Just to quickly re-state our purpose here: the reason we write this blog is to share our lessons learned on this adventure of real estate investing in hopes of helping others who want to invest in real estate. This post is an account of an experience but I’m not sure I understand what accounts for it. Please comment if you have a theory on why we may be seeing this play out as it is.
For context, the website rentjungle.com reports that apartments in San Antonio are renting for 6.63% less this year than last year as of November 2020. We rent houses and small apartments but haven’t seen this reported decrease in rents to represent our experience.
As many of you know, we like our leases to expire in the summer months when kids are out of school and people are moving more. We have one house that for several reasons didn’t get on that schedule of summer lease-ups and was a bit hard to lease last winter. When I say “a bit hard” I mean it took over a month! This may not sound like long but we have been really good at minimizing vacancies and shortening turnover times to sometimes as little as 48 hours between tenants. This house caught us off guard a little. It was is in a new area for us and we thought that maybe demand was just lower over there. Or maybe it was that it was winter and we usually lease houses up in summer. It had stained plywood cabinets that were different but solid. Maybe that was a turnoff? We were scratching our heads trying to figure out what was different and we never could quite figure it out.
The tenants we did get were amazing and loved the house. So as they prepared to move into their new house that they were buying (which is the best way to lose a tenant-to own their own home) we put the house on the rental market once again. This is something you can do when you have really tidy tenants that help the house show well. It is also something you need to include in your lease. Our tenants agree when signing the lease to allow us to show the house during the last 30 days of the lease but can opt out of this for a fee because it will take us longer to get the house leased. If they are really messy I advise just waiting until they are out anyway to show the house clean and vacant.
We were on the verge of selling this house due to the difficulty in renting it out last year but decided to give it one more chance for a couple of reasons. A few of the reasons we decided to keep this house were that we recently put a brand new central HVAC system in it and it is on a 15 year note and is paying itself off at a fast rate. The HVAC system will hopefully be running strong past the payoff date of this house. We also agreed to a prepayment penalty with that loan that would have amounted to about 1 percent of the outstanding balance which would be less than 900 dollars but would still be an expense. This amount will be reduced to zero next year as per the loan terms. We have already had the house for two years so we would have avoided the short-term capital gains tax which tempted us but ultimately decided we really wanted to keep it in the portfolio and give it another shot as a rental. This was in December 2020. Mid-Covid. Guess what happened.
We listed this house on Zillow and MLS and our computer started to blow up! We had forty inquiries in three days! What was going on? We were hearing from people that they had applied multiple times at multiple houses only to compete with multiple applicants. We were shocked. We almost immediately had an application in hand from a qualified tenant and a deposit paid after one showing and a family excited to move in as our new tenants at the first of the year. The rent is fifty dollars higher than with the last tenants and demand is crazy. So if you are concerned about rental demand right now; I can tell you that the west side of San Antonio has strong demand for good, clean, affordable houses. I wish I only had more supply to help satisfy the demand.
My favorite part was when the big man moving in looked at the one car garage at the lease signing and came back inside looking happy. He said “I know you can’t tell with this mask on, but I’m smiling right now”. He doesn’t have a garage where he has been living but he’s excited about having one. I can relate. They mentioned that they would like to build up their credit to be able to buy a home. We notified them that we had a payment method that would report on-time payments to the credit bureaus to help them improve their credit. They were very happy with that option and set up their payments.
No one knows what the future holds and we were very tempted to sell this one but I think we’ll look back and be glad we held onto it. As I always say, I don’t often hear people celebrating that house they sold ten years ago; more often I hear that they wish they still had it. We’ll see what 2021 has in store for us but for now rentals are still renting well and all of our tenants are current on their rent.
2021 is off to a good start and we look forward to sharing some more stories from recent projects very soon. We wish you all a very prosperous and healthy 2021 and that you keep the main thing the main thing.