past 12 months we enjoyed rent raises of $100 to as much as $250 at lease renewal times. On new listings, you could have multiple applications for the rental in the same day. The property did not have to even be ready to rent to get applications. In just the past two month we had to be more careful with rent raises in order to keep the tenant in the home. The market is more competitive. There are more vacant homes available to rent and choose from. Because of this, we want to avoid raising rents too much. We want to make sure that our current tenants renew their leases because vacancies will be harder to fill quickly.
Across the country, rental growth has increased by just 0.9 percent this month. This lower rate is affected by things like rising home ownership and increased supply. In Phoenix, rental prices have increased by just 0.2 percent in the last month and 2.6 percent from where they were a year ago. This means that the month-over-month growth is much lower than inflation, and the year-over-year growth is just slightly higher than inflation.
What this means is that it takes more than just putting a property on the market to get it leased. Other properties that are in better shape or have a lower price will rent first. This means that the investment property will need a little more work to get it ready for leasing. Instead of touching up the paint, it might require a new paint job. The property may need better appliances, flower beds or other changes to get it ready for renting. Once the property is pristine, the price needs to be set to match the rental quality. To rent quickly, the property cannot have the highest prices in the neighborhood.
The softening market might sound intimidating to investors, but it does not mean that our owners have to lose any money. When you look at the actual numbers, a slightly lower rent can actually make you money. If you have a property priced high at $1,600 and you lower the rent to be more competitive at $1,500, you end up making a $100 less a month. In a year, this works out to $1,200. If you kept the same property at $1,600 and needed an extra month to rent it, you would lose $1,600 during the vacancy. By lowering the price to $1,500, the investor ends up with $400 more at the end of the year.
One of the next options is concessions. When you have concessions, they should always be a limited time offer. You do not want a concession to be a standard part of your listing because your concession is your call to action.
For example, a property owner decides to offer a concession for two weeks of free rent in the first month. In the listing, it says that this discount is available to applications where the tenant will take possession by the 1st of the month. By setting a deadline for move in, the concession becomes a way to bring in renters as quickly as possible. When you lower the renter's out-of-pocket costs, it will generally get the property rented faster. The best concessions are designed to give incentives to rent and remove barriers.
Another way to combat changes in the rental market is through two-year leases. Rental markets rarely change that quickly. Tenants are interested in two-year leases because they can lock in the same rate for longer. Meanwhile, you get to avoid vacancies for two years instead of one. In many cases, you will end up earning more because you can avoid having a vacant property.
With years of experience in renting homes, Service Star Realty knows the right steps to get properties rented in any market situation. We offer proactive solutions and support so that your property continues to earn investment income.