Highlights:
- The rental home vacancy rate of 1.7% is the lowest experts can remember.
- Jefferson and Douglas counties have the lowest vacancy rates.
- Rental prices are surprisingly low.
The vacancy rate for rental single-family homes, townhomes and other small properties across metro Denver fell to 1.7 percent in the fourth quarter report released today.
One property manager said this is the tightest home rental market he has seen in three decades.
The vacancy rate was 2.1 percent in the fourth quarter of 2012 and 2.3 percent in the third quarter of last year, according to the report by the Colorado Division of Housing.
The lowest vacancy rates were found in Jefferson County and Douglas County where the vacancy rates were 1.3 percent and 1.2 percent, respectively.
Vacancy rates for all other counties surveyed were:
- Adams, 2.7 percent.
- Arapahoe, 1.7 percent.
- Boulder/Broomfield, 5.9 percent.
- Denver, 1.9 percent.
“When a rental house becomes vacant, we’re quickly getting multiple offers from people who want to rent the house,” said Robert Alldredge, owner of Jericho Properties Realty in Lakewood. “The market is as tight as I can remember, and I’ve been doing this for 30 years.”
In spite of historically low vacancy rates, growth in the average rent for rental houses, townhomes and other small properties have been modest during recent quarters.
The average rent in metro Denver for single-family rentals and similar properties rose to $1,083 during 2012’s fourth quarter, rising 1.9 percent from 2011’s fourth-quarter average rent of $1,062. The fourth quarter’s average rent in 2012 was down from the third quarter’s average rent of $1,090. Average rents are not adjusted for inflation.
“The low growth rate in the average rent is deceptive, and is kept down by the fact that many owners are still afraid to push rents to the point that the renter leaves,” said Lyle Haas of Colorado Realty and Property Management.
“Many owners could push rents more than they are and I’m surprised at how high our renewal rate is right now, even when we’re asking for some big rent increases.”
The average number of days on the market remained low during the fourth quarter of 2012, at 34 days. From 2006 through 2008, rental homes and townhomes were often on the market from 40 to 60 days, but a tight inventory of rental homes in recent quarters has kept turnover time low.
“Rising home prices have led some rental-home owners to sell their properties,” said Marc Cunningham, president of Grace Property Management. “Many of those homes will become owner-occupied, and the number of our clients who want to sell looks like it will double this year.”
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I am fairly certain I know why landlords of these small properties are not raising rents, low interest rates and adjustable mortgages. Let me give an example of one of my properties. Duplex brings in $2400/mo. Payment adjusted from $1600/mo to $600/mo. I know I could charge $200 more per month, but I am happy with the cash flow and the tenants, so I don’t care the way I would with a larger multi-unit. The price of these smaller properties is not so much based on the rents as the larger (4+ unit) properties are, so there is not the pressure to raise rents. I bet once rates start rising and the ratio of income to expense gets smaller, rents will rise. Or, if prices rise enough, landlords will push rents and either take a nice increase or sell the property.
Sounds like I will giving myself another raise in about 4 months!
Maybe, maybe not.
DJ says: I am happy with…the tenants”
What is a good tenant worth in $/mo NOT increased?
It depends. My point is that for smaller properties, the value of the asset is not so closely tied to the rent, so there’s not as much pressure to maximize rent.
I still plan on keeping my rents under market. Most of my tenants understand that my rents are under market, and if they check, even my raised rents will be under market. I only lost one tenant last year due to rent increases. And that was a good thing, because I want to start selling my rentals. I hate being a landlord. Almost all of the tenants I have lost over the past year has been because they have bought their own homes.