Saturday, September 08, 2007

Beach Cities: No Cheap Rentals Here....

Forbes online magazine ran another 10 Best Post a few days ago. This on was The 10 Best Markets for Landlords .... that is areas where rental units are scarce and prices are high.

It should not come as a surprise that 7 out of the 10 most expensive places to rent are in California. Los Angeles placed at # 6 with a 6.6% rise in rents over the last year. The Beach Cities are currently seeing very high rents and few vacancies.

There is some speculation that because there will be a number of foreclosures in CA that somehow this will provide an increase in rental housing. However this is not true. Banks do not rent out foreclosed properties... they sell them.

Owners who have lost their homes to foreclosure will need to acquire new housing and will no doubt be looking for a rental. As we are not building new rental units our supply of rental housing is decreasing. Once again supply and demand will rear it's head and many will not be happy.

This is especially true in the Beach Cities. We have been losing less expensive rental units for years. So be prepared to see rentals become scarce and prices to skyrocket.


MBWatcher said...

Kaye, isn't it possible we'll see a "redefinition" of what "rental property" means?

Sure, banks won't become landlords, but with massive numbers of foreclosed homes and no new entry-level buyers, the next logical step is for businesses (small or large) to acquire these new SFRs and rent them out en masse.

In particular in recently overbuilt areas (SB and Riverside county) this seems a likely direction with lots of homes built for new homeowners.

But that applies very little to MB and the South Bay, I'd imagine.

Kaye Thomas said...

MB Watcher- An intriguing idea.. especially when you consider the need for rental housing in the state.

It would seem to make sense that people form partnerships and buy some of these properties from lenders.. perhaps in large blocks but again prices and financing will be a huge factor.

I'm guessing that unless you have enough capital or access to private capital.. financing would be a problem as lenders get very conservative when trying to clean up their past mistakes. Non-owner financing will probably be very expensive for a number of years.

What would make sense is for public entities to take some of the money they have for housing and purchase a few of these homes. They might be able to persuade a few lenders to discount prices on properties sold to public entities.. Of course looking at the track record of most cities you can't help but wonder if they should be in the business of being landlords as they usually do a poor job.

As for the South Bay and particularly MB we face different problems. Zoning in the South Bay is so restrictive that it's hard to build anything approaching affordable housing.

As for buying foreclosure
properties that may spring up to use as rentals.... it really doesn't make a lot of economic sense. That's one of the problems that has always plagued the South Bay.. The rules of economics for rental units go out the window. when it comes to the Beach Cities.

Most people who own single family homes or small rental units have owned them for a number of years and buy them with the idea of using them for future retirement not making a profit today. This has always confounded those who try to make sense of our rental market. It can take years for an investor to see a break even or positive cash flow from an income property. South Bay residents understand the concept and have always bought for future appreciation and cash flow over a long term.

It's one of the reasons the owners of most income properties are Jim,Joe,Betty and Mary who pooled some money and bought 15-20 years.

Anonymous said...

Good luck with that. I am thinking about relocating from one rental house to Manhattan Beach. By the way, my current landlord paid 333-months rent for her "income property". I wonder how that is working for her?

A lot of new rental inventory has come on line. VERY high prices. NONE of it moves. Stuff priced reasonably goes quick.

It is hard to rent a house with an ARM, or negative amortization, so things don't change much compared to salary inflation.

Never seen so many rental listings. Just going to take a while for owners to get realistic. A lot of these are vacant, owners need to drop price, put it BACK on the market, or give it back to the bank.

Regardless, I do not see any problems in the making long term.

Kaye Thomas said...

Anonymous- I know 3 people who are trying to find a home.. not an apartment.. for rent in MB and they are having an awful time.
You are right there will be some price adjustments but the really expensive homes will rent at expensive prices.. the cheap stuff always rents but for those in the middle finding a rental is not easy. If you have children in school most parents don't want to move out of the district so they will wind up paying higher rent.

Anonymous said...

Tell them to be patient. School just started, which shrinks inventory for family type houses. Monitor houses for rent up to 25% more than their price range. Look at them, and give them an offer in-line with what they would pay. Be polite. Leave contact information. Then wait. Price reductions are common after a couple months listing. I have seen (extreme example) price drops of 33%. That one is still vacant by the way.

Kaye Thomas said...

Anon 9:09- Thanks for the information.. I will pass it on..Seems as if this works best if you don't have to rent immediately..