Where I See the Tampa Market Correcting

Question

So I noticed an aberration in the Tampa market, it started back in December and really gained steam this month. And it's in the availability of rentals. As of today, 1/17/2023 there are 1,172 rental units available on the MLS for Hillsborough County. 346 new rentals have come on the market since January 1st. To give you some perspective, want to know how many rentals came on the market for the same area in January of 2022? One.

That's right, last year for the entire month of January, ONE new rental cam on the market for all of Hillsborough County. This year, just 17 days in, we have 346 new rentals on the market. So what gives and what does it mean?

Well for starters, if you look at the history on many of these rentals, you'll see that these were properties that were recently put on the market for sale but didn't find buyers. You'll also often find that these properties were purchased within the last 12 months and have undergone significant renovation. It would appear that these were all flips and these sellers are now trying to find an out while they wait for rates to come down and the market to rebound.

The problem is many of these investors bought too high, increasing rates cooled the market, and now they're stuck with these homes. Since January 1st, 281 properties have leased, however it doesn't look like the market is absorbing these rentals fast enough. So what is going to happen?

Well I think we'll be looking at a sell-off within the next 90 days. In areas like South Tampa some of these "flips" were purchased at 500k or more. Anyone who is stuck holding hard money at 12+ percent on loans that run from 300k to 700k is going to be hurting very quickly. If they can't get a lease in place, they're going to have to dump them, give up the property deed in lieu of foreclosure, or risk foreclosure itself. I think there's going to be some significant discounts in the single family space through this summer, however I don't think those deals are going to last forever. There is still plenty of money that's been sitting on the sideline. Plenty of buyers who were priced out in 2020 that have been waiting for an opportunity to buy.

The next few months are going to present key opportunities to add to your portfolio in the Tampa Bay area. Do you have a team in place to execute?

Jeff Copeland · Answer

Interesting stats and observations for sure. Are you pulling these stats from the MLS?

Not that the MLS is not a good data source, but 95% of our rental inventory in this market does not flow though the MLS, so it's an incomplete picture. There could be 10 times more that want you see in the MLS, or it could just be a blip in the stats.

Either way, it will be interesting to watch!

Travis L. · Answer

We have a few rentals north of Tampa and rented out at the peak, so far they all seem to be staying again next year, although I don't think I can get a rent increase even to cover my cost increases.  We're in a good equity position so they can still drop 20% and not be underwater(rent or equity).  I've also been looking at these recent purchases and see the flips sitting and prices dropping, but not low enough to cash flow as a rental.

I'm looking for another rental but even with the price drops and higher rates nothing on market makes sense, we'll start to see some more off market or FSBO's start popping up.  South Tampa has so many rentals and more properties coming up daily, waiting to see some 2020 or even 2021 pricing come back.  Don't want the market to crash just a nice adjustment.  Would love to get a south Tampa property in my portfolio, as a rental or primary whatever works.

Stephen Dispensa · Answer

Jeff, yes these are MLS stats, and I agree there's rarely any rental inventory on the market. What's different is these are mostly single family homes. The realtors representing them failed to sell their clients flips so we're seeing rental inventory dumped on the market. That's why I was so taken aback by these numbers because there's NEVER any rental inventory on there.

Stephen Dispensa · Answer

Yeah I've got 30 doors under management and no issues so far, BUT... next renewals come up in May so we shall see where things are at by then. And then I have a TON of renewals in July and August.

I can't see a major crash because there's still just too much money out there to invest or purchase. Too many people still want to live here, and too many people were sidelined when prices and competition went crazy the last few years. But there are investors who overpaid and overbuilt and they're going to have to sell at a loss. Fact is the sooner they rip the bandaid off the quicker we all get through it. I still wouldn't think twice at an opportunity I see today because I think we will be well into the turnaround by the time and projects taken on right now are finished. I'm not in love with single family rentals, but as this sell off starts, my thought is to grab up what you can, even if it means renting at a loss for a year. Because you make money when you buy. And if we wind up with a glut of inventory priced to move come March and April, literally fortunes can be made picking up undervalued assets.

Minna Reid · Answer

I've noticed the same in Jacksonville. Lots of new rental inventory and even dropping rents. Over the last few years EVERYONE decided to become an investor, so we have a ton of flipped inventory right now. Also the institutional buyers did the same, and they also overbuilt these "luxury" apartment buildings around here. I have one that I've been watching in my neighborhood. It appears they've run out of funds to complete the project and they have so many vacancies.

I imagine all those stuck in exorbitant leases of the peak will renegotiate at lease end or just move to cheaper locations which will now be available.

Spring market will be very telling this year.

Where I See the Tampa Market Correcting

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