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Article of the Month for February 2012 Printer friendly version

Huge Supply of Home Rentals Coming Soon

by Ward Hanigan

The major metropolitan areas that suffered the greatest number of foreclosures in the last 5 years (CA, NV, AZ, FL, etc.) are destined to be whacked all over again!

The pain will come about from the federal government’s new program of selling its ever-growing inventory of foreclosed homes (200,000 at last count) in bulk packages to private equity funds and institutional investors as rentals rather than for immediate resale.

The hope is that by shunting such properties into the rental domain it won’t depress our all-important retail housing market.

However, it’s obvious that the escalating supply of thousands of new rentals in such densely populated areas like Los Angeles, San Diego, Riverside, Phoenix, Las Vegas, Miami, etc. would dramatically over-saturate those rental markets…sending them all into a dramatic, downward spiral.

This plan was promulgated as a consequence of a study done by the Federal Reserve for President Obama’s administration (and sent to Congress by Chairman Ben Bernanke on January 4, 2012).

Such high level involvement and fact-finding meetings began in September of last year and have caused such a groundswell of anticipation that many hedge funds, partnerships, REITS, etc. are being formed and lining up ready to do business. Some of these investors claim to have a billion or more to spend in this sector.

So far some of the notable existing entities are GTIS in Menlo Park, Oaktree Capital in Los Angeles, McKinley Capital in Oakland, Cerberus Capital Mgmt., Och-Ziff Capital in New York, Deutsche Bank AG, Fortress Investment Group, Starwood Capital, TCW Group, Inc and UBS AG.

It’s readily apparent that this program is well underway and will happen sooner rather than later. So now’s the time to fix and spruce up your rentals and switch from a month-to-month rental basis to an annual lease basis.

After years of renting houses and apartments in all kinds of markets I’ve learned that in a buyer’s market the majority of renters are very price conscious. So to avoid a prolonged vacancy in such a competive market I always price my empty unit at $5.00 less per month than anyone else in the same neighborhood who’s advertising a similar type unit (i.e. 1br/1ba).

Thankfully my 1br/1ba dingbats aren’t so affected by the competition since my vacancy rate with those little houses average about once every 16.2 years.

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