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Before I even get started on this topic, don’t let this scare you into thinking that there are too many rental homes available in the area.  For several reasons, we are becoming a Renter Nation and the demand for rental homes is rising and will continue to do so. Renter nation is a blog we will discuss in the near future.  Today’s blog will be addressing changes in the market place that YOU as a present or future property owner, need to know about.

Here we go……………………….

Last week I met with a local property owner of single family homes who had been in the landlording business since 1985. This individual was at the end of his investing career and looking to unload his portfolio as he was retiring to Florida. Let’s back up a few days to the initial phone conversation we had about the property I was interested. In summary, I was told the property needed “outside of a few minor plumbing repairs, very little work.” When I first walked into the property, my first initial thoughts were correct. To the individual selling the house, he was correct, the house did not need much work. A carpet cleaning and some paint and no doubt, the house was livable. The problem is, during his investing career, “rent ready” is not what it used to be. Even when I first started acquiring homes in 2007 for my own portfolio- the definition of “rent ready” was very different from what it is today.

So what has changed? The simple answer is: an increased supply leading to an increase in competition of rental homes for tenants to choose from, along with tenant expectations. What has brought about this change? Mostly the presence of large institutional buyers. Until the past couple of years, for the most part, outside of the “accidental landlord”, the rental homes that hit the market were homes bought out of foreclosure. When large institutional buyers entered our market place, they started buying in heavy volume homes that were not in foreclosure. Most large buyers did not want the hassle of having to buy a home that needed renovation, so the easy route was to buy owner occupant homes that were “rent ready.” These are homes that were never meant to be on the market, thus adding a large influx of available rental homes.

With the recent influx of rental homes on the market, our leasing agents are seeing potential tenants being turned off by such items as: dated kitchens, cheap vinyl flooring, ugly faucets, dated counter tops, dated lighting fixtures, dated bathrooms, etc. But just like any other business, there are ways to beat your competition without lowering your rent and settling for longer vacancies. Every year since I started in this business, the strategy to be a successful investor, property manager and turnkey provider has changed slightly.

Rather than complain about the large institutional buyers in our market taking our deals and adding competition with our rental homes, we decided in the 3rd Quarter of 2011 to change our approach to “rent ready.” We decided our Memphis Turnkey Properties would be the nicest rental homes in the area; I did not want our leasing agents to report back to me that the reason our houses were not renting was because there were nicer homes in the area or the homes were lacking amities’ that our competition offers.

“Better Properties” in “Better Areas” make “Better Investments!”

So what have we changed with our homes? 95% of our homes have ceramic tile in the kitchen and baths—most of the spec homes built that large buyers are acquiring and renting out have cheap and dated vinyl flooring in these areas. We take out the builder grade faucets and put in a Brush Nickel Pull Out Spray Faucet in the kitchen and in the bathrooms we replace with a brush nickel decorative faucet. In our kitchens we take out the dated counter tops and replace with an up-to-date pre-fab look. Our kitchens now feature a matching stove and dishwasher.

When it comes to living areas, we replace carpet, no matter what the condition and replace with laminate hardwood or a 130 mil Walnut vinyl flooring, both of which look great and open up the main areas. In the main living area, more often than not, the ceiling fan is dated, so we replace with an oil bronze or brush nickel fan. We do the same in the master bedroom. The secondary bedrooms get updated lighting fixtures. We earlier mentioned faucet upgrades in the bathroom, also updated shower heads, towel racks, toilet paper holders and when necessary vanities. These are just a few of the upgrades we are doing on every one of our Turnkey houses. Some homes due to the age need more interior upgrades and since all homes are different, some homes require more updates then others.

On the exterior we focus on creating curb appeal through fresh mulch in beds, manicured shrubs and adding shrubs and flowers when necessary. A lot of our homes we have built cedar shutters and when necessary, paint the exterior. If the curb appeal is not good, then it is possible that no matter what the inside looks like, a prospective tenant will only assume the inside looks as bad as the outside. The backyard fences should always be presentable, decks need to be maintained and yard kept up.

Through these renovations, more often than not, most of our Turnkey homes spend 30 days or less on the market (of course, there are always exceptions to the rule). Sometimes for no other reason than bad luck, a home can sit on the market longer than it should.

The bottom line is this. The market expectation has changed due to increased amount of rental homes in the market. The way to get around an increased supply of available rental homes on the market is to provide a nicer home then your competition. Tenants are no different the homeowners; they want a place they are proud to call home and since most renters do not want to invest their own money for nicer upgrades, they will spend $100 extra dollars for that perfect home.

So what should you take away from this blog if you already own property? Depends. Take a look at your property when it goes vacant, maybe a couple of upgrades are necessary to be in line with your competition. As your property manager, we will evaluate what the competition is doing in your area and make recommendations. If you make the decision to keep your house with the bare minimum, then you may have to expect to lower your rent if there are nicer homes in the area. I am not saying you need to make all these upgrades and it could be that the area your house is located, the expectation is still “lipstick on a pig.”

If you are a Memphis Turnkey client, then the good news is that you bought a turnkey home that was already renovated to the highest level, or rent ready.

Lastly, if your rental homes is located in a lower income area, often times referred to as C class, then my comments may not pertain to your home. This is not an area we routinely invest and accounts for less than 15% of our overall Property Management portfolio. Although we focus on areas that typically rent for $850 and up, over the past 2.5 years, our average rent has been $1,020.83. The higher then rent, the more expectation the tenant will have, which is not necessarily a bad thing.

Happy Investing,

Alex Craig

2 responses to “The Game Has Changed! By Alex Craig

  1. the name of the game is beating out your competition. you guys sure did give me a deal and a half on my rental. couldn’t be happier.

  2. Thanks Ken! You sure have a great property, I’m somewhat envious. It sure is a pleasure doing business with clients like you!

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