Why rentals over $1400 per month are difficult in OKC

Question

This recent article got me thinking a bit more about our market here.

https://www.marketwatch.com/story/renting-is-more-affordable-than-buying-in-47-of-these-housing-markets-and-they-tend-to-have-one-thing-in-common-2020-01-10

Currently there are 2476 homes for rent in the OKC Metro for less than $1400 per month.  There are 496 listed for rent for over $1400 per month.  As you can see the "meat" of the market here is under $1400 per month.

While there are plenty of folks that can afford to pay $1400 per month here the bigger question is why would they do it?

The median house price in OKC Metro is $137998.  If you were to purchase such a home your loan payments would typically be in the ballpark of $650 per month.  The rent on a typical home of this price in order for an investor to "make money" and feel it is a good investment would need to be around $1400 per month. (I know I will get feedback on this and yes you can make money on this if you have appreciation but in okc overall that is very low.)

This brings us back to the Why pay that much for rent in OKC?

In other markets in larger cities your purchase price would be much higher so the answer is easy it is cheaper to rent than buy but here in OKC the opposite is true.

The reasons we see folks rent the higher end homes in okc are several

-bad credit/low on funds.

-building a new home and need a place until done

-in town for short or limited time and need a place without the worry of selling in the near future.

(as you can see the first bullet is not the type of tenant we dream of and the second 2 are short term ones generally which do not help your bottom line.)

I think this in a nutshell explains why many out of state investors come in hoping to make money on their rental and are then sadly disappointed when it sits vacant for long periods of time.

We manage many rentals that rent for over the $1400 mark but I will tell you that is not what most folks that call us everyday are looking to spend on their next home here in OKC.

I guess my main point is that rentals for over $1400 per month in OKC Metro are not the bulk of our market and certainly challenging.  They do rent and it does work for many but it is not as easy as in a larger city, mainly due to the cost of living/cost of a home here in our little town.

Please let me know if there is something I am missing in my thoughts I look forward to any response I get.

John Kunick · Answer

@Devin Fakner and @Rhett Tullis, great post by Rhett - and Devin I will try to answer your question about Tulsa as I own and manage a large portfolio in Tulsa. The biggest answer is "it all depends"! It all depends on location, condition and also what the landlord's niche is (which hopefully is driven by their goals).

For me, my niche is 3/2's in South Tulsa (primarily Bixby and Broken Arrow) that I can rent for anywhere from $1050-1300 (depending on location and condition).  As Rhett mentioned, the higher the rent the more time you can expect the house to sit simply because the "pool of eligibles" is smaller.  If I have anything over $1200 available, I can expect it to take 1-2 weeks to find a suitable tenant.

On the other hand, if I have a rental that is $1050-1199, I can usually find a suitable tenant in 1-2 days.  So, when I've had the opportunity to buy additional properties, guess where I tend to focus?  I've turned down a lot of realtors that call me begging me to look at their house that I can buy at a nice discount, but would have to rent for $1400+ in order to make same ROI.  Of course, they ask me to look at the "built-in equity" that I am getting because their seller is desperate.  My point back to them is I'm not buying to turn around and sell and make a profit!  I am buying for rentals and that is my business model.

Having said all of that, I do have a friend who solely focuses on higher end rentals ($1300-1500).  These are typically 4/2's with 2000+ sqft. But, he bought most of these houses many years ago and especially when the housing crisis was going on.  He was buying most of these houses for under $110k and not having to do much work to them.  Therefore, he's making a very good ROI, but he can't find that same house now to buy at anywhere near those same purchase prices.

To close, it depends on your location and condition of house.  But, in Tulsa, I think we have similar rental market as OKC.  For me, the 3/2's have been a significantly profitable niche that I don't care to stray out of.

Landon Whitt · Answer

well said, this is the exact reason when investing in a town you must know the affordability index. An easy way to get an idea what an investors should purchase is 3 times the median family income or less.

We must remember that rental homes are little businesses, you wouldn't open up a new business without researching the customer demand in that market. Always start the search looking at what rentals are already available and at what price and how long they have been on the market at that price before you look at opening your rental business in that neighborhood. Basic stuff but often overlooked.

Michael P. · Answer

Do OKC renters expect shiny close to new construction for 1,300 or do they accept older houses maybe not so glamorous.  Or are those renting for 950.

Rhett Tullis · Answer

prices here are creeping up so things may shift a bit but still hard to get over the $1400 on a consistent basis and when a home does go for over 1400 here it is generally an even worse return now due to increasing prices.

Alyssa Dyer · Answer

@Devin Fakner if you're hitting market rent rates and conditions that meet the area's expectations you should be able to lease in around 3 weeks. Section 8 takes longer.

Rhett Tullis · Answer

a $1300 per month rental would be a very nice home here currently.  In great condition.

Leslie Boeshart · Answer

Sending you a PM on a property I have. The mgt company has had it since Oct and it's still vacant. I am guessing its because I'm over priced.

Rhett Tullis · Answer

there are alot of cities passing regulations on denying section 8 applicants as a form of discrimination.  I personally have no problem at all with a section 8 tenant.  Our biggest beef with section 8 in the OKC metro is the length of time it takes to get an inspection and then the wide range of items that some inspectors will pass and others fail.  It is like taking a test and school with no idea of what the correct answer may be.  Their inspectors have even told us directly that they fail 80% of the houses they inspect on the first go round.  This is a big loss for the property owner and also a huge hassle for the tenant.  We have even had tenants cuss out the inspector for failing a house over a minor infraction (grass was about one inch higher than the inspector felt it should be)

Devin Fakner · Answer

Great post @Rhett Tullis. How long do you believe the average landlord is waiting for new tenants in OKC? Also, have you experimented with the nearby Tulsa market?

Why rentals over $1400 per month are difficult in OKC

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