Rents are rising in 2007

It shouldn't be too much of a shock that rents will be going up again. If you consider the number of apartments that were converted to condo's last year, along with sub prime loans restrictions getting tighter, there are fewer rental units available, a growing population in our market and fewer people able to buy, the demand will be higher in the rental market with fewer units available. Think exact opposite of what is happening in the Las Vegas real estate sales market. Throw in the number of people having to get out from under their mortgages either through foreclosure or selling their homes for less than they owe (short sales), rents could get a bit dicey.

Fortunately in our market the residential rental sector should offer some relief in number of available units, but don't expect the prices to be coming down anytime soon. More and more investor owners of real estate are coming to the conclusion that it will cost them less in the long run to eat a few hundred dollars a month to keep a tenant in their home, than to take a big hit all at once just to bail out. Again, good news for those that don't have the ability to buy. I am also seeing my clients that are interested in buying a move up property, or just getting into something new, choosing to look for a good tenant, pulling some equity out of their current home for down payment on a new or new re-sale home and keeping both. The market is great if you are buying, and for those with the ability to turn their existing home into a rental while waiting for the market to get back to an even playing field (this should be about a year away) they are able to really get into something bigger, nicer, or with a pool. The key is to find a tenant that won't destroy the existing home and pay enough in rent to cover most if not all of the mortgage on the property they occupy.

An example of this would be someone in a 3 bedroom home wanting to move up. They pay a current mortgage of $1200.00. They have $90,000 in equity in the current home and pull an additional 40,000 out of the equity for down payment on a new home, costing an additional $266.00. They find a home listed at $410,000, offer $400,000 and require the seller to pay all closing costs. The new mortgage for $360,000 $2,275.44 P&I + the $266 from the equity pull for a new monthly P&I payment of $2,541.44. The old house is rented for $1,000 a month, $200 shy of paying the entire mortgage on that home. Over a 2 year period based on this level, keeping the first home will cost an extra $11,184.00. If that home had been valued at $300,000, selling it would have cost $18,000 in broker fees alone + the sellers closing costs and most likely the seller in our current market would have had to pay the buyers closing costs, ($8,000) as well as probably having to offer the house for below value to get a buyer interested. Now looking at the market in two years when there should be better conditions to sell and with minimal increase in value of 3% per year, the $300,000 will have a value of $318,000. Even with making up the difference from the rent not covering all costs, holding the property in the long run will have actually cost the seller less than selling the property in current market conditions.

Okay back to rents going up, as more and more residential rentals come online, large scale investors will see the need for apartments and we should see new construction begin on those types of properties, but the relief these will provide in lower or at least in rents not rising is a year to 18 months off.

1st time home buyer programs are another alternative for putting your money to better use. If you look at the benefits to owning, whether its increase in equity in the home, tax benefits, or just better quality of life you'll see why getting that first home is so important. Currently the state of Nevada has several 1st time home buyer programs that offer lower interest rates and even in some cases forgivable loans, and down payment assistance. Combine that with the current state of our market being so favorable to buying its definitely something to consider. That will be something to explore on a later post.

If you want more information about the first time home buyer programs, drop me a line at rob@robturney.com and I'll get you the information.