Not unlike the housing market, the rental market has also skyrocketed in the past 2 years. Demand goes up, inventory goes down, rental prices go up, and so the cycle goes. Did landlords get too greedy? A year ago, rental inventory was almost nonexistent in the suburbs but currently, there are dozens of properties to choose from. Why did inventory go up? Those savvy enough to recognize a need made the effort to fill it. Whether buying commercial property and converting it to residential, some renting out areas of their own homes, others converting barns and outbuildings to living space, and presto, many became self-made landlords.
Now there is some inventory. But the prices are still through the figurative roof! Landlords and property owners have witnessed the boom and want a piece of the action and they are willing to sit tight and wait for their price. The only problem is, their price is out of reach for the average renter. The wealthy can afford the high priced luxury rentals but the average family is left trying to secure housing that is way out of financial reach. So many rentals are sitting. Empty! Months are going by and they are still empty and unrented. As a landlord or owner, you have to ask yourself, is this an intelligent business decision? Every month that a unit is empty is another month of lost rental income. Not to mention the financial burden of holding costs such as taxes, utilities, maintenance, and monthly condo fees, if applicable. Yet many landlords are digging their heals in the sand and adamant on getting “their price”. Eventually they will reduce their asking price, maybe more than once, but now they have lost valuable time which equates to loss of money. Holding on to a high price for too long or turning away qualified renters who offer less than the asking price, can get ugly very fast. If a landlord is holding an empty unit for more than one month, that landlord is basically shooting himself in the foot. Here is how the gun goes off:
A landlord lists a unit for rent for $2,500. This same unit just one year ago was fetching $1,800. The first month goes by and there are plenty of lookers but no takers. Midway into the second vacant month the landlord reduces to $2,400. Less lookers now and still no takers. At the end of month three, the landlord reduces one more time to $2,300. One potential individual offers less than the asking price. The potential tenant can’t afford the inflated price so he offers $2,000. It’s what he knows he can afford. The landlord refuses the $2,000 offer outright. Now the rental is into its 4th month of vacancy. Let’s break that down. Four months vacant is a loss of $9,200 if calculated at the current asking price of $2,300. If the landlord had accepted $2,000 at the end of month three, he would have started collecting rent and relieved himself of the monthly holding expenses, as well. Over the course of a 12 month lease, the landlord will have received $3,600 less than had he rented for $2,300 but he has already lost significantly more than that with the unit sitting empty for 4 months!
Another thing most Landlords probably don’t realize is if someone accepts their rental, that is really too high for their income level, typically that tenant falls behind in their payments. A landlord can shoot himself in the foot again. Now he has an occupied unit with a tenant who can’t pay the inflated rent price. The only option is to start eviction. If you have ever performed an eviction in the state of Connecticut, you know it is a tenant friendly state. It can take a landlord or owner months to finalize an eviction not to mention the cost, especially if a lawyer is hired. On top of paying the lawyer and the court fees, no rent is being collected during the process. Most landlords will be lucky to get their squatting tenants out but it’s not likely they will be able to collect the back rent.
Currently, rental properties in northwestern Connecticut are averaging 50 days on the market, per the CT Multiple Listing Service statistics. That is almost 2 months of lost rental income. Don’t fall prey to this! An astute landlord wants to avoid more than 30 days of vacancy, regardless of where in the country you are offering rentals.