Hello,
I thought I would take this opportunity to discuss some of the trends we are seeing overall and some ways we are recommending moving forward. We see this as an opening conversation with you for the best strategic direction. Labor and the cost of turning over rentals – We all know the cost of labor has gone up significantly in the past 24 months (for us – it has more than doubled). Additionally, the cost of material and availability of material has created some challenges. Overall, pre-Covid, we typically saw a turnaround cost (cleaning out/preparing unit for new tenant) at 1-3 times a month of rent; we are now around 3-5 times. Costs associated with landscaping and snow removal is also causing some increased cost concerns (we are looking to self-perform as necessary to keep cost low).
Evictions – Even though we are starting to get our cases through courts at a better rate, the amount of time for a full eviction is taking longer and the courts seem to be a bit more sympathetic toward tenants. Steps have been added to the process and the process drives tenants toward free legal assistance. We are still working hard to keep this cost low for you, the owner, but have recently had to engage outside legal help for some of the evictions. Due to the extra time and costs, we have shifted to recover costs and lost rents through money judgements (this only makes sense for tenants which have “garnishable” wages or bank accounts).
Rental Occupancy – High rents and scarcity have allowed us to raise rents significantly over the past 2 years. On average, we have been able to raise rents 30%. Additionally, we have been able to keep turnover low. Over the past few months, the ability for tenants to attain outside assistance has slowed and we are starting to see some issues with on-time payments and have greatly increased eviction activities. Last year we pushed hard to convert rentals to Section 8, predicting we would see some of these challenges. We currently have about 35% of our tenants with outside permanent assistance which should help protect owners from non-occupancy issues going forward. Incentives for good renters and to maximize occupancy is a tactic we have used in the past. Currently we are still outpacing others on occupancy rates (we are currently greater than 97 percent in Michigan).
Quality of Tenant - In the past year, we were blessed with rapid filling of units with solid,
qualified tenants. Currently, our ability to fill vacancies has slowed due to reduced application rates and quality of tenants (screening is making it more difficult to find a qualified tenant). In the past, during these slow-downs, we have deployed tactics to save tenants and maximize occupancy.
Going forward – Due to the higher cost of turn-arounds and the lack of quality tenants, we are considering raising rents at a less aggressive rate. We still intend to increase tenant rents at market pace, but not pushing above market like we have in the recent past. Our goal is to maintain good tenants and high occupancy rates through this slow down. Of course, this is a macro look at the portfolio and could vary by property. Please call to discuss if you are seeing something different or have a different perspective. Our number one goal is to maximize your return on investment by maximizing revenues and minimizing overall costs.
One last note – we are also starting to see cash opportunities. Many investors have not made some of the adjustments and want out. So let me know if you want to grow your portfolios.
Thank you,
Doug
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