by Michele Gillis
Staff Writer
With the combination of low housing prices combined with the amount of properties that just won’t sell, the rental market in Jacksonville is improving and attracting the attention of brokers and investors.
“The rental market has strengthened as more people find it difficult to buy and sell homes,” said Terry Brown, North Florida regional manager for Watson’s Property Management Division. “For a while, rental prices went down because of the enormous increase in the supply of rental homes. That has stabilized and we are beginning to see a small increase in rental prices. I emphasize the word small.”
The numbers show the trend to rentals.
According to recent Northeast Florida Multiple Listing Service figures, the 2011 year-to-date number of residential sales vs. leases is 9,093 vs. 5,459. At the same time in 2010, the numbers were 9,306 vs. 5,054.
In comparison:
• Home sales down 213.
• Rentals up 405.
That sort of information spurred some new companies such as LMH Leasing Solutions.
“We launched last year as a direct result of the distressed sale market,” said Linda Hutchins, president of the company, which is a division of LMH Realty. “Sellers couldn’t sell and buyers couldn’t buy if they had a short sale or foreclosure affecting their credit. We saw an opportunity that very few realty companies were addressing by specializing in single family homes.”
Some have been long established like Watson’s Property Management division, which has been open for 20 years.
“Doing rentals allows us to offer full-service to our customers and clients,” said Brown. “It is also an additional source of income to the company. It makes sense to not have all our eggs in one basket.”
Peter Sapia Jr. has been working in the property management field for eight years and opened Coastal City Property Management in April 2010.
“Our real estate brokerage only does property management,” said Sapia. “I designed the operation of the brokerage to concentrate on property management and all aspects of the daily operation of the individual properties. We have a small maintenance division that conducts repairs on many of our managed properties. We very rarely sell real estate, usually only for a family member or friend.”
He decided to focus mainly on property management in direct response to the current market and his ideas to make the rental business easier on everyone.
“I started this brokerage in response to pushback I was getting from prospective owners in regards to the fee structure they were being quoted, as well as all the extras they were being charged for,” said Sapia. “I felt the trend was moving towards a simpler fee structure with more of the extras being included in the base management fees.”
Rental properties are coming from two main sources: homes that won’t sell and homes bought by investors for the sole purpose of renting them out. Also, many owners are listing and renting their homes at the same time.
“I know that if we place a property on both markets, sales and rental, at the same time, nine times out of 10 it will rent before it sells,” said Brown. “There are a number of reasons for this. People can’t afford to sell their homes because they’re upside down. They have to rent out the property to preserve some cash flow, if they have to move for any reason. People who would have qualified for a mortgage a few years ago no longer qualify, so they must continue to rent. Therefore, the demand for rentals is higher.”
Sapia said many of the homes he is seeing now are properties that have been on the market for a period of time and did not sell, or an owner has had the home priced by a sales agent and the owner does not want to let the home go in that price range.
Two-way street
How to handle properties that are both for sale and for rent?
Says Sapia: “Each agent does their own marketing and showing, and see whichever happens first, sale or lease. Once a contract is signed or a lease is signed, the owner then removes the home from both the sale market and the rental market.
“This has worked well for a number of owners since they felt they did not waste time on one aspect of the market while ignoring the other, and then starting over again trying to rent the home after an extended time on the sale market.”
The economy has affected the rental market in many ways, most of it positive.
“Demand for rentals is high due to former owners who cannot purchase with financing if they have short sale or foreclosure history until their credit score improves with time,” said Hutchins. “Many people want to rent a home until the for-sale market stabilizes. Leasing your property is in many cases a short-term solution if you need to move and your property is worth less than you owe. Also, those who are near retirement would prefer to rent versus owning to avoid risk.”
Another way the economy has affected the rental market is in the way of rent prices.
“Many areas of Jacksonville have seen a decrease in rent prices over the past few years,” said Sapia. “Many tenants were surprised to learn that the property they were in had been foreclosed on by the bank. Evictions went way up. The time it took to complete an eviction went from about 30 days to over 90 days due to the overload on the courts.
“Many homeowners became renters after their foreclosure or short sale. Recently, the available inventory of rentals has gotten very low in some areas due to tenants not buying and moving, more investment properties have gone into foreclosure, and homeowners are now in the renter pool after they lost their home.”
Checking it out
Renting also allows a prospect to kick the tires before committing to purchase, and Davidson Property Management was started five years ago as a way to nurture buying customers.
“Folks moving to the area didn’t want to buy right away and it is an additional source of revenue,” said Elsie M. Evans, vice president of Davidson Property Management. “People moving to a new area are more inclined to rent to get the feel of an area. When people lose their homes to a downturn in their personal economy they have to live somewhere and renting is frequently the next choice.”
Determining whether a house will be rented or sold is up to the owner. Therefore, some houses are purchased by investors with the intent to rent.
“With the deals out there now, and positive cash flow immediately, it does provide income,” said Cattar. “Some are by necessity such as a short sale can’t be sold right now. Better to have some rent than just let the house sit vacant and it helps the owners pay the mortgage, too.”
Brown said many of her company’s rentals come from owners who wish to build their wealth through the purchase of real estate, as well as well as from owners who are unable to sell their property in a timely or cost effective manner.
Being aware
There are many facets to how rental restrictions, terms of lease, condo restrictions and city ordinances come into play when dealing with rentals.
“You just have to be aware of the rules, laws and restrictions and do your best to follow them,” said Cattar. “With houses, it’s a good thing to do your research and make sure they are not in foreclosure.”
Sapia said in most cases, restrictions of a community, condo, or city do not come into play too much.
“Most associations and municipalities are reasonably easy to get along with as long as we do what we are supposed to do,” he said. “This means making sure tenants are cutting the lawn, not leaving debris on properties and not having abandoned or non-working vehicles in front of a property.
“We try to act promptly if we see an issue that may trigger a violation from a municipality or from an association. We make sure we have clauses in our lease that make it a violation of the lease for a tenant to create a situation that is a violation of city code or of a condo or homeowners’ association. This way we can enforce specific laws or rules that may not be spelled out specifically in a lease.
“There are a few rules out there that make management more challenging, such as the Neptune Beach tenant noise ordinance, but we just have to adjust when necessary.”
Brown said her company has not had trouble with city ordinances, but has had increasing problems with condo and homeowner associations who get in the way of owners placing tenants in their property.
“This ranges from requiring special signs for their neighborhood or not allowing signs at all to requiring their own separate rental application before allowing a tenant to move it,” said Brown. “The neighborhood specific signs are a financial burden on us and sometimes a time problem because it’s hard to accurately judge how many you will need for a particular neighborhood.
“If you grow your portfolio in that area, you might not have enough signs when you need them. The condominium rental applications can sometimes make it next to impossible for an owner to rent out the unit because they can take up to 30 days to process. No tenant is going to wait 30 days to find out if they can rent a particular unit. They just move on to another community.”
Building relationships
Doing property management is quite different than selling a home in several ways, including the need for attention to details and ability to create long-term relationships.
“It’s all in the details,” said Cattar. “There is a lot less time up front, but there are a lot of details involved. Doing it right from the start helps a lot.”
Evans said there are definite differences as far as relationships when it comes to renting vs. selling.
“In a sale, most of the work and relationship building is done before closing,” said Evans. “After the sale, the agent will continue to contact the buyer on some kind of follow-up. It could be weekly, monthly or some other time schedule. In a rental, the relationship with the tenant starts at lease signing and grows during the term of the lease. Our relationship with the owner and property starts at the signing of the agreement and grows from there sometimes 24/7.”
Different strokes
Sapia agrees that rentals and sales are very different.
“With a rental you are not only dealing with an owner and with a tenant for multiple years, you also have maintenance issues with a property over the management period,” he said. “You will market a rental many times over the lifetime of a management contract, and you will have a long term relationship with many owners and tenants.”
The main difference in rentals vs. sales is in the relationship you develop with an owner and/or tenant during the term of a lease.
“During the sale of a home, you are incredibly linked for a short period of time,” said Brown. “Then the closing comes and the relationship fades quickly into the background until and unless the person decides to buy or sell again.
“With a rental, we have the same relationship during the listing phase. Then, after the lease is signed and the tenant moves in, we have another 364 days or more to enhance or mess up that budding relationship; both with the owner and the tenant. It’s much more intense.”
Sapia said he has also seen a change in the types of properties that his company is managing.
“A lot of investors lost their properties or let them go back to the banks,” said Sapia. “Many of our new properties coming in are properties that have been on the sales market and have not sold or properties that the owners would normally sell when they have been transferred with work, but they do not feel they want to let their home go at the current prices.
“Many of them have decided to lease their properties for a few years until the market starts to come back. Some will sell and some will probably decide to keep renting out their property. We are now, however, starting to see a few investors come back in and purchase properties, many of which are bank owned and being sold well below market.”
Close margins
Many owners had properties that were barely cash positive or even somewhat cash flow negative.
“As property values started dropping, so did the rent prices in many areas,” said Sapia. “This made the margins on their investment properties even tighter or more negative.
“Owners stared cutting back on maintenance issues such as repainting and re-roofing in an effort to conserve funds. This also put a strain on the rental prices since the properties looked a bit more worn as well, and tenants were not willing to pay as much.” Plus, many tenants took pay cuts or lower paying jobs that limited the amount of rent they could pay. We also saw owners cutting the tenants’ rent on the renewals in an effort to keep the good tenants they had.
A 24/7 job
Some people think Property Management is easy until they see what it entails.
“You can’t be unavailable or hundreds of emails or calls behind,” said Cattar. “The owner’s expectation is that you spend their money as if it is their own.”