Some neighborhoods are seeing a resurgence in prices, but most neighborhoods still aren't experiencing prices near the highs hit in 2006-2007. In fact, a significant percentage of our new rental property clients are folks who have tried to sell but simply can't get the price they need in this market and therefore, they now want to rent their home. (The good news for them is that we're getting homes rented very quickly and rental rates continue to increase).
I believe Charlotte will lag the rest of the country in terms of the percentage increase in pricing. There are several reasons for this, not the least of which is that Charlotte entered the housing crisis after many other parts of the country and the Charlotte bubble wasn't nearly as large (particularly compared to Florida, Nevada and California).
"Charlotte foreclosure sales jump 45% in Q1 2013"
So reads the headline of a recent newspaper article. Although sales of foreclosed homes declined nationally in the first quarter of 2013 (vs Q1 2012), they rose significantly in Charlotte. In fact, foreclosure sales represented more than one in five sales in Charlotte in Q1. I expect this trend to continue into 2014 as banks try to monetize the inventory they have on hand.
Additionally, as prices increase, many reluctant landlords (those renting their homes that would rather sell them) will opportunistically list their homes. This will continue the downward pressure on prices.
So for many homeowners, becoming a landlord will be a better alternative than selling. How do you know which is right for you? First, get a realistic idea of sales price. You can't look at what others are asking for their homes. You must look at the sales prices of other homes in your neighborhood during the past six months or so. If nothing has sold in your neighborhood recently, it may be a good indication that the market just isn't there yet. Remember to take about 10% off the sales price to cover Realtor commissions, legal fees, taxes, etc.
Next, find out how much rent you can expect from your home. The best way to do this is contact a qualified property manager (preferably a member of the National Association of Residential Property Managers-NARPM). Factor in the monthly management fees, repair costs, vacancy costs, etc, and see if there is enough money left over to allow you to make the monthly mortgage payment. You should ensure you have enough funds to cover 3-6 months of payments with no rent income. If you don't have the money (or the credit capacity) to do so, don't even think about renting your home.
Finally, if you decide to rent, hire a qualified property manager. There are too many reasons to discuss them all here, but one mistake on your part can wipe out any income that you have collected from your tenant. We regularly take over management of homes from homeowners who have gotten themselves into a huge mess with their tenants and need us to clean it up. Unfortunately, by the time the owner calls us they've typically already lost thousands of dollars in rent!
To review:
- Determine a realistic sales price, deduct 10% and see if you can live with a sale.
- Determine realistic rent rates, deduct 10% -15%, and see if you can afford the house payments.
- If you decide to rent, hire a qualified property manager who is preferably a member of NARPM.
