Friday, June 22, 2012

"Wholesale renting". Is there such a thing?

In case you haven't noticed, the price of renting an apartment or any other type of rental unit has become quite exorbitant in the last 10 years or so
...even a basic apartment building (i.e.: a building with just apartment units and nothing swimming pools, exercise rooms, or any other of the unnecessary frills that comprise a lot of the "classier" type apartment complexes).

Even the "value" of a lot of the older properties have been artificially inflated by the current-day housing market
...which, in turn, gives property owners who rent out their properties a rationale for either raising existing rent or, in the case of those who recently acquired rental properties, for charging a high rent right off the bat.

There's this concept known as "market" rent, which is a collective summary of what most landlords/landladies are charging per month for certain types of residential units (i.e.: efficiencies, one-bedrooms, two-bedrooms, and so forth).
Somehow this has been adapted by rental property owners as the baseline criteria for what's appropriate to charge their tenants on a month-by-month basis.
For example: If "Clyde down the street" is charging $550 mo. for an efficiency unit and "Maggie" on the other side of town is charging $570 mo. for efficiencies in her building, then why should I be a fool and only charge $440 for similar units in my building? I'd be cheating myself out of at least an extra $100.  Therefore I'll start charging $530 mo. for my efficiencies.  Makes sense, right?

These days it's not unusual for even efficiency apartments to go for $500 to $600 per month
...with one-bedrooms and such going for a lot more
...but, given the economic situation at hand, how many people can really afford today's inflated-vaule rents?
There are, I'm sure, plenty of people who need someplace to live and, if affordable places still existed (like they did 20 and 30 years ago), would have no problem making their regular monthly rental payments.

One radical idea I've come up with (which I'm sure most property owners out there are highly unlikely to ever agree to or with, but I'll go ahead and state it anyway):  What if there was a property owner who decided to go ahead and buck-the-current-trend---who decided to gamble on fate and circumstance itself and rent out his/her residential units for, say, $150 less per month than what most other owners/landlords were?

The reasoning would be:  That a lower rent, although not netting as much an income per unit as a higher rent would, would still ensure higher potential occupancy.
If "Gus" ten blocks away is charging $580 mo. (not counting utilities and water-and-sewage) and he owns 12 units, but he can only fill up four or five at a time---and you own 12 units yourself, but are able to keep at least nine or ten of them filled during any said period of time, even though you're charging $375 mo. (not counting utilities and water-and-sewage)---you'd still be coming out slightly ahead of "Gus".
Consider:  When one owns property of any kind one has to pay taxes on it---and one is taxed a certain amount on their properties according to how said properties are categorized.  In short, if one owns three apartment buildings---each with four residential units---the property taxes owed per year (or per period) are based on the type of properties said buildings are, and not whether-or-not any of them happen to be fully (or even partially) occupied at any given point in time.
So what the property owner collects via monthly rents would have to be adequate enough to more-than-cover (and recover) whatever he/she has to pay out for said taxes (as well as for other property owner/maintenance-related expenses)
Hence, the more rent money the property owner receives from their tenants the better able they are to cover taxes and expenses.
In short---the better the method of achieving that goal, the better off the property owner will be.

So...four units at $580 mo each in a six-month period: $13,920.  Nine units at $375 mo. each in a six-month period:  $20,250.
...See where this is going?  At least hypothetically?

It's sort of along the same line as these wholesale retailers who either:  1)sell products in bulk at less-per-ounce or less-per-pound compared to the normal sized boxes or packages you would purchase at a regular store...or  2) reduce the price of a product which isn't selling too well to see, perhaps, if it does better at a lower price.
"Wholesaling" is what the practice is called.

It's also like the days when the U.S. was prosperous
...prosperity rarely had anything to do with "how much" money any one person was making.  There's always been a certain amount of disparity in wages and income between the social classes---this is the norm.
What makes a society prosperous is how well it's currency "flows"...that is how well and how often it "makes it's rounds" in terms of being transferred from one hand to the other's a commodity and it's only useful when being used for "trading" and "exchange" purposes.  If it stagnates the country's economy "freezes" and doesn't go anywhere anymore.
Decades ago there were more small businesses competing with the "major leaguers", plus there were more choices---not only in consumer products or in modes-of-transportation one used to travel with and the like---but also in what kind of dwelling places one could find to reside in.  If one didn't "qualify" for  residency in any apartments they could still find themselves a "flop house" or rent out a bedroom in a rooming house...there were ALWAYS alternatives.
And when one has a place-to-live they can hold down a job for a longer period of time
...and even if one's job didn't pay much, the chances of being able to hold down employment were much greater than they are now, hence it was still a steady income source even if the incremental amounts per week or per month were sparse was not inconceivable for someone to, for example, work at the same restaurant or store for ten years straight.
So it's never a question of how much you make at any one time---it's whether or not the money will keep on coming in.  It's all about functionality.  Making money opposed to the modern-day concept of simply "making money".

With all that in mind, I'm wondering, with so many folks out there needing a place to live, if---in the future---the truly wise property owners might not be the daring ones willing to take the risk of renting out to "risky" tenants
...the ones who make too low a wage at their jobs to be able to afford the average rent, or who have a bad credit history, or who face discrimination due to criminal convictions and the like.
Naturally this would call for strict rental contracts comprising certain resolutely persnickety stipulations regarding the tenants' responsibilities:  i.e.: payment-of-rent; care of property; personal conduct during duration of tenancy and the such.
...But, even given the current social climate (no doubt the GREATEST risk factor in a venture like this---with all the "lack-of-civility" syndrome fare and such), it still might actually work---hopefully in more than just "in theory".
Another factor to take into consideration:  support by the officials themselves.  How effective are THEY when their services are needed?  How responsive are the police if an exceptionally "sticky situation" should arise?  And if an adverse situation arises wherein legal actions are required to resolve it, how supportive are the courts and how competent are any lawyers or legal representitives you may need to hire to help you out?

Otherwise, like I said, this idea is theoretically feasible---at least in concept anyway.
...But probable?  That's another question altogether...
I seriously doubt these modern-day property owners will ever get around their fear-based skinflint mindsets or their "bottom-line" mentality.

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