Get Ready for Thursday Tour (Thursday??)

You Read it Here First

In the course of helping clients find a rental property the last 2 weeks, it's become abundantly clear that the rental market is much more fragmented and chaotic than the For Sale market.

And pricing is much sloppier (what you get for, say, $2,500/mth runs the gamut from properties worth high $300k's to low $600k's).

While Craig's List seems to dominate, there are another 6-8 sites that have rental properties that aren't listed elsewhere.

And coming this week, rental properties will now be on MLS.

Step 2

Once you've defined the appropriate universe of rental candidates for your client, step #2 is to go look at them.

Some owners and rental brokers are quite responsive, and showings are easy to set up.

However, others take repeated efforts to reach, and have very little time available for showings ("How about after work next Monday?").

For Realtors generally accustomed to getting access during business hours, with a few hours notice, that doesn't cut it.

Proposal: Rental Tour

Once upon at time, For Sale properties suffered from a similar lack of exposure.

At least in the Twin Cities, the solution was to hold open houses every Tuesday, between 11 a.m. and 1 p.m., when Realtors can see all the new inventory.

Here's betting $100 that there'll be something similar for rental properties within the next year (at least ones whose rent justifies the marketing effort).

P.S.: my proposed time is 1 to 3 p.m Thursdays.

Fewer Purchase Agreements, More Leases

Mastering the Rental Market

Want to know which way the (real estate) wind is blowing?

Here's what's on the agenda for this year's Minnesota Association of Realtors forms course:

New this year are lease contracts, exclusive representation for consumers looking to rent, and lease listing forms.

Detect a theme?

In a market with more rental activity and fewer Buyers . . . more Realtors are getting up to speed helping clients find rentals (I seem to recall something about lemons and lemonade . . )

Renting vs. Buying & Selling

Realtors & the Rental Market

If you are a prospective home seller who is convinced that prices are temporarily depressed, what do you do? Contemplate renting.

If you are a prospective home buyer who is convinced that prices have further to fall, what do you do? Contemplate renting.

For the above-mentioned reasons, Realtors -- myself included -- are overlapping with the rental market much more often these days.

Buying vs. Renting -- or Selling vs. Renting -- is a case-by-case decision that depends on personal circumstances, time horizon, risk tolerance, and any number of other factors. So, I don't presume to tell clients what to do.

However, I'd encourage anyone weighing the decision to at least consider the following questions:

Prospective Sellers

--If you are convinced that home prices will be higher next year -- or in two years, or whenever -- what is that belief based on?*

--As a prospective landlord, are you prepared to deal with property maintenance, tenant screening, insurance and liability issues, etc.?

--What is the condition of your home? If your home is in mint condition now, how much time and effort will it take to un-do the wear & tear associated with renting?

--What are your investment alternatives? Specifically, is collecting monthly rent a better or worse return on your money than selling and investing the proceeds elsewhere?

Prospective Buyers

--If you are convinced that home prices will be lower next year -- or in two years, or whenever -- what is that belief based on?*

--Where do you think interest rates will be when you're ready to buy? Even if home prices are lower, higher interest rates may negate any savings (unless you're paying cash).

--For the same budget, how do your rental choices compare to your purchase choices, net of any tax benefits associated with buying?

--If you have kids, how will renting (vs. buying) affect your choice of schools? Choice of neighborhood(s)?

Just because I'm a Realtor does not mean I automatically think everyone should own.

In general, the more short-term your horizon is, the more sense it makes to rent rather than buy. That's also the case if you're not prepared to maintain your property, or simply don't have the money for the necessary upkeep (not to mention the downpayment). Of course, if you are new to a community, it can also make sense to rent until you know the area better.

Lending a Hand

As a Realtor, how do I handle prospective Buyers who decide to rent?

I try to be as helpful as I can, with the caveat that I'm not an expert on the rental market -- it's hard enough to keep track of home prices metro-wide.

That said, as a courtesy to my clients (and former clients), I'm happy to do an email to fellow Edina agents to see if they know of something; check Edina Realty's (internal) classified ads for leads; and suggest such resources as rental agencies, Craig's List, and even local university bulletin boards (online and off).

I'm also happy to keep my eyes and ears open.

While I was showing a home two years ago, I struck up a conversation with the tenant, who mentioned that their lease was expiring soon. Although my clients passed on the house, I had other clients who were looking for a rental in the area.

I put them in touch with the owner, who ultimately decided to take his home off the market and rent to my clients. (Based on my first client's feedback from their showing, as well as my own market knowledge, I was pretty confident that the home wasn't going to sell -- at least not anywhere close to the asking price.)

*P.S.: If you know where housing prices are going to be in the future . . . by all means tell me!

Selling or Renting?

"For Sale" or "For Rent" -- But not Both

A small -- but growing -- percentage of single-family homes on the market locally now have a second sign in their front lawns: one that says, "For Rent."

I have no statistics backing me up -- I doubt any exist -- but I'd estimate the number is 5%, up from maybe 1% a few years ago. Clearly, many frustrated (desperate?) Sellers are exploring their options, including anything that helps defray their monthly holding costs.

Unfortunately, sporting dual "For Sale" and "For Rent" signs may deter both prospective Buyers and renters.

Rental Stigma?

For Buyers, a "For Rent" sign is a turn-off because, frankly, rental properties are seldom in the same condition as owner-occupied homes. Just as nobody ever washes a rental car, few renters invest the kind of TLC that owners do.

That's why, on the Multiple Listing Service ("MLS") database, owner-occupied duplexes call attention to that fact, or, if the property is in especially good condition, tout their potential for owner-occupancy. (Truth be told, many not-so-great duplexes also claim to be perfect for owner-occupants.)

In the conservative, apple pie Midwest, owners simply occupy a higher place in the social pecking order than renters. So it's usually a mistake for Sellers to associate their single-family home with renting.

As a realtor, I have a second association with dual "For Sale/Rent" signs: they usually indicate an overpriced property that has been on the market awhile.

Motivated Sellers don't use language like "Must Sell!," "Make an Offer," etc. Rather, they get their home in the best possible condition, stage it well, and hire a good realtor to position it in the marketplace. A key part of market positioning is choosing an appropriate list price.

In my experience, when Sellers do all of those things, their homes invariably . . . sell, regardless of market circumstances.

When you see two signs in the lawn instead of one, it's a good bet that one -- or more -- of the foregoing steps has been skipped.

Renter Turn-off's

Meanwhile, prospective renters can't help but notice the "For Sale" sign. Even though leases survive a title transfer, renters seldom know that. At the very least, they may reasonably wonder how a prospective change in ownership will affect them.

Exiting owners have little incentive to invest serious money in a property they're selling, or even stay on top of garden variety maintenance. In fact, financial duress may be why they're selling.

In today's market, you have to at least consider the possibility that the current owner's circumstances may be so dire that the property will go into foreclosure, further clouding the status of any renter.

Even if the new owner is an individual rather than a bank, it remains to be seen what kind of landlord they'll be.

All of these considerations inject uncertainty and distractions into a process that is already stressful enough.

For prospective Buyers and renters alike, simplicity sells. That's why owners should decide whether they're Sellers or Landlords -- but not both.