The Housing Market- Using the Current Market to determine your Rental Rate

The housing market refers to the performance of the Housing Market Index and is an important indicator of the overall economy.  The Housing Market Index consists of several hundred home builders that measure demand for new homes.  In 2017 Forbes ranked Charleston #7 in the Hottest Real Estate Markets.  The criteria taken into account included high affordability, strong job growth, low vacancy rates, internet home searches, and political affiliation. Charleston is consistently named a top city to live in by Travel & Leisure and Conde Nast Traveler for the city's culinary scene, proximity to the beach, and history and culture.  The word is out that Charleston is a great place to live and people have been moving here in droves.  Charleston County acquires approximately 45 new residents every day.

Over the last year or so rental rates have leveled due to increased construction of apartments, condominiums, and single family houses creating an increase in supply compared to 2015 when rental rates were surging.  Affordability has also affected demand.  Prospects who can afford high rental rates may be more inclined to buy instead of rent in a strong housing market.  The housing market travels in waves and rental properties will stay in high demand for newcomers not sure where they want to buy or if they will stay in the Charleston area.

You should do some research when buying or renting an investment home.  A good Property Manager and Realtor will be able to help you determine the ideal rental rate for your property.  Things to consider:

- Rent your property within the current market. When you rent your property too high Tenants will feel they were taken advantage of when they learn their neighbors have the same home value and amenities at a significantly lower rate.  Significantly high rental rates will prompt Tenants to start asking for upgrades and repairs and they won't stay long term.

- Don't rent your property significantly below the current market.  It's one thing to look out for good tenants by not dramatically increasing rental rates when their lease expires.  Tenants should expect some increase in the rental rate if they are in a booming housing market.  Keep the rental rate fair but don't be afraid of losing tenants by increasing the rental rate to stay within the market.  The tenants won't be able to find similar housing at a lower rate and they will adjust their finances or move to a more affordable area.

- How does your property compare to similar properties in terms of upgrades?  If your property has a lot of upgrades consider raising the rental rate above the market value.  Make sure advertising photos show the upgrades in your home.  If your property has not been updated in a long time expect a slightly lower rental rate.  

- What amenities are included?  If you are including water, landscaping, or pool maintenance in your rental rate make sure you account for those expenses and ensure the utilities are included in your advertising.  If the market won't substantiate utilities being included consider letting tenants pay for utilities on their own.  Consider including landscaping in your rental rate if your property has an HOA.  This will avoid HOA fines and disputes.

- What is the demand?  Your Property Manager and Realtor should be watching vacancy trends on the MLS and have an idea how quickly properties are renting.  The higher the demand the higher rental rate you can ask for.  

- Don't advertise too far in advance.  Many homeowners who decide to transform their home into an investment property want to ensure the property is rented when they first make plans to move.  If the property sits on the rental market Prospects will begin to think there is something wrong. If a Tenant rents a property far in advance their plans could change. 

Several years ago there was a condominium in Mt Pleasant that rented for $800/ month.  The tenants had lived in the property for several years without a rent increase.  The current market analysis (CMA) showed that similar properties were renting for $1,200/ month. The homeowner stated they did not want to increase the rental rate because the tenants were good tenants who cared for the property and paid their rent on time.  The homeowners stated the rental rate didn't cover the mortgage on the property and on top of that they paid HOA fees.  Several months later the HVAC unit kicked the bucket.  The homeowners did not have the funds to replace the HVAC unit.  The tenants were forced to abandon the property and the Owner sold the property as a short sale.  If the Owner had increased the rental rate over the years in accordance with the current market analysis there would have been funds to cover a new HVAC unit.  The Owners thought they were doing the right thing for their tenants by not increasing the rental rate.  Their decision to rent the property under market value cost both the Tenants and the Homeowner the rental property. 

There are other factors to consider when purchasing investment property.  What area in Charleston County do you want your property to be in?  Are you looking for a fixer upper you can renovate and rent afterwards?  Are good schools important?  Do you want investment property close to the beach?  Will you be moving into the property in the future?  Is the investment property strictly to make money?  Knowing the answers to these questions will make it easier to find your ideal investment property and will help your Property Manager and Realtor assist you with your goals.

2017 Charleston Housing Market