Statewide rents going up, but they're flat in Stanislaus County

Apartment rents remained flat in 2008 throughout Stanislaus County, but vacancy rates increased as low-priced rental homes lured away tenants.

The average Stanislaus apartment rented for $819 per month during October, November and December. That was $1 more than the year before, according to statistics gathered by the research firm Realfacts.

Vacancy rates climbed to nearly 7 percent. In 2000, before the region's home building boom began, less than 2 percent of apartments were empty.

Stanislaus — and particularly Modesto — has fallen far behind the California average for apartment rents. During the past four years, for instance, rents statewide have risen 20 percent to $1,435 per month, but they've increased just 6.7 percent in Modesto to $815.

Merced rental rates are even further behind and remain among the lowest in California. They now average $735 per month, only 6.1 percent more than four years ago.

Rental home rents also have become a bargain throughout in the region.

"The economy is driving the rental prices down," said Kris Marin, who manages about 250 rental properties in the Northern San Joaquin Valley for Tri-Tal Realty. "There are a lot of vacancies. It's hard to find good, qualified tenants if the rent is too high."

So to get homes occupied, Marin said, monthly rents have fallen about $100 for three-bedroom homes and about $200 for four-bedroom homes.

"Paying $1,100 to $1,200 per month for a three bedroom is what's attractive to people now. Anything priced over $1,300 is harder to rent," Marin said. "So it's better to drop your rent by $100 now than to have the house sit vacant for another month."

Joe Randy agreed it's taking longer to find qualified tenants. He manages about 80 of his own commercial and residential properties through his company, Pacific West Real Estate.

"Many people looking for a rental home are coming out of foreclosures, so their credit isn't the best," Randy said.

Some people, however, see home foreclosures as an investment opportunity.

Al Nazmi said his family members have purchased more than 20 foreclosed houses during the past 18 months. He said many of the former owners who lost those homes now are renting them back from his family's company, RVH Property Management.

People who defaulted on their mortgages can afford to rent, so they generated "extra demand" for rental housing, Nazmi said. He said foreclosed homes also created great opportunities for investors.

"Most Modesto investors have run out of cash to buy homes the last three months," said Nazmi, noting how few people attend the daily foreclosure auctions on the county courthouse steps.

But out-of-town investors are filling the void: "I have friends in neighboring states who are buying homes in Modesto now."

All those investors are turning former owner-occupied houses into rentals. Those homes now compete with apartment complexes for tenants.

That's bad news for apartment owners.

"In essence, while income from rental property remained flat (nationwide) in 2008, inflation drove costs up by 3.85 percent," according Realfacts' analysis of the apartment market.

Realfacts said that might explain why only one-third as many apartment complexes sold nationwide in 2008 compared with any of the previous three years.

"The choice to invest in income property for the last several decades has been based on the assumption that rents would continue to grow," Realfacts noted. "In 2009, investors are likely to evaluate rental properties based on current income alone."

If investors evaluate rental homes the same way, they may find good deals in Stanislaus.

"Opportunity is knocking," Randy assured. Because purchase prices and mortgage rates are so low, he said, "investors can get positive cash flow from rentals."

There's a lot of competition for tenants, however, so some rental home owners are offering enticing deals.

Liberty Property Management, the region's largest rental home management company, currently lists more than 100 available homes in Stanislaus, priced from about $800 to $1,800 a month.

To attract renters, Liberty advertises discounts for some homes like "$300 off" the first month's rent or "first month's rent free with lease."

Many apartment complexes, meanwhile, offer "half-off the first month's rent" or "$499-moves-you-in" deals.

And once tenants get in — whether it's an apartment or a home — most don't have to worry about rent increases.

"You don't want to scare them away by raising the rent," explained Marin. She said landlords sometimes even will lower rents to keep good tenants.

Bee staff writer J.N. Sbranti can be reached at jnsbranti@modbee.com or 578-2196.