It’s a renter’s market in Stanislaus County, but good landlords can make money, too

01/19/2014 5:25 PM

01/19/2014 5:27 PM

More than 200,000 Stanislaus County residents live in rental properties, which the Census Bureau says is about 41 percent of the population. From urban studio apartments to rural country homes, there are an estimated 68,000 rentals in the county.

Unlike the Bay Area, it’s a renter’s market in Stanislaus, according to Hilary Leffler, who launched the local chapter of the National Association of Residential Property Managers.

There’s a good supply of rental units to choose from, and rents are comparatively low, according to Leffler, who is the tri-valley regional property manager for Liberty Property Management. Her Modesto-based company manages about 3,000 residential, commercial and industrial properties and homeowner associations from Pleasanton to Fresno.

Owning rental property in Stanislaus is a good investment that can generate favorable returns now and appreciate in value over the long term, Leffler said. But she warned there are issues that tenants and landlords need to beware of in the rental market, from online advertising scams to violations of the federal Fair Housing Act.

To stay informed, Leffler and more than 30 other property managers meet regularly to discuss landlord-tenant topics, promote professionalism and encourage ethical behavior. The public is invited to the next NARPM meeting, 8:30 a.m. Thursday at the Modesto Chamber of Commerce, 1114 J St., where legal professionals will offer advice on how to properly serve documents to tenants.

For more general advice about Stanislaus’ rental market, Leffler answered these questions:

Is this a good time to be a renter in Stanislaus County?

It truly is still a renter’s market. Since there’s a good supply of homes available, rental prices are reasonable.

The Valley has plenty of affordable housing, vs. the Bay Area, where rent prices are just through the roof. Rent pricing is definitely competitive, but we price our homes to rent quickly, with affordable deposits.

We see a lot of investment companies that have come into the market with the sole purpose of buying rentals, remodeling them and then holding them for investment purposes. A lot of homes are in better condition because they have been renovated by investment buyers in recent years.

Is this a good time to be a landlord or rental property owner in Stanislaus?

With the strengthening of the real estate market, owning rental property is a great way to create cash flow while taking advantage of the strong appreciation in rental values.

For an owner who purchased a property all-cash, they can see an 8 to 10 percent cash-on-cash return before appreciation. But you have to factor in things like taxes, insurance, maintenance, property management costs.

There are four benefits to owning rental property: appreciation, depreciation, cash flow and equity build-up.

In 2013, the value of homes rose substantially in the market, so this appreciation benefited the landlords despite the fact that rent prices only rose modestly. It is less attractive today to purchase rental property than it was a year ago, but it still makes sense for some investors.

What are some of the current challenges you see in Stanislaus’ rental market?

Finding really good, qualified tenants is always a challenge in any rental market. We look for rental history or homeownership, credit, income, bankruptcies, any prior evictions and things like that.

Rentals move quickly on the market nowadays, so prospective renters need to be quick and know what they want.

Every property appeals to a different kind of tenant. Maybe the owner just put new carpet in, or it’s been remodeled – there are all sorts of reasons that can drive a property to rent fairly quickly. Half the time, we pre-rent properties before they even become available, limiting the vacancy period.

What are the rental rate trends in the county for apartments and rental homes?

Thankfully, there are a lot fewer foreclosures than there were several years ago, so we have seen the market stabilize.

In general, home prices in Stanislaus are lower than other parts of California, which definitely makes it more affordable. But on the other hand, we are plagued by a lack of industry.

We see a lot of people who want to live in Stanislaus and commute to the Bay Area for work. Areas that are centrally located to transportation routes are definitely desirable. That’s one of the reasons Tracy and Mountain House have had really limited vacancies. People want to limit the amount of time they are driving to and from the Bay Area, but they are still getting really affordable housing prices.

What’s the biggest misconception about rental properties?

That tenants are all bad and landlords are all bad. We enjoy great tenants and work hard to be a responsible landlord.

Investors purchased once-vacant homes that were neglected, remodeled them and filled them with tenants who take care of them like their own. This has improved neighborhoods greatly.

What are some of the big mistakes renters make when choosing rental property, and what can they do to avoid them?

We, of course, recommend that tenants rent through a management company that is NARPM-affiliated. When you are an NARPM affiliate, you agree to a code of ethics, which is one of the reasons why this organization has had the strength and growth in the last decade.

As a tenant looking for a rental home, I would be very careful going through Craigslist and places that aren’t reputable companies.

What red flags should tenants look for when searching for rental housing or dealing with landlords?

Most everyone has heard of the Craigslist scams that are out there, where landlords ask a tenant to mail or wire money to them directly. Avoid anything like this at all costs! Meet the landlord in person, ask them for proof that they own the property, or go through a management company directly.

Landlords that ask for very large deposits can sometimes be problematic at move-out, or an out-of-state “do it yourself” landlord who is not available during a repair emergency. Tenants have rights, too, which is why we always direct individuals with housing issues to Project Sentinel.

Project Sentinel assists consumers who have been victims of discrimination who normally would be unable to assist themselves, or know they have been discriminated against. They also provide mediation services.

Which tenants have the most problems finding housing in Stanislaus, and what can they do to improve their chances?

Some tenants with many pets, particularly large ones and certain breeds, scare many owners, and that can make renting very hard. Not only that, but insurance companies now have a list of restricted breeds that property management companies must abide by; otherwise, the owner can lose their insurance if violated.

Lists of dogs may include: pit bulls, presa canario, Rottweilers, wolf dogs, Akita breeds, Shar-Pei or any blue-tongue breeds. Our list of dogs changes from year to year because of what insurance companies deem as dangerous animals.

What are some of the big mistakes landlords make when choosing tenants, and what can they do to avoid them?

Landlords should screen tenants very carefully and include verification – landlord references at a minimum. We cross-train employees to look for certain discrepancies on applications.

Get verification of income. If they have been just newly hired, we ask for a new hire letter, or something that is from their employer that we can verify. If addresses do not appear to match ... with what is on the credit report, that can be a red flag.

Is it hard for landlords to find “good” tenants, and what exactly are they looking for?

We expect tenants to treat the property as if it were their own. This includes notifying us if anything needs to be repaired, so we can take care of it for them. We also require renter insurance, so if there is any kind of disaster at the property, the tenant is protected. This includes displacement and protection of personal belongings.

What should property owners consider before turning their homes into rentals?

I am competing with property owners who think they can manage their own properties. They are individuals who can’t keep pace with legal changes, who are shortsighted in their approach to preventative maintenance and who are teetering on the edge of Fair Housing Act issues.

The cost can vary from management companies, but the one thing I can tell you is that the largest number of people who come to me with problems are owners who place tenants themselves. They do not properly screen the tenant, then the tenant falls behind on rent and they need me to come in and help them. Hire a property manager affiliated with NARPM and limit your exposure.

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