Over the past eighteen months, the press has declared countless different situations to be “unprecedented,” and while that may be true in some strict sense, we’re all a little tired of it. So, when press talks about the unusual state of real estate – specifically how much property prices have increased recently – it’s easy to feel a sense of foreboding. Some think this could be the start of another housing bubble, which is to say, not unprecedented, but whatever is happening with the housing market, it’s no surprise that rental owners are paying close attention.
Since the start of the pandemic and the historically low interest rates on mortgages, list prices have increased 23% and buyers have found themselves entangled in bidding wars and paying much more than homes are worth. As a result, potential buyers are being priced out of the market, and pushed to remain in rentals. Additionally, some homeowners may be opting to sell given the value boost temporarily tied to their homes. That’s good news for Houston area landlords, right? Yes, but those benefits may not be simple or straightforward.
Perhaps the most obvious reason why the current housing market is good for Houston landlords is that potential owners are being priced out and pushed back into the rental market. And, this set of tenants are unusually appealing in a crowded applicant pool because, if they had the qualifications to buy, you can be sure they’re in a great position to rent. They’re likely to be financially secure, responsible, and independent, the sort of tenants who pay their rent on time and take care of their unit.
Another reason Houston landlords may benefit from the influx of higher income tenants into the market is that, now that they won’t be responsible for costs like maintenance and property taxes, these tenants can afford to higher rents. We see the benefits of renting to this population regularly – often the units that you have to invest in to attract them are more costly, but in the long-term, properties that target more affluent tenants are easier to manage and end up being more profitable. This only works for landlords right now, though, if you’re already holding these types of properties, though even mid-market properties are likely to see a price increase on available units.
In order for Houston landlords to benefit from the increased cost of housing in the city, they need to be securing new leases, or at least be renewing existing ones. When it’s time to price new contracts, though, it’s true that we’re seeing surprisingly large increases, even in the aftermath of an economic crisis. At a national level, rents are up more than 12% year-over-year, and yet the cost of maintaining these units hasn’t increased by anywhere near that much.
The most substantial rent increases will hit new renters, including those who sold their homes and those who were evicted after the end of the eviction moratorium, which are two very different populations, so it’s important that you’re screening tenants carefully as they apply. A skilled property manager can be indispensable in this regard, evaluating tenants to ensure that they’re a good fit for your properties.
Perhaps one of the biggest challenges landlords are facing in regards to increased housing prices is the fact that, at a time when the rental market is seeing an increase in profits, there’s not a lot of room for you to expand as an investor. Plagued by inflation and with larger investment groups snapping up properties, profit margins would make this the perfect time to buy and yet the combination of low stock and high costs mean you’re essentially locked in to your current inventory.
Given all of the above factors, one concern that can’t be overstated for landlords trying to navigate the current real estate market is that, given price increases, renter groups may be off-balance, which can change the nature of your rentals. What does that mean, exactly?
While tenant community composition is a fairly minor concern if you’re renting out single-family homes or even duplexes, if you own multi-family properties, it’s a major issue. And this is not to say that mixed-income housing or other integrated facilities don’t have their advantages, because they do, but they also require a particular kind of management.
When your tenant pool in a multi-unit property changes, there can be tensions around social norms, often around small things like how quickly people move their laundry in the communal laundry room or how loudly or people play their music. These tensions can be especially fraught if the community’s changes are also an indication of gentrification. In such circumstances, having a property manager onsite can make a big difference.
One thing that property managers are uniquely skilled at compared to landlords is managing conflict between tenants – in fact, it’s in the job description. And, unlike when landlords try to take on these problems, tenants tend to respond more positively to property managers because they are viewed as a kind of neutral party. If you haven’t brought on a property management company to work on your rentals before, now is the time do so.
Whether you’ve been investing in Houston area properties for years or you’re a relative newcomer to this market, the increase in housing prices and higher rents are, broadly, good news for your finances – but you have to be ready to act.
For help navigating these new, complicated circumstances and optimizing your property’s potential, contact Green Residential today. At Green Residential, we’ve demonstrated a long-term commitment to Houston and everyone who lives here – and that includes our family. When you work with us, then, you can trust we see the big picture and want what’s best for you, your properties, and the people who rent them, rather than focusing on short-term profits.
For today, tomorrow, or the next “unprecedented” moment, trust Green Residential with your properties. It’s a difference you can trust.
TREC Broker License # 9001367
CALL US