Power Property Management’s Blog

We’ve successfully re rented 2 separate units in 2 separate cities within 3-15 days of the previous tenant moving out!!  This includes rehab!  Some might call it success while we like to call it “HAVING OUR SYSTEMS IN PLACE!!!” Getting Lot’s of turnover?  Call us to see how we can help!

On a recent bright afternoon in Redondo Beach, rent signs baked in the sun outside half the small stucco apartment buildings along the stretch of Beryl Street between Flagler and Harkness lanes.

“I’ve never seen it this saturated with rentals,” said property manager Vickie Callahan, who owns a three-unit and a four-unit building in the area. “It’s very scary.”

The rate climbed to 5.3% in the first quarter from 3.8% in the first quarter of 2008, said Victor Calanog, director of research for Reis Inc., a real estate research company in New York that tracks 90% of buildings countywide with 15 or more units — more than 750,000 apartments. In contrast, vacancies had been hovering between 2% and 3% for the last decade.

“Households are choosing to double up, triple up,” Calanog said, and the consolidation has left rentals standing empty.

Not only are adult children moving back to live with parents, but “we’re seeing the reverse, parents living with adult children,” USC’s Conway said. “To bring in income, they’ll rent out the mother’s house.”

Changes in renter behavior were the subject of a Rent.com white paper released in late June. Users of the website are increasingly using the search term “roommates” and looking for two-bedroom units instead of one to share the expenses, Rent.com President Peggy Abkemeier said. The listing service also found that users are spending more time searching online for apartments and are more interested in basic amenities than luxuries.

The first quarter saw the largest rent decline in a decade for Los Angeles County, Reis’ Calanog said. Effective rents, those that take concessions into account, fell 1.7% in the first quarter of this year from the fourth quarter of 2008, while asking rents dropped 1%.

Although rental houses aren’t tracked the way apartment buildings are, area landlords are resetting rents in response to the leaner market.

Laguna Beach-based rental owner and manager Steve Dexter has had to lower the prices on several of his six rental houses to keep them occupied. He recently dropped the rent $255 a month — to $1,195 from $1,450 — on a 1,450-square-foot, four-bedroom, two-bathroom home in San Bernardino.

“In the Riverside-San Bernardino area we’re seeing $100 to $150 rent drops from $1,200 to $1,400 a month in some pretty good neighborhoods,” he said.

It’s a delicate dance. Dexter said he had cut the rent for people he liked, but he was inclined to reject potential tenants who were too aggressive.

“I don’t want them,” he said, “if they start asking for giveaways upfront.”

Potential tenants who do want to negotiate might spend some time getting to know the landlord first.

For their part, some landlords are playing the “concession game” by adjusting the length of the lease to keep units occupied, Calanog said. “They’d rather have income for three to six months than nothing.”

Or they’ll have a tenant lock in for two years in case rents fall further, he said, in “a flight to certainty.”

Tony Forte, a recent Cal State Chico graduate, and his girlfriend, Tiffany Comfort, found a 625-square-foot, one-bedroom apartment in Oceanside for $965 a month after a two-month search. Both are working as temps and wanted to live between Los Angeles and San Diego in case their employment changed. They were able to persuade their landlord to give them a month-to-month rental rather than the advertised one-year lease.

In the nearly 14 years she has been a Redondo Beach landlord, Callahan has consistently priced her units under the market to keep them occupied, a strategy that usually results in no more than a two-week turnaround time between renters. She charges $1,300 for two-bedroom, one-bathroom apartments in an area where $1,500 is the market rate. But this year one unit sat vacant for three months.

Unfortunately, Callahan said, she doesn’t have much wiggle room to drop her rents further. “Sewer, gardening, taxes have all gone up.”

So for the first time, she is allowing a tenant to pay rent in two installments a month rather than risk a prolonged vacancy.

“A lot of these buildings were going to be condos,” Willett said. “They made the switch to rentals and didn’t have time to pre-lease.”

Incentives that renters said would most motivate them to sign a 12-month lease were ranked in a recent Move.com survey. Leading the list was one or two months of free rent, followed by two months of free utilities, a free flat-screen or LCD television, and free cable, satellite or WiFi.

For people with low incomes, rents are still high even with the increasing vacancies, said Larry Gross, executive director of the nonprofit Coalition for Economic Survival, a tenant rights organization that covers the L.A. area.

Gross hasn’t seen giveaways being offered to renters in this segment of the market.

“They don’t need microwaves and TVs,” he said. “They need affordable rents and jobs.”

Andrea Zuniga, who works as a box-office manager of the LATC performing arts center in downtown Los Angeles, had been trying to find affordable housing near a Metro Rail station so she could commute to work. In a recent three-week period, she looked at about 10 rentals in the Lincoln Heights, Highland Park, Boyle Heights, East L.A. and Westlake areas.

Zuniga and her boyfriend, Diego Robles, a math tutor who is also working on a documentary film, needed a place that would accommodate their small dog and that had an extra bedroom for Robles’ father, who is in town several times a month on business. Their budget was $1,100 a month.

Even with good credit, no history of eviction and full-time jobs, Zuniga said that it was tough to find something in their price range and that she hadn’t found any great bargains.

“I called some places that advertised move-in specials, but the rent was like $2,400,” she said.

They eventually took a one-bedroom in Echo Park for $950 a month — smaller and farther from a Metro station than they had hoped.

Student housing also remains costly because of the high demand. Near UCLA, rents at a 29-unit student building with a waiting list remain steady at $2,400 to $2,600 a month, landlord Nancy Heimler said.

“If you are near a university where kids want to be able to walk,” she said, “prices don’t go down.”

What set’s your vacancy apart from the others?   Does your rental STAND OUT?

We are starting to see a higher volume of vacancies……not a huge surprise to anyone!  Although I can write a long blog that can give you 101 ideas to set your vacant rental unit apart, I think there are only a handful that are meaningful.  In my opinion they are:

1)  Know your competition-It’s important to know what your competition is.  What are the going rental prices in the area?  What kind of amenities do the other rentals offer?  Drive the neighborhood and find the pro’s and con’s of each rental/competing property. Obviously if you’re having your unit professionally managed then your manager should be able to provide this information for you.

2) Know your unit’s value (amenities)- What does your rental/unit have that others in the area might not?  Extra parking?  Private garage? New Construction? Smaller building?  Security?  Just because it’s your favorite unit or your favorite interior color that doesn’t give it value.  You have to dig deep if you can’t think of a few items that help make your unit stand out from the competition!  Don’t be so quick to spend a lot of money on fancy upgrades with thoughts that it will net you top rental dollar.  It doesn’t always work and in fact can back fire on you!  You don’t want to be the most upgraded unit on the block because the truth is, the best unit still has all of the bad units around it.  This is where a good property manager can really help bring your unit’s value out.

3) Pricing is KEY- You hear this time and time again, pricing is key!  Losing one month’s rent can drastically affect your bottom line numbers.  In this market, it’s important to keep the vacancy rate LOW.  Changing a rental rate on a daily/twice daily basis right now is a good idea.  Unlike the sales market, renters don’t know what a property was listed at prior unless they have  been following your unit.  I’m a big numbers person.  If your unit is listed for rent at $2,400.00, but the going rate is $2,200.00, then one month vacancy at $2,400.00 is worse  than getting a renter inside the unit at $2,200.00 in the first month.  You still lost the same amount of money and it may take additional time to rent if you lower the price late ($200 x 12 months= $2,400.00)!   You can gauge pricing very quickly by seeing how many calls you get within the first few days of going on the market (if not hours).  We believe that you have to find the sweet spot in the market by lowering a rental 50-100$ daily until the calls start to pour in…… waiting to lower the rental amount to market price only delays renting the unit out.

4) Be available- It blows me away when I call a competitor and the person picking up the phone (owner/manager/assistant) starts telling me when I, as a renter, can come by to see a unit.  ARE YOU KIDDING ME?  Do you not realize there are thousands of other rentals available on the market?  If I’m a renter and I want to see a unit at 3 PM on a Sunday afternoon then that’s the time you show it to me……..PERIOD!  Be available to show your unit. My staff has a vacancy mobile phone that is answered 7 days a week during most hours; we make sure our staff/units are available to show at any time (obviously within reason).

I know that after reading the four items I mentioned above, you’re probably thinking, “Being a landlord right now isn’t the best idea”.  However, the fact is that we are in a cycle and cycles turn.  Good landlords adapt and plan for the change in the cycle.

Right now, due to slow down in the real estate sales market, we are seeing a lot of home owners put their homes on the market for rent instead of sale.  I’m not telling you to take any tenant/application that comes your way or any price offer that you receive.  I’m telling you to realize that due to the changing economy, you have to be very aware of what’s going on around you.  Don’t worry about what the media tells us every day, instead get in your car and drive the neighborhood, ask a professional, learn firsthand what you are up against.  Each area throughout Southern California is experiencing slightly different impacts in this market.   I’m seeing declines anywhere from 5-20% of rental rates from what they were last year!

If you want me to be more specific about what is going on in your area, feel free to email me at Thomas@powerpropertymanagement.com and as always if you need ANY assistance in the management or rental of your units, we’d love to hear from you!