When homeowners find out that new rental units are being built in their neighborhood, the question that springs to mind is:
“Will this affect my property value?”
The answer is…maybe.
In 2016, a nationwide study by Realtor.com found that ZIP codes with a higher-than-average concentration of renters have 13.8% lower property values compared to their county. That number sounds scary, but it doesn’t tell the whole story.
For example: Are the rental units bringing down property values, or were the rental units built because the property values were already low and the land was cheap? It can be difficult or even impossible to pin property values down to one factor.
What are some of the concerns about rental units and home values?
Some of the concerns homeowners may have about new rental units include:
- The area will have more traffic and less parking
- Renters tend to be more transient and so aren’t invested in the neighborhood like homeowners are
- Rental properties might not be kept up because landlords only do the bare minimum and renters don’t want to spend money improving a property they don’t own
Sometimes these concerns are borne out. Sometimes they’re not. Some renters stay in their units for years and act like homeowners, while others do not. Many landlords keep up their properties as well as homes, others do not.
So the best answer is that new rental buildouts don’t always hurt home values. It depends on the property value you already have (low or high) and the specifics of the rentals. Here are some things to consider.
1. Condition is important
If you’re trying to sell your home and there are run-down properties nearby, it won’t matter to a potential buyer if those properties are owned or rented. It’s the condition of the properties that’s the real issue.
There’s no way to know for sure if the new rentals going up in your neighborhood will be kept looking good, but there are some factors that make it more likely.
If your home is in an area with HOA renters, there is a high chance that it won’t hurt the value of your home because of the restrictions and covenants that HOA dues help pay for.
In areas with rent control laws, renters are more likely to act like homeowners because they’re planning to stay long-term. They may be more willing to pay for improvements, even if the landlord isn’t, because they plan to enjoy the rental property for years to come.
Demand for Rentals
If the rental housing market is tight, you’re also more likely to see renters acting like homeowners because there are fewer places to move. On the other hand, landlords have less incentive to do more than the bare minimum in order to keep renters. People often blame renters for the exterior state of a property, but remember that at the end of the day, it’s ultimately the landlord who is responsible for the condition of the property.
If there are more units than renters, landlords are under more pressure to improve their properties and keep them looking sharp in order to attract and retain renters.
2. Existing property values
If property values in your area are already low or trending that way, it may be that the rental units are being built there to take advantage of the cheaper costs. It is likely in this case that property values will drop still further with the higher concentration of rental units. If that’s a concern for you, it would be a good time to consider a move. It might even be a smart option to make your current home into an investment property!
If property values in your area are high, you can bet the developers are paying a pretty penny to put in the rental units. There’s a strong incentive to keep those units in prime condition. You’re generally in the clear in this case.
3. Condos may be different
To keep property values up, some condos only allow a certain number of units to be rentals. The reasoning is that owners have “more skin in the game” and are more likely to keep up the property.
This comes into play with buyer financing as well as property values. Lenders tend to clamp down when the renter occupancy is approaching 30 percent or more. That limits the types of financing available, meaning that only cash buyers and those with specialized lending can make an offer. Fewer buyers can mean price compromises when you go to sell, meaning the condo is less desirable and ultimately less valuable.
Madrigal Team Gold can address any of these issues if you’re considering buying or selling a condo unit.
What Should You Do?
If you’re debating whether to sell or stay, consult with a local real estate agent who knows the market inside and out and can give you guidance. In Wichita, Dan Madrigal and Team Gold are just such experts.
If you’re looking to buy in an area with a lot of rental properties, it’s likely that you can get a better deal. Dan is an expert in negotiating the best deal to buy a home. Contact us today!