As the housing market cools, rental prices rise

As the housing market cools down, the rental market will heat up. Rising rental prices are obviously great for landlords. I’ve already noticed this happening in the area surrounding my rental units, where rents have increased 10-15% in the past six months. This change is also happening in Philadelphia, where apartment buildings are full and are increasing prices of the remaining units.

The WSJ has a good article on the topic here.

Generally, rents in East and West Coast cities are expected to rise the fastest. Archstone-Smith, which owns apartment buildings in 41 cities, says it is increasing rents 8% to 10% in New York City and Southern California. And in South Florida, vacancy rates are so low that some landlords are raising rents as much as 28%, according to McCabe Research & Consulting. In Chicago, just five of 34 large apartment buildings offered concessions to renters in the first quarter, down from 19 a year earlier, according to Appraisal Research Counselors, a real-estate consulting firm.

It's partly a supply-and-demand issue. Years of soaring house prices (and recent increases in mortgage rates) have simply priced many people out of the home-buying market. Indeed, the portion of U.S. households owning their own home slipped to 68.5% in the first quarter from 69.1% a year earlier, according to the Census Bureau.

For long-term landlords/investors, this is a great situation. Day-to-day fluctuations in the current market value aren't exceptionally important, because I’m not going to be selling them anytime soon. Even if we're heading into a downturn or cooling off period, housing is cyclical and will come back and appreciate over longer periods.

Monthly cashflow is what is important today, and higher rents will directly benefit this.

Dogs, Shmogs

I've just sent a Notice to Cease to the tenants in P1b (the 2BR) informing them that they no longer have permission to keep dogs in the apartment. Naively, when they were first moving and told me they had two dogs, I didn't question them as thoroughly as I should have. It turns out that the dogs have a history of viciousness (although the tenants assured me that they did not before signing the lease). I found out this week that they have a history not just in the town where I'm a landlord, but also in adjacent ones. Luckily, I made them sign an addendum to the lease which gives me the authority to revoke permission if they break any other clause of the pet agreement. Because they are in violation of this agreement, I just sent out the Notice to Cease yesterday, so it looks like the next few weeks will be interesting.

Until last week, I had only received relatively minor complaints. Over Memorial Day weekend things changed when the police were called three times for noise complaints. Later that week a neighbor called the town's animal control to report abuse, and found out that the dogs have a history of viciousness. One particularly disturbing encounter involved the dogs running around the neighborhood terrorizing people. Eventually, several state police officers showed up, were chased, and were preparing to shoot the dogs when the animal control officer arrived and instead tranquilized them.

The other person who is apparently familiar with these dogs is the town's mayor, who was aware of an incident where they had attacked a guy's face. When I spoke with him, he explained (like my lawyer, and others) that the speed with which I can get rid of these tenants depends mainly on the quality of my lease. Luckily, the clauses appear to be tight enough to allow me to request that the dogs get removed, otherwise I can (and will) evict.

Now I just have to wait to see what happens next.

Introduction

I have been a landlord for almost two years, and during this time I have encountered several difficult, sometimes comical, situations which I think you will find amusing and insightful. The point of this blog is to describe these situations in detail in hopes that other landlords, aspiring landlords, and real-estate bubble enthusiasts can learn from (and/or enjoy) my experiences.

To date, I own four different properties. I will refer to them in the order in which I bought them. The first three properties, P1, P2, and P3, are all located in New Jersey, a little more than an hour away from New York City.

The first property, P1, is a two family house comprised of a first-floor, one-bedroom unit and a second-floor, two-bedroom unit. I bought P1 in August of 2004, the same day that I bought my second property, P2.

P2 is a mirror-image of P1, except that it is only one three-bedroom unit. Actually, P1 and P2 are each sides of a single duplex, which I was able to split into two separate deeds on the day of closing. The backyard of P2, unlike P1, has a detached 1.5 car garage, G1, that I rent separately from the main unit.

I purchased my next property, P3, in October of 2005. P3 is in the same neighborhood as P1 and P2, but on a different block. P3 is a free-standing three bedroom with a front and back porch, two off-street parking spots (which are quite valuable in the area), and was completely renovated just before I purchased it.

The final property, P4, is located in Philadelphia, and is the property that I actually live in. I most likely will not go into much detail on this property because it is not currently rented out.

Hopefully, I will be able to convey some of the experiences that I've had renting out P1, P2, and P3. Currently all three are rented out. What led me to start this blog today is that I am having some problems which I feel others will find informative and interesting. I will start describing them soon.