We are currently observing a very competitive market for rentals.  The market is flooded with options for renters.  Many are very nicely completed rehabs.  The best qualified renters are finding they can get approved for a mortgage.  The mortgage market, with a combination of low interest rates, much reduced down payment requirements, and lower credit standards, is pulling our best renters.  The end result for landlords is more vacancies and competition to lease their rentals.  As the supply situation has increased, we are seeing lower quality applicants and reduced rents.  Conversely, on the sales side, it is a very strong sellers market.  There are many potential buyers for every home that hits the market.

These periods make life more challenging for the professional rental investor. Metrics have to be re-worked to offer the most value for the money.  The part I struggle with is the underwriting of applicants.  I review every application.  The downward trend in applicant quality is a huge challenge.  It is not uncommon to have falsified employment and "friends" posing as landlords giving good rental references.  We often have to dig a little deeper and request supporting information.  Upon doing so,  suddenly the applicant no longer is interested or states they have rented another home.  I have always felt it was better to have strong underwriting standards and a vacancy than to just rent to anyone who can fog a mirror.  The costs of a torn up house and an eviction a few months later far exceeds months of vacancies.  If you disagree, lets please discuss.  Our practices are the result of lessons learned over 20 years in this business.   

My advice to our owners with vacancies is to offer the rental at a ridiculously low rental rate to stand out in the market.  Let me apply our underwriting standards and find the best applicant the market can offer.  This is the discussion I am having with many owners currently.  With the slower rental months forthcoming, I do recommend you seriously consider your position in this changing environment. 

As I mentioned last month, we have rebuilt our lease.  There are many improvements and updates.  We have added a few new clauses that will further strengthen our owner's position. 

Last month I explained the addition of an automatic renewal clause.  This time around I want to address multi-family properties.   Our old lease never really did a great job of addressing tenant responsibilities in a multi-unit building.  I always had to manually edit the lease to address these specific situations.  The new lease now has a section where the property being leased is identified as single or multi-family.  Depending on the definition there is a section regarding maintenance responsibilities.  Because most multi-unit buildings have shared maintenance issues, this section is primarily an area where the owner's specific requirements can be outlined to the tenant.

After years of watching tenants in shared complexes either not take responsibility, or neglect it entirely, I am now making the following recommendation to our owners:

This summer we have spent a ton of time enforcing leases where tenants have neglected to cut the grass or hire somebody to do so.  Fighting among tenants as to how these costs are to be divided and playing referee has also been common.  With the new lease, we can specifically identify the game plan with the new tenant. 

I'll share more changes in the next few months.  As always, let me know if you have any questions.   I wish all of you the best and, most importantly, thank you for choosing our company.