Featured Article
Real Estate 101
By: Patrick Janson
Everyone seems to be wondering about the real estate market these days. I want to devote most of this column to addressing some of your concerns and answering one or two of the most common questions.
Key Investor Issue: Rent Rates -- To Raise or Not to Raise
Do you own residential investment property? If so, a key question you may be asking is: Do you raise rent rates every year? There is no simple answer to this question. Unlike commercial property management, annually raising rates for residential units is not necessarily automatic. In commercial management, graduated rent increases often are built into multi-year leases. Also, commercial markets tend to be more static and less dynamic than residential markets.
So, one of the decisions owner-investors face is whether (or not) to raise rents when renewal notices are sent to tenants. You should take this responsibility seriously. In fact, as an owner- investor, myself, I fully understand that all our investments must generate income and that rent increases can and should enhance property values.
However, I also understand the "pain" caused by vacancies, particularly unexpected vacancies that might be prompted by rent increases. Hence, while 5% increases are common with commercial units, we need to remember that most residential tenants have a tough time accepting - and paying - a similar increase for their rental home. For example, a 5% bump on a house that rents for, say, $1,000 per month would result in a $50 monthly increase for that tenant. Studies have shown that most tenants' comfort levels are "disturbed" when monthly increases exceed $15, so you can imagine the chilling effect that a blanket 5% increase could have on occupancy rates.
Also, we must deal with current market conditions when determining if a rent increase is. Some central issues are: How active is the rental market in a particular neighborhood? What are the comparable rent rates offered by competitors? How many rental units are generally available in the Tri-County area? We all must strive to stay abreast of market conditions and to answer such questions; these are critical factors to consider when contemplating annual rent increases.
Did You Know?: that foreclosure are pushing rent rates down across much of the nation, but the Montgomery area didn't come close to making it onto a recent list of the 10 least-expensive rental markets (#10 was Little Rock, AK at $600 per month, according to Daily Real Estate News, 1/15/08).
Doom and Gloom?
Despite the doom-and-gloom we've been hearing, the Montgomery real estate market is solid. Yes, it has slowed as the market looks to absorb much of the new construction inventory that has sparked the first "buyers' market" this area has seen in years. This makes selling your house a bit tougher if that's your intent in 2008, but it also has opened the door (pun intended!) for investors looking for a decent deal. Please understand that the prices of existing homes have not crashed, as some would have you believe; but pricing is more rational than we've seen for awhile. Combined newly lowered interest rates, this is a wonderful time for astute, qualified investors to be looking to add to their portfolio. The Montgomery area remains an undervalued market, and there are bargains.
Did You Know?: that over the past 30 years the median price of existing homes has increased an average of 6% per year, and that home values nearly double every 10 years? A recent Federal Reserve study also indicated that the average homeowner's net worth is 46 times that of the average renter (NAR, 1/18/08). Real estate truly is a great investment vehicle!
Patrick Janson is a veteran real estate investor and REALTOR. He is a member of the River Region Team associated with Aronov Realty, Inc. Visit the team's website: www.riverregionrealtors.com.
» Top |
«
