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Landlords Compete, Loosening Rental Terms As Vacancies Rise

By Caroline Perrello on September 11, 2009

Investors Business Daily

Posted 09/10/2009 06:09 PM ET

Landlords are loosening residential rental contract terms and offering perks to attract and keep tenants in today’s tough economy.

NYC Rental MarketThey say vacancies are up 10% to 20% this year — it varies by market — and rents are down 5% to 20%. So to keep their houses and apartments filled, landlords in some areas are lowering security deposits and dreaming up move-in incentives. They’re also negotiating with existing tenants who’ve asked for rent reductions.

It’s rough in Arizona, where the real estate meltdown hit hard.

“Our rents are down about 20% across the board,” said Anne McCawley, co-owner of Bennett Property Management in Mesa.

To attract new tenants, McCawley says, her agency offers two weeks to one month of free rent.

Residential vacancies stood at about 8% nationwide in July, according to data collected by the National Association of Residential Property Managers. Anecdotal reports from most regions suggest that vacancies are on the rise.

They topped 13% in Atlanta in July, says Michael Nelson, president of Excalibur Home Management. Rents have dropped about 10% in his area in the past 12 months, he says.

More than 20% of units went empty in some areas in Q2, according to census data covering rentals and units both for rent and sale.

New competition is also hitting landlords, as investors buy up discounted homes aiming to lease them out, at least until resale prices firm.

Investors “are looking for rental opportunities,” said Andrew Barrocas, chief operating officer of TDG-Tregny, a New York home rental and sales company.

Lessors Accept Less

In California, investor Kami Merabi, CEO of Los Angeles-based Merabi & Sons, says he’s bought about 40 properties in the past few months, mostly high-end homes.

Merabi has offered 5%-8% rent reductions to good tenants renewing leases, and makes concessions for some tenants on move-in costs.

“If you have a good tenant, you give them an incentive to stay,” said Merabi, who owns property in L.A., New York, New Jersey and Florida.

He used to get first and last month’s rent and a security deposit for each apartment. Now he just asks for first month’s rent and a security deposit, and even lets some tenants pay the security deposit over three months.

Many landlords use rental management firms, whose fees have stayed fairly steady at 5%-10% of rent. Some agencies also get a leasing commission for each tenant they bring in.

Landlords say it’s imperative to check a tenant’s credit and employment, verifying income. Some New York property managers will not consider bonuses when looking at a prospective tenant’s income, Barrocas says. They also may require a co-signer for some rentals.

Shrewd property managers check references and ask for past references, not the tenant’s present landlord. Current landlords aren’t necessarily “going to be honest” about a tenant they want gone, said J.J. Panzer, a property manager and broker at Real Management Co. in San Francisco.

Agencies and online services will do tenant background checks for a fee, though property managers must be mindful of state privacy and discrimination laws. State Web sites list details on rental laws and the landlord-tenant relationship.

Rental managers call it a must to include in a leasing contract a clause holding a tenant liable for damage caused by unattended-to repair needs. NARPM President-elect Vickie Gaskill, owner-broker at Bell-Anderson & Associates in Kent, Wash., videotapes properties at the start of a lease to have a record of their condition.

Fine Print Changing

NYC Rental MarketOne twist in lease requests made during the recession: Tenants are asking for clauses that let them end the lease if they lose their jobs or get transferred, Barrocas says.

Many landlords say they will rent to people who’ve lost homes to foreclosure if income can be verified and their credit before default was good.

“Nearly every application that’s come in is someone walking away from a mortgage,” Gaskill said.

She says her firm typically requires an extra month’s rent upfront from tenants who’ve had foreclosures.

The foreclosure crisis has caused some good tenants to be evicted as rental homes head toward repossession. McCawley says the rental manager often doesn’t even know a landlord is in default until a notice gets posted on the front door. A trustee sale typically terminates the rental management agreement.

Tenants Get Protection

A federal foreclosure law passed in May says whoever’s taking over the property must give tenants at least a 90-day notice to vacate. Tenants with leases must usually be allowed to stay till the lease ends.

To further protect tenants, McCawley says her firm no longer gives security deposits to landlords; it holds them in trust for tenants directly.

Among the travails afflicting owners today, absentee landlords have suffered thousands of dollars in damages from tenants turning their properties into marijuana grow-houses or methamphetamine labs.

Property managers say that to keep from being a victim of these crimes, their colleagues, and landlords, need to be vigilant about background checks, do frequent drive-bys, talk to apartment supervisors and simply pay attention.

However, unannounced visits are a no-no — most states require 24 or 48 hours notice before a manager or landlord can enter, and some only allow it for certain reasons.


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