How to market your rental homes in a competitive rental market in Arizona

Payam Raouf
President/Designated Broker
Arizona Property Management & Investments

Hello everyone. I do not want to be repetitive, please read the  post below (Investor home-buying update for metro Phoenix) to better understand the rental market condition in Phoenix Metropolitan Area. 

Institutional investors have dominated the market competing against each other renting their homes. If you own one or several renal properties you must be aware of the changes in the renal market to market your home right or it sits there for months without a tenant.

We manage homes for several institutional investors. A) their homes are rent ready, completely renovated. B) they require less initial deposits C) they rent it up to 20% below the current market rent. D) their standards to lease are a lot easier than most landlords. E) they are very generous when it comes to paying a commission to agents to rent their homes quickly, they pay the first month's rent or at least 75% of the gross rent amount.

Fannie Mae and several other institutional investors go as far as keeping the current tenants in place with very favorable terms and no deposits!

What should you do? Can you afford keeping your house on the market for months paying your mortgage or not having any income? Most insurance companies cancel your insurance if your house sits empty after 30 days and so on.

Here are a few solutions: 

YOU WILL BE BETTER OFF TO SELL YOU HOUSE IF YOU CAN NOT AFFORD DOING THE FOLLOWINGS:

A) Make sure your house is rent ready. Today's tenants have too many choices. The fact that a few years back they were desperate and they had to hurry getting out of their home to rent yours is gone. Aside from Paint, Flooring, Appliances,  how does your front and back yard look? Would you live in it? 

B) Landlords use to require an initial security deposit equal to the first months rent plus a cleaning deposit. EX: If the rent was a $1000, SD was $1000 plus a $300 cleaning deposit. In most cases those days are gone. We recommend that initially you ask for less deposits on approved credit. Of course, after reviewing the tenant's application, you can adjust it to what makes more sense. In some cases you can ask up to 1 1/2 times of the rent amount if required.

C) Just because the prices have skyrocketed doesn't mean the rent have accordingly. Price you home right. The formula is rent equals to 7% to 8% of your today's market value. So if you bought your house a few years back for $110,000 and it rented it for $1100 and now it is worth $150,000, rent should be $1150 and not $1500.

D) A lot of tenants are re qualifying to buy homes these days. They are moving out. Who is moving in? the ones that have to wait a couple more years longer or so. So, they still have some credit issues. Some tenants are getting new jobs, some are moving in out of state, thanks to the economy improving in Arizona, However, we see a lot of government assisted tenants entering the market called section 8. It is a hit and miss thing with section 8 tenants but the rent is guaranteed. I would consider renting to them if you want to rent your house quicker. They still have to go through the same screening process and pay the deposits except they either get the whole rent or a good portion of it subsidized by the government. 

On the other note, we are seeing a lot of owners that their homes are paid off offering to carry the note back themselves with a reasonable down payment and around 7.5% interest rate, amortized over 30 years, due in 3 to the tenants who can qualify to refinance it in 3 years or so washing their hands off all the expenses related to home maintenance, insurance, hoa fees and taxes, coming ahead on the game. 

Consider lease with option to buy. 3 year lease with an option to buy, some of the expenses such as the normal maintenance fees such as landscaping and pool maintenance is passed on to the tenant, you receive a decent upfront deposit and worry less about the turn over and increase your bottom line.

Consider longer term leases at a reduced rent. If the rent is $1200 for 1 year reduce it to $1150 for two and $1100 for 3 year lease. 

Is your house pet friendly? Instead of collecting a large pet deposit up front, charge a monthly pet fee and add it to the rent. You increase your bottom line and making it easier to rent. You need to look at your insurance policy to see what breed of pets are excluded. Even in such cases, you maybe able to ask the tenants to get an additional pet insurance up to $100,000 coverage. If they really love their pet, they do.

Lower the rent but ask the tenant to pay for the pool service or the gardening or even the HOA fees in addition to the rent or exclude some of the maintenance issues that are not health and safety related and are allowed by law and ask the tenant to pay for it such as fixing the reverse osmosis, garbage disposal,  routine pest control etc.

E) This is a deal maker folks. Hire a professional leasing agent and pay them all the money to rent it quickly the first time. Sales market is heating up. It takes as much time and effort to lease a home to these fussy tenants as it takes to sell them one with as much or more paperwork. I know our leases are 32 pages long! The difference is they make $600 leasing and $6000 selling. What would you do if you were in their shoes?  Most leasing companies charge $695 to lease your home. Offer the agent an additional $300 to $500 incentive if they rent it within the first 30 days. See how quickly your house is rented!

The companies or agents that settle for less don't now how to market your house for rent so you risk the chances of leaving it abandoned for months and possibly vandalized in the process or keep getting notices and fines from your HOA or the city for grass over growing or trash left out etc.

Interview at least two leasing agents in the area. Tell them before you make a final decision you want them to write a complete marketing plan or a complete description of how they would be marketing your house on MLS or other sites. Once you pick the right agent, review the description, see if they left something out or if you want to add to it or fine tune it and send it to them.

Pictures are worth a thousand of words. Ask the agent to send you 30 marketing pictures. Choose 15 of them and if you do have some good pictures yourself go ahead send them to your agent as well. 

Ask your agent as part of the deal a) to send a link to all the marketing they do online, B)  they are to contact you twice a week preferably with a phone call or in an email,  to give you an update. If they don't call you, call them. If they do not answer, put it in the listing agreement that you have the option to cancel your listing if you are not 100% satisfied with their performance within 30 days from putting your house on the market.

DO NOT PUT YOUR HOUSE ON THE MARKET TILL YOU HAVE READ THE DESCRIPTION AND SEEN THE PICTURES. The first 10 days are crucial for renting your house. Otherwise it sits on line and counts days on the market that works against you. The longer you house shows on the market, the less showing, the longer it takes to rent.
 

The competition is very tight out there for homeowners to rent their homes.  The difference between you getting involved and not is crucial. THEN GET INVOLVED OR GET OUT OF THE GAME.

THE BOTTOM LINE: Treat your tenant the way you want to be treated if you were renting the house. A happy tenant takes care of your property better and stays longer reducing your overhead. They may even end up purchasing your home one day reducing most of the marketing and brokerage fees putting more money in your pocket at the end.

We are a full service Real Estate Company . We offer a broad spectrum of services including purchasing, sale, short sale, leasing and property management. You can contact me and I provide you with  a detailed market analysis for sale or rent of your property and give you an indept insight of what is going on in the market in your area.

Please fill out THIS FORM attention Payam Raouf, with your contact information, the address of your property and any questions you may have. I will contact you directly to answer all your questions. 

Thank you, 

Payam Raouf
President/Designated Broker
Arizona Property Management & Investments
CONTACT US

Investor home-buying update for metro Phoenix

Posted on April 1, 2013 2:06 pm by Catherine Reagor

Street funds and other large well-funded investors continue to buy houses in metro Phoenix, even though the pace has slowed as sales prices have jumped.
Some of the early investors, who bought in 2009, have flipped the houses for a quick profit, but most of these buyers are holding on to the properties and turning them into long-term rentals.
David Bignoli, president of real estate data research firm Netvaluecentral Inc., recently completed a report on metro Phoenix’s biggest investors.
Currently, THR Phoenix, also known as Treehouse LLC, owns more than 6,000 houses in metro Phoenix. THR’s house purchases are funded by New York-based international investor Blackstone Group.
Since early 2012, Blackstone has been on a house-buying spree in Phoenix and other markets hit by the foreclosure crisis, including Atlanta, cities in Florida and California since early 2012.
Most of the big residential investors in metro Phoenix are buying in these other markets as well.
Scottsdale-based American Residential Properties ranks no. 2 for house ownership in the Valley with more than 2,700 houses. The firm was started by some former executives of Franchise Finance Corp.
Empire Residential owns almost 1,700 houses in the Phoenix-area. The Scottsdale-based investment group has been around for several years and is led by Richard Felker and Geoffrey Jacob.
The fourth-largest holder of houses in the region is Santa Monica, Calif.-based Colony Capital. The well-known investment group has set up a Scottsdale headquarters for its residential activity. Colony owns more than 1,600 metro Phoenix houses.
Most of these investors rent their houses out, and say they plan to hold them for the long-term and make money on stable rents.
A few plan to package rental houses into publicly traded real estate investment funds sold to other investors.
Another interesting fact to note about many of metro Phoenix’s biggest investors: about half of their houses are listed in property records as owner-occupied.
It will be telling to see what these investment numbers look like in six months. Will these investors stop purchasing metro Phoenix houses in the next six months because of rising prices? Or will some sell their houses in the area because of rising prices?