New Construction Rentals-Keeping that “NEW HOUSE” Smell
What should we be thinking about with new construction on the rental market? Of course, it all depends on the end game. My brother and his wife are looking to gobble up some new construction SFHs at about $100k a piece that are wilting on the sales market in suburban Houston. (Sigh, the Seattle construction cost index cannot conceive of building even a small garden shed for $100k…) They want to buy and hold, so their considerations are far different than the builder who wants to wait out “today’s market challenges” (my go-to euphemism) for a year or two and then sell.
For the purposes of this first blog in my New Construction Rentals series, I’ll focus on actual questions I’ve fielded from builders recently, in no particular order:
Should I really rent this out? I won’t be able to sell it as “new” next year!
To be honest, I am thinking that the townhouses completed in 2008 and 2009 will still be the “new” townhouses in 2010 and 2011. Why? Well, I’m just not seeing a lot of ground-breaking out there for new developments… as in, there won’t be too many vintage 2010 units with which to compete!
I always ask builders (and Accidental Landlords), “Would you rather hemorrhage or bleed slowly?” It was a question I had to ask myself last summer when I was trying to sell a house I’d just finished remodeling. Did I want to immediately lose at least $60k or did I want to rent it out and lose about $500 a month? The choice was clear… it would take about 10 years of losing $500 a month to equal out the immediate $60k loss- which is to say nothing about the tax implications of carrying a rental during that same time frame!
How can I keep it looking new?
Across the board, there’s no better defense than CAREFUL TENANT SCREENING. Of course, you have to stay within Fair Housing Act guidelines, but performing thorough tenant screening is paramount. The better the tenant, the better condition they will leave the unit!
Aside from that, you’ll want to work with a property manager or other professional to anticipate where the most wear and tear occurs. Number one on this list is carpet and flooring, of course. For one builder, I found some inexpensive but handsome padded benches to put near the main entrance and emphasized with potential tenants that the owner would appreciate that shoes not be worn in the house. Although there’s no way to monitor it, this idea is among several tricks and incentives you can use to get tenants to comply. (For my money, there is no worse flooring solution for a rental than carpet… but more on that later.)
Walls and appliances are next on the “Most Likely to Sustain Wear and Tear” list. Walls are easily patched and painted. However, today’s stainless trend brings challenges to rentals because few renters know how to properly clean stainless. In my own kitchen, my dishwasher has swirl scratches in the stainless veneer where my well-meaning housekeeper tried to give it a good scrub. I now have a “Care and Feeding of Your Stainless Appliances” handout that I give to tenants along with a bottle of the best cleaning fluid available.
Tomorrow, we’ll tackle a few other new construction questions.
Eleanor
What our clients say?
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Alena