There’s nothing—and I mean nothing—landlords hate more than having to deal with evictions. Potentially losing out on months of rent can be a nightmare. On top of that, having to manage the feelings of seriously unhappy residents, negotiate court fees, and pay for angry-renter repairs when everything is all said and done makes this process a difficult one for everyone involved. Real estate investors tend to avoid areas with high eviction rates for the sake of their sanity as well as the health of their businesses. However, fearing this scenario can lead to missing out on making good real estate decisions by buying through landlord to landlord sales.
According to data compiled by Redfin, three New Jersey metro areas (Newark, Camden and Edison) are in the top 30 for eviction rates per 1,000 households. Without a steady, reliable income, some exhausted New Jersey landlords may look to move their businesses to new pastures. Taking a look at some of the causes of rising evictions can help us to prevent the same scenario in our own future investments—and to take advantage of this Jersey opportunity.
Evictions Result in More Landlord-to-Landlord Sale Opportunities
It’s pretty self-evident to experienced real estate investors that evictions surge when the working economy doesn’t keep up with the housing market. Rising rents without rising household incomes creates a major problem for the bottom third of residents who suddenly find themselves without an affordable place to live. The importance of this issue today is that we finally have the research to back up this trend.
The US Census Bureau is only this year beginning to track data on evictions, which is unfortunate for those of us who follow their expert guidance to spot market trends. Existing studies on eviction trends tend to focus on localities, but a recent study commissioned by Redfin took a far more comprehensive look at evictions on a national scale. The study examines the reasons behind 2015’s 2.7 million evicted Americans and found that income levels have risen 35 percent—but rents have risen 66 percent.
On a smaller scale, the NJ metro areas that are the hardest hit have an incredibly high ratio of cost-burdened renters. This term refers to households that spend 30-50% or more of their income on rent each month. Newark is one location where cost-burdened tenants are shockingly prevalent—one out of every 11 rental households went through an eviction in 2014.
However, more complicated trends may be playing into the prevalence of evictions in the garden state’s metro areas. The study showed that homes for sale and rent were in short supply, creating skyrocketing housing prices—and that the presence of more affordable housing options would help the eviction rate to relax. One study reports that the supply of the most affordable housing hasn’t increased in more than eight months. Investors who relieve landlords of their property are in a better financial position to offer a more affordable rate to renters and can help ease this bottleneck—but an increase in the total supply of homes is the true long-term fix.
The Benefits of Landlord-to-Landlord Sales
When you’re looking to complete a sale between landlords with tenants in situ, you’re in a great place to start off with instant rental income. This saves you from having to find your own tenants, and is a fantastic way to quickly expand your portfolio with minimal effort upfront. This also helps the current landlord out of the “vacant possession” situation—the fact that rental properties usually sell fastest when they’re empty. The entire scenario is a true win-win.
The one caveat here has to do with your newly acquired tenants. If they are in situ and are on fixed-term leases, you have big shoes to fill. When you enter into the role as their new landlord, you’ll need to make an effort to extend personal connections with each of your tenants. Make it your primary duty to respond swiftly to complaints and maintenance requests. Creating a positive first impression is key—especially when you’re inheriting a property that may be struggling with an eviction crisis.
What You Can Do to Prevent Evictions
Regardless of the actions of Ellis Act-wielding landlords, you’ll want to be sure that your new property is exactly what you want it to be. There are a few steps you can take as a conscientious investor to make sure that evictions aren’t a constant burden on your investment:
- Keep non-paying tenants at a distance. Be cautious not to inherit tenants that struggle to pay monthly—and, if possible, try to acquire your new property at the end of their lease without offering a renewal. You or a property manager should then carefully screen new tenants for financial security. A prior landlord’s letter of reference is usually overkill, but may be helpful in these cases.
- Do your best to retain tenants who pay their rent. Another way to avoid the high costs of eviction is to make sure your cooperative tenants stay as long as possible. Make maintenance updates your top priority. The longer you can hold onto your tenants, the less you’ll have to pay in transfer costs.
- Follow local laws with precision. You’ll want to be sure that when you take over for an overworked landlord, you’re following all the appropriate rules and regulations to a “T.” Be well versed in the New Jersey Anti-Eviction Act and all of its following court rulings.
As long as you follow best practices as far as records and procedures are concerned, you should be in the clear if an eviction ever became necessary.
Your Efforts Can Help Stabilize the Housing Market
Being a landlord comes with its challenges, but having the support of other landlords can make a big difference when you are dealing with eviction issues. What our real estate market really needs right now is a healthy dose of stability, and HomeVestors® franchisees are in a perfect position to offer it, as they have the tools and support that are necessary to handle issues as they arise. Reach out to us today to learn how you can get started as a HomeVestors® franchisee and reap the rewards of a supportive and knowledgeable community of investors.
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Image source: Flickr user Tony Webster