Oklahoma City - Half out tenants have gone month to month waiting to buy

[Dan Williams]

Hey All,

The title pretty much sums it up but out of 13 SFH, about half the tenants have gone to month-to-month leases because they want to buy at some point in the near future. It seems like a purchasing frenzy is ready to erupt if housing market variables change. Has anyone else noticed this happening in their area?

Dan

[Randall Alan]

@Dan Williams

So I have a couple of divergent responses to this:

1.  Very few tenants that want to buy, actually can.  Especially given a high interest rate environment.  It depends on the class of your renters though.  I tend to be in the C class rental environment.  If you had A class tenants they might fare better... but again, both houses and money are really expensive right now.

2.  We tend to let existing tenants lag a couple of hundred dollars behind market rent... not by a lot... but with the way market rent has increased lately, just being in a lease probably means they are a couple of hundred dollars behind.  So when I have a unit turn over that doesn't need rehab, I actually get really excited from an income perspective because I can take the unit to full market rent... which usually translates to a few thousand dollars more for that unit over the year.  

3.  We can usually fill a house in a matter of days from when the exiting tenant leaves.  So I really don't worry too much about loss of income from vacancy.  

4.  Keep in mind that month to month gives you options too.  You can give them a couple of month's notice that you want to use the property differently (ie. rent it to someone else who will guarantee a 12 month stay) and they would have to get out.  You can also change their lease rates whenever you want.  Not saying this to be mean, but just pointing out that a lease runs both directions.  Going month to month for us means your rent still goes up, and usually by more than if you were signing a new lease.  So if presented that way, such as "Sure you can go month to month, your rent will be $150 more a month in that case, or if you sign a new 12 month lease and it would be $75 more") they may have more incentive to sign a new lease.  You can also not let them ride that way for long... you could limit their option 90 days, and say, "Within 90 days I'll need a decision of staying or going or we will be changing the lease rate to "$X more" or whatever makes sense to you. 

It's all in how you want to handle it.  While I don't seek turnover... in the current market environment I usually come out ahead at the end of the day.  Even if the unit is down for a few weeks for rehab.

All the best!

Randy