Wilmingt0n, N.C.- There is a huge rental crisis in Wilmington. Simply put there are not enough units, not enough apartments, not enough single family homes available for those folks who don’t want to buy.
Okay, to be honest, it feels kind of weird to be writing about renting. Working for a real estate firm that dedicates itself to serving buyers, it’s our job to help folks get into the housing market- and to stop wasting their money paying off someone else’s mortgage.
But what if there is someone out there who is willing to pay off YOUR mortgage? Could the rental crisis be the perfect time to get into the landlord business?
“When you live on the coast, or anywhere where people visit on vacation, your first thought is to invest in short-term rentals,” said Eric Badalov agent with Just For Buyers Realty, “But I look at these numbers now, and if you are willing to invest in properties away from the beach and in the city limits, there is money to be made.”
According to a study conducted by the RentCafe website, Wilmington is the fourth most competitive rental market in North Carolina. Their study estimated that in 2022 there were 12 renters for every unit that came on the market in the city limits. That is almost double the rate of Charlotte or Raleigh. The only cities with a higher unit-to-renter ratio were Asheville, Fayetteville and Greenville.
Fayetteville is home of Fort Bragg, with a lot of young military families who want to live off base.
Greenville is the home of East Carolina University, with a lot of juniors and seniors who want to get out of the dorms.
Asheville is similar to Wilmington. Both are cities that people have fallen in love with, where home prices have exploded in recent years, driving some potential buyers out of the market. If these folks really want to live in either area, renting may be their only option.
“That is tragic for them,” said Badalov, “But what’s bad news for one person, could be great news for another.”
In addition to being an agent with Just For Buyers Realty, Eric personally owns four single family homes that he rents out on a long term basis. All of his properties are in Wilmington and Leland. They are three bedroom, two bath homes that bring in between $1,800 and 1,900 a month.
“And I am probably going to increase that very soon,” said Eric. “In the last two years rent in Wilmington has gone up by 21%. I just found out that there’a home right around the corner from one of my properties, with virtually the same floor plan. The owner is charging $2,10o a month.”
Long term verses Short Term
Some of the differences between long and short term rentals are obvious. Others are a little more complicated.
Typically a short term renter leases a place for either a weekend or an entire week. During the peak summer seasons, properties in walking distance to the beach can demand several thousand dollars for a seven day rental. Just For Buyers has clients who can make an annual profit if they just keep their place occupied during four months of the year. If marketed correctly, short term rentals can be considerably profitable.
But short term rentals also have their issues. Since the fall a number of published reports have been dedicated to turn-key owners who are suddenly dropping their nightly and weekly rates. They are folks who advertise on websites like AirBNB and VRBO. According to one article bookings on such sites dropped by 12% in 2022. Meaning it’s becoming much harder for owners to fill their calendar.
“The pandemic was great for the short term market,” said Badalov. “A lot of people didn’t want to get on planes, or stay in crowded hotels. Instead they’d get in their cars, drive some place a few hours away, and find a home they could call their own for a couple of days. Now that things are somewhat back to normal that market has slowed down.”
So is this the Right Time to Get into the Long Term Game?
Long term rentals do provide lower returns, but what attracts investors is the consistency of one monthly check. Instead of filling up a calendar with a variety of tenants, owners like Eric only need to find one. If that person is reliable, if they pay on time, if they treat your home like their own, long term properties can be a great revenue maker- and not just for one lease, but year after year. The same study that found the 12-to-1 ratio in Wilmington, also reports that last year 63% of renters in Wilmington renewed their lease and stayed put.
“If you get a good tenant, then it’s the gold mine! But that is a huge ‘if,’ ” said Eric. “I’ve had a few renters who gave me a sob story every month. That’s the hard part, you have to hold your ground, and if you don’t think you can do that, and still want to invest, then hire a management company that will take the headaches off your plate.”
Here are some other tips Eric has for determining if a long term investment property is right for you;
- The newer the home the better. Older homes comes with things that need to be fixed, eating into your profit margin.
- Know the area, study what other homes in the area are charging.
- Eric, in recent years, has been able to find a new renter before an old tenant moves out, still he recommends working your numbers as if the property will only be rented for 11 months out of the year.
- Make sure you do background checks on all clients, including references from prior landlords.
- Don’t be stingy on paying management companies. Often times you get what you pay for, and Eric believes it is worth paying more for a firm that will conduct all interactions with the renter.
- If you do want something older, then honestly evaluate your handyman skills. Any time you have to hire someone to do that work that is money is coming out of your pocket.
“If you’re interested in exploring the long term rental market, make sure you work with someone who is experienced and can help you avoid the pitfalls,” said Eric “I’d love to help. Owning investment properties is a great way to build wealth! It can be scary but once you see the money roll in, you”ll wonder why you didn’t do it sooner.”