The Morning Report
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In case you missed it, we published a story on Friday describing a significant shift in the local rental market. The number of properties sitting vacant is rising, and, as landlords compete to fill those units, rents are falling for the first time in two decades.
Rod Hatefi, a local real estate agent and landlord, wrote me on Saturday to share his insights:
I can attest to stagnant-to-declining rents in most Carlsbad zip codes in the order of 0%-5%. However, the decline seems to be more pronounced in newer communities with properties purchased between 2005-2007. In my experience, the culprit is what I refer to as “reluctant landlords” who are in trouble and don’t have the financial stamina to absorb one or two months of vacancy. So they’re hitting the panic button and dropping asking prices.
I wouldn’t be surprised that in their haste, they are also skimping on due diligence and tenant screening, which can lead to tenant issues down the line. Likewise, tenants are more likely to experience problems due to their lessor’s lack of funding and landlording experience.
Another possible explanation for the decline in rents could be that new investors are now competing in the rental market. However, prices have not dropped so much in Carlsbad to warrant bargain investment deals and subsequent rental rate drops. Not to mention that an experienced investor / landlord allows for marketing time and fully realizes the real threat of inflation and the need to modestly increase rents on an annual basis.
I wrote about the quandary many novice landlords are facing in a declining market last year. If you have seen something in the rental market you want to add to our discussion, leave a comment below (if you’re not in Survival, go there).