By : Payam Raouf
Designated Broker/Owner
If you want to know the state of the economy, talk to a property manager. We see it all: Who is coming, who is going, where they are coming from, where they are going to, what they do, how much they make, what car they drive, how much they owe, who is paying on time and who is falling behind, and on and on and on.
That’s just what you see on the surface. If you look a bit deeper, it really makes you wonder! How do tenants deal with these sudden rent increases recently? For example, a 3 bed, 2 bath, 1,500 sq ft house in an average income neighborhood in Glendale rents for about $1,800 to $1,900 these days when just a couple years ago the same home would have rented for about $1,200 to $1,300.
The other day I was in-between appointments and had 20 minutes to kill so I thought I’d grab something quick to eat. I walked into a McDonald’s and ordered a quarter pounder. The clerk combo-ed me at $10.75. I sat to eat, opened the box, closed it immediately, picked up the tray, took it back to the cashier, and said, “I think I picked up the wrong order. This is the One-Dollar Burger”. She looked at me, looked at the burger, and said, “That is a quarter pounder, the prices have gone up. If you want another patty it is $2.25 more”. Then she asked, “Do you want another patty?”, to which I said, “No”. I went back to my seat, ate disappointedly, and left to my appointment. Who was I going to argue with, the cashier? She probably has plenty of her own worries to think about already.
That evening on the way home, I thought I am “the cashier” myself! When the owner instructs us to raise the rent $600 and the tenant reacts in confusion, “$600?!”, I say, “Yes, the owner says prices have gone up”.
According to Google: ”The salaries of Fast Food Cashiers in the US range from $16,570 to $27,324”. Let’s say the cashier makes $27,324/yr. That’s about $600 gross per week. The month is one week short of covering her rent.
After a couple of days delay in response, one tenant in a similar situation told us, “I don’t want to but I don’t have the moving funds. I will take it for another year.”
Another tenant, after seeing a $400 rent increase message on their portal, called us and said, “I work for the post office. I only received a $300 raise this year. I cannot afford a $400 rent increase”.
These days, people could be using their vacation time and sick leaves to drive for Uber and DoorDash to make the end's meet. And yes, that tenant ended up signing up for another year too.
A retired tenant on fixed income keeps calling us wanting to know if the owner is selling the house or renewing the lease. The lease is not even up for another three months.
Another tenant renewed their lease with a $500 increase per month just to buy enough time to find another place for less then packed up and moved two months later breaking their lease.
Some seek help from charity organizations and local governments to pay their rent for a month or two until they can figure out how they can stand on their own. On occasion, a few tenants decide to surrender their keys by choice or through legal means.
Who is out there looking for a property manager these days?
- Some individuals or companies are getting out of the property management business. Either themselves or the investors call to see if they can find a good fit to manage their properties for them.
- Some homeowners call to gather information to see if it is better to rent or sell their home. They want to see what their options are. Some have already had their property for sale for a couple of months, dropped the price once or twice but it is still not selling.
- Some owners, who purchased a new build a year ago and just closed on it now, want to know if renting is a good option. Sometimes it’s their only option if the builder doesn’t allow them to sell it for a year or two after they close.
- A few are still fishing for deals knowing they are late to the game. At 6% interest rate even with 25% down, how can you break even when your rental proceeds do not even cover all your costs. If you have money to pay cash, there are deals to be had. Some stressed selling is going on.
- People moving in together to reduce their living expenses. They rent one house and move in with each other. They call to see what they can get for their house and if it makes sense.
- Some homeowners have been renting their home on their own. Either they have not raised the rent for a long time or the tenant is not paying them on time or have fallen behind. They need a new face to contact them and make things right.
- Inheritance. Those who have inherited a property will either sell it right away or rent it out for a year or two to see how it works before they decide.
- Parents buying a home and renting it to their kids hire a property management company to collect the rent and manage it for them.
- Owners that are retiring and want to travel or no longer want to deal with the day to day business of taking care of their rentals.
I still get calls from buyer’s agents, “Would you like to receive a cash offer on your house?” Many of the houses they buy will eventually end up on the rental market too.
It is going to get tougher for a lot of renters out there to pay the rent. Many have already run though their savings and some are in danger of losing their jobs. Credit bureaus, per an online search, show many have maxed out their credit limits already.
Experienced investors hire a management company that market their properties on the Multiple Listing Services (MLS) as well. The more applications you get, the better the chances are you’ll get the right tenant. Happy tenants will stay longer, are more likely to pay rent on time and take care of your property.
Less repair and less vacancy means more in your pocket.
We are about to witness thousands of trendy new apartments with tons of amenities, pool and all, hit the market soon. Once they put their management and maintenance teams in place, they are ready to lease them out. You are going to see all sorts of move-in specials.
Rental inventory on MLS shows it is ticking up but it will be accelerating as more properties hit the market. The right marketing approach and having a strong team behind you is crucial to help you maneuver through these choppy waters.
The market went up way too fast but it is working its way down one step at a time. That’s what the Fed Chairman, Jerome Powell, is referring to: A “soft landing” doesn’t mean home prices and rents going back down at once. It’s a period of adjustment for both the landlords and the tenants. I don’t think this time around is going to be as bad as in 2008-2011.
Right now, the dollar is holding up pretty strong. But should it fall, what better place to invest in than Real Estate? Cash is trash, you might have heard it lately. At best we are heading towards stagflation; A time of slow growth, high unemployment, and rising prices.
I am not a financial advisor nor have a crystal ball. I tell you the way I see it from in the trenches and following some financial videos online.
If you want one-on-one time to discuss a particular situation you may have or want to invest in a rental property in the Phoenix Metro area, please Click Here to let me know how I can assist you. I will personally contact you to discuss your options.
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