Rental market slowdown?

Question

Anyone else experiencing difficulties finding renters? Never before had issues. All sudden not getting any calls. Or emails. Lowered price today to what I asked three years ago. Strange feeling about this.

Tim VandenToorn · Answer

@Terry Naranjo we are experiencing the same thing at United Properties. We manage around 500 properties mostly in City of Grand Rapids. We have seen a drop in prices in our homes listed at over $1500.00 a month. I think this is due to two things: Prospective renters who were renting homes over $1500.00 a month are turning to home ownership. Even if they are in Grand Rapids on assignment for a couple years whether its a physician at the hospital or an executive from Amway, Meijer, Steelcase or other company based here, they feel comfortable purchasing knowing the likelihood they can sell in a year or two and be in a good position. The second reason is the new construction downtown. Many of the condo and apartments units are opening up right now so renters have plenty of options. Personally I don't think we will be in the same position next year as many of the units will be filled, but I do think things are changing in Grand Rapids and we will have to adapt. Big money has moved in!! My fingers are crossed that next year the houses I gave away as a discount this year will see increases next year. This isn't the same for low income housing. This market is off the charts. As rental property prices increase this group is having a more difficult time finding housing. Anything functional under $1,000 that's a 3 bedroom or more is renting quickly. This isn't a market most investors choose, but is definitely something to consider.

Account Closed · Answer

Economists point to a slow down heading into 2019 for the Grand Rapids area—nothing too dramatic though. Grand Rapids has a lot of new employers in the area just beginning to hire.As for real estate, at this point, the $250K or less single family owner-occupied market is still extremely hot with multiple offers, bidding wars, and same day list offers. Real estate professionals working for buyers in this segment are often frustrated after working on a deal only to get outbid by better offers (overnight)—usually above list price. If investors can snag good wholesale deals, there is a lot of money to be made—they’re just harder to find.Others above have noted the influx of new higher priced rentals into the GR market. This is true, and there are still many such developments under construction. Many more units will be coming on the market in the near future. As usual, supply and demand will work its magic. As a result, the upward push of $1,200+ per month rents is likely to slow as these units are occupied.My conversations with other investors in the area also supports the comments made above that the low/moderate income market is still very good with low vacancy rates. There is huge pent-up demand in the area for families with lower incomes and shaky rental histories. There simply hasn’t been a reason for investors and property managers to rent to these families with so many better than average qualified applicants available. Universities continue to expand their presence in GR too. This will likely grow the need for student housing. So, there will be a future rental market in GR; it just might not look like it has for the past few years.The good news: the history of real estate in GR shows that the area is about two years behind what happens elsewhere in the U.S. So, if the general real estate market fumbles in the U.S. in the near future, it will likely be two years beyond that before the GR market really starts to feel it. (As a side note: Our local land bank has dug into the number of foreclosed properties that have yet been made available to the public. Of course, I don’t blame the banks for holding on to these—why dump 100’s of properties on the market all at once and drive the price down. It’s better for them in the long run to release these slowly and keep prices stable or moving upwards.)

Jennifer L. · Answer

@Terry Naranjo Yes. I rented my home out 15 months ago. I listed it on Craigslist only, was inundated with emails with people explaining why they would be great tenants, held an open house on a weeknight, got 4 solid applicants, all of whom qualified and had it leased a day later. This time, I had two months notice before vacancy. I posted it early for what I thought was market rate based on nearby comps. And it sat and sat. I'd lower the price, get a few nibbles, but nothing substantial. Then I started getting the multiple months up front offers. Got three of those. Finally, I reduced the rent down to what I am currently getting and found super solid tenants. Ultimately, I'm not going to have any vacancy between tenancies, but I was sweating it.

Mark Kelley · Answer

Hi @Terry Naranjo. Not looking for tenants right now so can't share perspective on demand.How are you advertising the unit? wondering if perhaps the channel could be the cause.

Nick Meister · Answer

Great insights Account Closed! It's been interesting to watch lately, as it seems new mixed-use developments are being announced with increasing frequency. The odd thing is that nearly all of them claim to be coming in as "market rate" apartments with rent starting at $1200+ per month. I'm just a little confused who the target demographic is for all of these units, especially 1 bedrooms. I'd say I probably am, as a young professional, but I just can't justify paying double the rent to live a little closer to downtown. I suppose that's just my opinion, coming from someone saving everywhere they can to buy their first property!Clay - Any thoughts on whether all the new construction units will have an impact on more traditional multi-family rentals?

Account Closed · Answer

Good question, @Nick Meister. As you noted, the new developments are targeted for a specific market. The new developments have been built on the premise that younger professionals are looking to live nearer the downtown and prefer to walk or bike to their destination and/or are more inclined to use Uber or something similar to go longer distances. The new developments are also in response to the continued job growth in and around downtown—many of which are professional jobs.The recently announced “micro-units” could provide competition for some of these developments by providing lower rents. (Though the goal is to provide housing for those less able to afford current market rates, I doubt the developers will turn down qualified persons with greater incomes.)The “inability to buy” factor will also continue to enter into the equation. There are probably several families with new good paying jobs that do not yet qualify to buy a home and will look to newer more trendy accommodations until they can.In the big picture, all new units on the market have an impact on supply and demand—if not now, in the not too distant future. Some families will choose to “upgrade” to one of the newer units and open up another more traditional unit. With vacancy rates so low in GR, the vacated units are likely to get gobbled up pretty quickly. However, as vacancy rates start to rise, a glut of available units could result—but when this might happen is still a ways out—at least based upon the economists. If that happens, prices will flatten out and we’ll likely see some competitive activity. Probably not rent reductions, but, more likely, competition with bells and whistles (free internet, etc.) or low security deposits or owner paid utilities. Most multi-unit owners are slow to lower rent—they’ll use other methods of capturing new tenants before they lower rents. (Multi-unit property managers are charged with keeping income up and vacancy rates low—so PM’s are very slow to consider lowering rents.)As long as employment continues to grow, there will likely be room for new units on the market. As that slows down, the “housing shuffle” will likely ensue, i.e. people will start looking to improve their housing situation as better deals surface within existing units. Once the shuffle is done, the market will likely see an adjustment period with higher vacancy rates and stagnant rents. When all this will happen? Keep an eye out for Paul Isley’s (GVSU economic professor) economic forecast at our conference in February. The City of GR will also be on hand to review all the newest developments planned for the coming year.Here’s a great article (though broadly focused) from FreddieMac.

David Dachtera · Answer

I'll second the "back to school" slump suggestion.I have a house for sale here and haven't had a showing in over a week.I'm thinking all of the homeseeking - renters and buyers alike - will be slow until well after Labor Day. Some schools are starting already. Others don't start until after Labor Day. So, I'll hang loose for a while and watch for the pick-up.

Charles Kao · Answer

@Tim VandenToorn @Terry NaranjoI agree with Tim. All the big money has inflated property prices. When you look at markets that have made Forbes top markets list nearly every one of them has a real estate crash within 5 years. For this reason I am taking a more conservative approach into investing in Grand Rapids and working off market leads almost exclusively. I do think rentals in good school districts with 3 bedrooms and more are still in high demand and the opportunites for spec building are greater than ever. We are looking at building town homes in SE Kent County as a result.

Terry N. · Answer

Tim, great insight. Thank you very much for your input!

Marc W. · Answer

In Grand Rapids? All the kids just moved back into places they signed last year; all the families are in the middle of making their "new school year" moves.I'd wait a week before panicking.