How long will it take my property to rent?

[Beau Fannon]

Recently, my family added a duplex to our investment portfolio. I was super excited about it because it's only 10 minutes from my house! I ran the comps for the neighborhood and saw that there wasn't a lot turnover during the past 3 years. Maybe 5 comparable units within 1 mile. It looked like, worst case scenario, each unit would take about 27 days to rent.

By day 15 I had already pulled out every marketing tactic in my arsenal. By day 60 I was hyperventilating because I had not forecasted the need for 3 months carrying cost into my numbers. In the end they took 64 days. I was flummoxed. I'd never been so wrong before on rental forecasts. Why?

So like any good wonk, I started pulling hard numbers from the MLS for Williamson, Travis, and Hays (WTH) counties. Below are my WTH graphs that give a far better idea as to the nature of the Austin area rental market than anything I've seen before.

Comparing the total number of leases signed during any given month clues us into the drastic seasonal market shifts that take place in the Austin Area. Lease volume almost doubles between the peaks and troughs of the pink line. So does the average cumulative days on market (CDOM). The effect gives the appearance of a fairly well balanced phased wave. I don't have anything else to compare this type of analysis to but my gut says this is a good healthy market devoid of any systemic anomalies.

If you'll note the trend lines above, you'll see more and more leases are signed every year and that average CDOM is on the decline.

Now let's break things down further by examining the effect property size has on CDOM. My duplex is a 2/2 mix. Based on this WTH I should have forecasted an average lease time of 58 days instead of the 27 I guessed because we went to market during the slowest time of year. As you can see by the pink line, 2 bedroom properties take the longest to rent on average and don't benefit as much from Austin's extreme real estate seasonality.

3 bedroom rentals (green line) are by far the most consistent property leased in Austin. But the demand for 4 bedroom properties is increasing faster than any other property type. Based on the trend lines, it appears that demand for 4 bedroom leases will surpass 3 bedrooms in 2023. I'm forecasting accelerated appreciation for 4 bedroom houses in the Austin area as a result simply because there are there are half as many 4 bedrooms available in our rental market as 3 bedrooms. This will drive up the rent that can be charged for 4 bedrooms.

In summary, assuming Austin's appreciation game survives the COVID-19 virus, my next property will be a 4 bedroom rental. How do y'all interpret this data?

Which property sizes do you think rent the quickest?

[Stephen Stokes]

@Beau Fannon I recently experienced something similar with couple of my rental units and can attest to the 3 vs. 2 bdrm. demand delta. I also recently listened to one of the BP podcasts where the guest was buying up 3bdrm properties with basements that fit his local criteria to be converted to inhabitable additional bedrooms. Then, he was marketing to Section 8 -- 4 bedroom voucher holders as his target market. What he found is that there was such short supply and demand was so high that he could be VERY picky about who he leased to and mentioned receiving 10's if not 100's of applications. He even talked about going to the extent of requiring the applicants to allow him to personally visit the applicant's existing home as part of the application process. If we tried to do this in Austin or even mentioned it on an application form, I doubt we would ever get any applicants (HA!). Just goes to show how much different demand can be for what is in short supply. I tend to agree, I see a shortage of 4bdrm units and my single family 4bdrm/3.5bath rents extremely quick. 

To avoid the seasonality, I have slowly but surely been doing my best to move my leases to end in July. While I did not have the data you so eloquently plotted out for us in your post, I have been aware the underlying contributing factor; school. When you move into your first apartment in college, you likely are forced in most college specific areas to start the lease in August (typically on the 15th) which ends July 31. This starts the renting cycle for most renters and they typically stick to that same cycle.