Hot rental markets are spreading all over the country. With the stock market and real estate market both on fire, the rental market is also heating up.
More people are allowed to relocate to lower cost areas of the country thanks to the permanent trend of working from home. Meanwhile, the strong real estate market is pricing people out of buying.
Hot Rental Market In San Francisco
Due to the pandemic, there’s been a fanning out of residents in my city of San Francisco. Residents are moving from the more dense east side of the city to the less dense and more affordable west side of the city. As a result, the demand has been strong for my rental houses.
I listed my property on Craigslist and in two days, I received 36 serious inquiries. The address was left off because I wanted to weed out the looky-loos and those who don’t read and follow instructions. I also didn’t want any psycho-killers. As a result of the demand, I decided to have an additional open house on Saturday, instead of just Sunday.
Surprisingly, 10 out of 10 interested parties who said they’d come Saturday came. The world is full of flakers, and I was expecting at least 30% of them to not show up. Maybe penguins can fly.
Some people are still scared of buying and some are probably unable to qualify for loans given stricter lending standards. I worry about the sustainability of this rental market, but for now, landlords should be taking advantage by raising prices.
For those renters out there who keep missing out, here are some thoughts from a landlord’s perspective of what worked, and what raised red flags during the open house.
Advice For Renters In A Hot Rental Market
* Do not bring your girlfriend or boyfriend if they are not going to be on the lease. There were two one year out, male MBA students who make roughly $290,000 in combined income. One of the guys brought his girlfriend. Although the two guys were nice, all I could think about was the girlfriend staying over, and the place being occupied by three people instead of two. As I questioned them further, the boyfriend finally admitted that his girlfriend visits for 2 months several times a year from Europe, and that she will stay with him until end of November. Those guys are not getting the apartment.
* Ask if you can take off your shoes. By asking the landlord/owner/agent whether you can take off your shoes before entering, it shows the owner respect. It also shows that you care about cleanliness, which should translate into caring for everything else in the apartment. If the owner says “no need” to take off your shoes, it’s up to you. It just shows great courtesy that you’ve asked.
* Smile a lot. The last thing I want to do is rent my place out to someone who looks depressed and grumpy. This one woman looked like she was constantly pissed off at something. That’s not someone I want to deal with in this long-term relationship. Smiles are free! Do it more!
* Follow directions. For some reason, there are a lot of morons out there who do not follow directions. If you e-mail me and ask when the open house is, when it’s in bold in the ad, you won’t be considered. If you ask if there is parking, when it says so right then and there, you will not be considered. Spend as much time possible reading the ad and looking around before asking bad questions.
* Come with all your documents prepared in a manila envelope or folder. Having all your paperwork before coming shows that you are organized and serious about the place. Include a picture too, so the landlord can remember who you are. You don’t have to give the paperwork to the landlord, if you decide after the open house you are not interested. You will impress the landlord tremendously, because so many people don’t do this. Include in your paper work your credit score report, employment verification, a drivers license, resume, and at least one bank account that shows you’re not broke.
* Do some research on the owner and property. You should inject some commonality in your discussion with the owner/agent. If you know the owner/agent went to UCLA and the open house is Saturday, you should know who UCLA is playing against in football. You don’t want to come across as creepy. You just need to bring up a topic where you think the owner/agent will enjoy discussing about. Build that bond.
* Discuss long term plans. The more visibility you can give the owner, the more s/he will appreciate it. If you can tell him that you plan on staying for 4 years, that’s music to his ears. Owners don’t want turnover, so anything less than 2 years is a turn off. Moving is a pain in the ass, and finding the ideal new tenant is also very painful. Minimize their pain, because landlords are already thinking about the next tenant.
* Make at least 40X the monthly rent a year. If the rent is $2,000 a month, you had best make a minimum of $80,000 a year. Otherwise, you are living it up more than you can afford. I generally shoot for tenants who make 80X the monthly rent to ensure they will be able to comfortably pay. At 80X the monthly rent, one could be saddled with sizable debt, and still come out OK.
* Show at least 10X the monthly rent in cash savings. Again, if you don’t have at least $20,000 in liquid cash savings for a $2,000/month rental, you need to lower your standards. Every landlord thinks about what would happen if you suddenly lose your main source of income. Landlords need to feel assured that you have enough assets to cover your full year contract before he starts thinking about filling out eviction forms. If possible, shoot for 20X monthly rent coverage.
* Don’t arrive at the very beginning. With every single open house I’ve hosted, 70% of the interested parties come at the very beginning. As a result, you won’t get as much air-time as you should with the landlord. Instead, consider coming in the middle of the time frame. Coming at the end is not recommend either since the landlord will probably be tired by then of talking to everyone.
* Follow up over e-mail. I can’t emphasize enough how important it is to follow up over e-mail, thank the landlord for hosting, and reiterate why you think you are perfect for the place and love it. All a landlord wants is someone who will take care of their property as if they owned it themselves. Landlords really just wants a tenant who are excited to be there.
Winning In A Hot Rental Market
All a landlord wants is someone who will always pay their rent on time, be self-sufficient, stay for at least two years, and love living there as much as the landlord loves having you there.
It’s a competitive rental market out there for those who live in bigger cities. Make sure you have all your financials in order and show your enthusiasm if you really want the place. The X factor really is about the follow up and attitude.
If you look at the chart above, you’ll notice that rents are flattening or declining in many markets. You can afford to be pickier now, but the most in demand markets and properties will always have multiple interested parties. Follow my advice and good luck in a hot rental market.
And one day, I recommend you finally buy your primary residence. Housing prices have long increased faster than wage income. Therefore, you want to at least get neutral housing by owning your primary residence.
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[…] Related: Strategies For Securing An Apartment In A Hot Rental Market […]
Adam Golightly says
My cousin has been thinking about moving out because her parents are getting in a lot of arguments that she doesn’t want to be a part of. She would really like to rent an apartment from a professional as soon as possible to get out of the way. I liked what you said about how she should make sure that she can pay for everything, and has a good attitude while following up.
Ivy Baker says
I want to find a two-bedroom apartment that I can lease this July. Thanks for pointing out that I will want to consider doing a lot of research on the property. I know that I wouldn’t want to move into a place that has a lot of trouble with ants.
rachel frampton says
I’ll be moving to New York next month, and I’m planning to rent an apartment that will suit my needs. I’m glad you shared this; I’ll make sure to provide the necessary documents such as the credit score report, employment verification, driver’s license, and resume. Also, I’ll keep in mind to discuss with my landlord about long term plans because as you’ve mentioned anything that is less than two years is a disappointment for them.
Ellie Davis says
I liked that you mentioned you need to show respect to your future landlord by asking if you need to take off your shoes. My husband and I are looking for an apartment for rent because we want to live together. I will use your recommendation of showing respect to the house and landlords.
“June 2018 Median Household Income. According to Sentier Research, the median household income in the United States rose from $61,858 in May 2018 to $62,175 in June 2018, an increase of 0.5% over the previous month.”
If the median annual income for individuals in the U.S.A. is $62, 175, then an appropriate median rental rate (by the 80x standard), corresponding with that median income, would be $777 per month.
My question is, Is the 80X standard you use realistically applicable in most situations? If $62, 175 is the MEDIAN annual income of U.S. citizens (as opposed to the average income), then of the estimated 153.34 million people working in the U.S. a whopping 76.67 million can not afford a rental exceeding $777/month (using the 80x standard you describe).
Why is bringing a boyfriend/girlfriend a problem?
Does it matter if they will spend all their time in your investment property if the person on the lease is able to make the rental payments and both of them seem to be functional, employed, stable tenants who meet all your other criteria as non-crazy-people who won’t damage things that belong to you?
If anything, I would think it means that you can get to know who else will be spending time in your investment property, so it’s a good idea because you can see what company your prospective tenants keep.
As a partnered renter myself, I am truly curious to see if there is anything I may not have considered when house-shopping and would love to see why this is off-putting for landlords.
Financial Samurai says
Because everything is relative. I’m going to pick the single tenant, or the couple tenant, over the two single tenants each who’ve brought their significant others to make it a four-some.
Natalie @ Mango says
Great article. I really like the tip about not bringing a boyfriend or girlfriend to the property, as I don’t think many young people would even think about this. I live in Austin and the rental market is probably not as crazy as San Francisco’s, but it’s certainly thriving, and landlords seem to be able to take their pick. Lucky for me, I am actually renting a house that my mom owns (yes, Mom is my landlord…) otherwise I might not have been “picked” since I own a very huge dog. Is that a deterrent for you, or do you rent to pet-owners?
Ben @ BankAim says
Where I live, new homes are being constructed but the market isn’t that hot! The rental market is definitely competitive, but I believe people who are facing foreclosure are trying to rent their houses for too much! ! I rented for 3 years and now that I live in my own place its nice that we don’t have to compete with others. Its nothing like what you have! 36 inquiries is insane!
Great tips. I do have some friends looking for a place to stay and I think this would be a great guide to help them look better than others, especially straight from a landlord.
Darwin's Money says
Wow, great article; so many focus on either landlords renting, or on how to screw a landlord by reducing rent. This is good advice for a hot market, which does exist at least in one city.
With the houses we just bought on a college campus, we aren’t very discerning; we know it’s gonne be dudes that trash the place. That’s college. And that’s why the cash flow’s so high. If they wanna blow their security deposit kicking doors each weekend, that’s up to them.
The rental market in our area is okay, it’s not that hot. Our 4 plex still have one unit empty, if it was really hot, it would have filled pretty quickly. It’s great to be a landlord in a hot market, you can pick and choose! Can you raise your price?
Little House says
Last year we rented our apartment we’re in now and received a month’s free rent for signing a year’s lease. This year, we’re renewing in November and I asked if they were offering the same deal (their sister building a few miles south is still offering a free month). I guess the rental market near me is hot because they said they have no deals available right now. And, if I don’t sign another year’s lease, my rent goes up $150 a month. Guess I’m signing on for another year.
Of course, if I find a teaching job in another area (P.S. I’m eying the bay area – more teaching jobs), I’m not sure how my landlord will feel leaving a couple months shy of a full year. I guess I just need to weigh the pros and cons and the “if’s”.
Financial Samurai says
It should legally be month to month after one year. But yeah, you can agree to do one more year to prevent the rent increase. You just don’t want to double dip and sign another year with no intention as you might never get your deposit back.
Canadian Doomer says
A lot of families I know manage on $25,000 or less per year, which would mean paying no more than … $312 to $625? (Minimum wage, full time, is about $22,000/year.) A two bedroom apartment in this city starts at $800 in the less desirable areas, and a nice place is $1400. Heck, you can’t even get a room in a boarding house for less than $400/month.
People around here complain about housing shortages, but it’s definitely not the same as where you are. Where do your lower income people – manual labourers, store clerks, etc – live?
Financial Samurai says
I’m impressed one would start a family making $25,000 a year.
People who make that just live outside of SF and commute 30min-1hr in. Not bad. All the Bay Area is quite nice.
I plan on looking for property after I build up my networth more. I find these tips very helpful, not only for the tenant, but as a landlord these will definitely help me find the right tenant!
Thanks for such a quality and informative post, i love it!
Financial Samurai says
Sounds good. Or, you can build up your net worth with rental property!
Denise @ The Single Saver says
The rental market isn’t as strong in my part of the country as it is in SF, mainly because home prices are much more affordable here and there are still plenty of rentals available for those who can’t own or don’t wish to own. Still, the overall economy has helped the rental market here in recent years. Rent for most 1 bedroom units around here ranges between $500 and $850, 2 bedrooms go for $800 to $1100. Nicer units obviously fill up quickly, but not as quick as in SF! Our requirements aren’t quite as loose as what Kris mentioned above, but they are not nearly as competitive as what you mentioned. Many landlords are more willing to fill up their units with warm bodies in order to get a paycheck rather than hold out for a quality tenant… this is usually to the detriment of the overall value of their property in the long-run. .
Financial Samurai says
Thanks for the perspective Denise and the specific datapoints. Seems like good value! What part of the country are you referring to?
Sandy - yesiamcheap says
Rental markets are up everywhere. The average rent is up 4% from last year. I discussed it on mytenantfromhell.com a little bit. I had an open house and half of the people who said they would show up came but a good bit that didn’t call or pregistered came as well.
Anyway, if you are a landlord, you can be as picky as you’d like. Sam’s 40X figure is pure gold and should be a minimum. If you don’t make that much then you CAN NOT afford the apartment. I had to show a really nice but rejected potential tenant why that was. When I did the math for her, she was surprised. I’m guessing that she never realized just how much of her pay she was spending on housing. She needed to downgrade her expectations big time.
BE PICKY! Rejection is good for your pockets and sanity in the long run.
I’ve heard from several friends the rental market is crazy in SF right now. I like your tips about asking to take off your shoes, bringing all your paperwork with yoi, and following up afterwards. It’s always good to be prepared and to show respect for the property. If you find a place you want you have to make an impression on the owner or property manager. Good luck with your tenant search Sam!
Everyday Tips says
Here is my advice on how to get an apartment where I live:
1. Show up
3. Have a job, any wage is fine
My brother owns many rental properties in California and Arizona, and he is doing real well too. Your economy makes me envious.
Financial Samurai says
Those sound like REALLY low standards Kris. “Breathe”? You mean anybody who is alive.
Gotta be careful, seriously. You don’t want a disaster tenant who is irresponsible and doesn’t pay.
The uncertainty of the housing market and the increased credit restrictions certainly affects the rental market. If you add the additional job opportunities in San Francisco, you have a hot market. I disagree with one of your points about perspective tenants, I want them to bring friends, girlfriends or even parents. They become part of my assessment. It tells me about the renter. I use two more elements in my decision process, one is the credit check/unlawful detainer and visiting their current rental if possible. Last, it gets down to gut. You have a feeling about one vs. another perspective tenant presuming everything else is equal.
Financial Samurai says
Liability issue. But that’s cool that you are down with having lots of people staying at your rental.
How many rentals do you own and when did you buy? Have they performed well? Tx
When a renter brings an entourage, I can casually ask questions similar to what you did. In my former landlord days, I owned a 9 unit, 24 unit and 10 unit. I also owned a shopping center that was managed professionally by a broker. I started buying in 1978. My buildings performed well enough to grow internally to help me achieve financial freedom.
It is absolutely key to not bring random people that you don’t plan on putting on the lease because we know they will be there all of the time. I just actually rented out my condo last month. I went with this one guy because he was the best candidate by far. He filled out all of the forms in advance, came with the proper documentation, and knew his history of the area. He followed up through email to see where he stood. He also was able to prove his income and he earns a very good living for his age. Oh and it didn’t hurt that he claimed to be a Studenomcis reader.
Financial Samurai says
If my tenant said s/he was a blogger I’d certainly be curious to learn more! But, I wouldn’t want them to read my site bc that would compromise the brutal honesty here. What if he was the MBA boyfriend?
Glad you found a tenant! How many folks looked and how are prices?
Yea I definitely can’t write any posts bashing my tenant lol!
Many people saw the place/inquired about it. The price is good. $1,400 plus utilities for a one bed room less than 600 sq ft unit.
Miss T says
The housing and rental market is nuts where I live right now. The vacancy is less than 1% and rents have increased at least 5% over the last year. I know a couple people who are having a hard time finding somewhere to live. It is sad really because we are supposed to live in a first world country where people’s basic needs are looked after. I guess I was wrong.
Financial Samurai says
Homeowners/landlords are a protected class. Free subsidies, mortgage interest deduction, etc. We pay the local taxes to keep schools open and our community thriving. They better do all they can to take care of us!
Non-homeowners fund schools through local taxes as well. I’ve posted this here before, but I’ll say it again – your property taxes make up a very small percentage of the government’s revenue. Non-homeowners pay sales tax (and in some counties, wheel tax which goes directly to schools), which pays for a heck of a lot more than property taxes.
Financial Samurai says
Home owners pay sales taxes too. And a homeowner who lives in his or her home and not collecting rent is really paying his/her share of taxes.
I’m nit saying renters don’t pay taxes. I’m saying because 67% of Americans are homeowners, they pay the most tax which is why property owners are constantly being protected by the government.
Financial Samurai says
There is a price for everything though. Shouldn’t they just pay more or look for a cheaper area to live? Shelter is a basic right, living beyond one’s income isn’t.