The Foreclosure Market’s Affect on Renting Saint Paul Homes
Although we are seeing the following trends in Saint Paul, Minnesota, I suspect this scenario is playing out across the country.
In years past, when an investor was looking to buy a new rental property, they typically would look at multi-family properties. With the large inventory of single family homes that are currently in foreclosure or going through short sales, many of these properties are now becoming rental homes. This increase in single family rentals is changing the landscape of Saint Paul real estate in many ways:
- Townhouses, side by side duplexes, and condos were previously the top of the food chain (in a matter of speaking) for tenants. These were often seen as the last stop before buying a property of their own. Most of these were larger, gave you less neighbors, and more amenities than an apartment. As more single family houses have become available to the average renter, these other properties have been affected. The non-single family rental is experiencing lower rent amounts, higher vacancy, and less rental demand. Where once you would have tenants fighting over a nice 2 bedroom side by side duplex unit with hardwood floors for $1000, now you are struggling to find a tenant that will pay $875. Tenants are realizing that they can spend the same amount of money (as just a couple years ago) and now rent an entire house.
- Unfortunately, landlords that have owned single family houses several years are also feeling the squeeze from the foreclosure market. They may have paid 25-50% more for the same property in the same area than the investor today. This makes the old owners operating costs (ie: mortgage) much higher and their operating income much lower. A new investor can undercut the old investor’s rent amount on a like property, while maintaining a good cash flow/profit margin.
- There is also an increasing type of tenant that we have not seen in large quantities previously. These are previous homeowners that have lost their house to foreclosure or short sale. They may have had a job loss or illness that affected their financial situation, resulting in the loss of their home. Many of these new tenants have good jobs with solid and steady income. They simply hit a pothole in their financial road. This type of tenant is not going to move into an apartment building and may not even be interested in a connected (condo, townhouse, side by side) living situation. They previously owned a home and want to stay in that type of property.
- Lastly, we are seeing many Saint Paul houses coming into the rental pool that previously have never been rented. Many are middle to upper end homes. These are the result of the current owners being unable to sell the property, but unfortunately still needing to move out for one reason or another. They are actually being quickly rented up by the above tenants that were used to a larger mortgage payment and want a larger home. Rent amounts of $2000-$4000 are common.
Whether you are a new investor or have owned some property in Saint Paul for many years, this changing rental landscape is important to understand.
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I would have to agree this scenario is playing out across the country. In Las Vegas we are seeing the same scenarios but being the #1 market in the country for foreclosures, investors are buying up properties and driving rental values down all across the valley.