If you worked your way through all the Michael Jackson media this week, you might have heard about the report released by Reis, Inc., announcing the national apartment vacancy rate hit a 22-year high in the second quarter.
Reis, a New York based real estate research firm, also found vacancy rates rose nationally to 7.5 percent; an increase of 1.4 percent from the year before. Of the 79 markets they track, 45 showed increased vacancies.
Of course, Reis charges a small fortune for their reports. None of the information leaked to the media so far included the Twin Cities in either the list of ten worst or best markets. We’ll have to wait for Saturday’s version of their report in the Star Tribune to know where we stand.
How does this impact a Minneapolis duplex owner?
Vacancy rates and rental income are like a teeter totter. When one goes up, the other goes down. So it comes as no surprise that Reis says the amount of rental revenue dropped as well.
Why the increase in vacancies at a time when so many people are losing their homes?
First, there’s what’s known as the “shadow market”. Many homeowners who are unable to find a buyer for their property are turning to renting it instead. A number of condominium developers are doing the same; converting their unsold inventory into apartments in order to ride out the storm.
This has created an enormous supply of rental inventory; more than there are tenants to be had.
Has the number of prospective tenants dropped? Believe it or not, yes. Economic uncertainty has made many abundantly cautious. Fear of unemployment makes others reluctant to sign long term leases.
And some people flat out can no longer afford rent, and find themselves moving home to mom and dad’s.
If you’re considering buying a duplex or multi-family property, these factors mean it’s more important than ever to be cautious in your purchase.
Not only do the numbers need to work on the property, but so does everything else. Vacancies cost you money.
Think about places people would want to live in tough economic times. Consider the amenities that might be important. Will more people want to live closer to work and public transportation? Will they find added value in things like free cable, added parking or inexpensive rent?
And of course, now more than ever, it’s critical to make your rental unit shine. You have a lot of competion. Fresh paint, carpeting and all the little flourishes you can add will help keep your unit full.
There are terrific buys out there right now. But no matter the market conditions, it always pays to be a smart investor.