If you have been monitoring the rental market trends in California, you've probably noticed subtle changes in the rental demand. People are relocating out of the state, opting for more forgiving locations nearby. As a real estate investor, this isn't exactly the best news to hear, and all you can do is brace for it and try to mitigate losses. Here's how you can do that.
Key Highlights:
- With California rents significantly higher than the national average, tenants are relocating to more affordable states like Texas and Florida. Adjusting your rental pricing to stay competitive is now essential to avoid prolonged vacancies.
- Winter and holiday seasons see natural dips in rental demand. Increasing your marketing efforts during these slow periods can help secure tenants before competition intensifies in peak months.
- Keeping current tenants is more cost-effective than finding new ones. Offering lease renewal incentives or rent relief to reliable tenants can help stabilize income during uncertain market conditions.
- In the absence of long-term tenants, consider listing properties for short-term stays, especially during the holidays, to maintain cash flow and cover essential expenses.
- Reassess operational budgets by delaying non-critical upgrades and using tech tools to reduce management costs. Focus spending on must-haves like mortgage payments and utilities until demand rebounds.
1. Adjust Your Rental Price Strategically
Rental affordability is among the top factors why tenants are leaving the state. Compared to the national average, which is $1,517 for a one-bedroom apartment, a renter is set to pay $2,204 for the same accommodations in California.
That and the fact that other rental properties in the market have already decreased their rent prices, you need to catch up if you want to avoid vacancies. Check the local market to determine how much you need to lower rental rates. For instance, San Diego saw a 0.3% decline back in 2024, while Los Angeles experienced a 0.5% drop.
You can compare rental listings of comparable properties, or have real estate professionals conduct a rental market analysis if you want a data-driven strategy. Thorough research of the current market will help you gain more insight into how you can better attract tenants.
2. Increase Marketing During Slow Seasons
If there are peak seasons, then you can expect seasonal fluctuations, especially during the winter months. Even without various factors like bad economic conditions or new rental properties in the neighborhood, there are natural events to account for.
Winter months make relocation difficult, and prospective renters have other financial obligations, like preparing for the holiday season. With lower tenant demand, you need to boost your marketing strategies to reach potential tenants that are looking for new homes, however few they may be.
It can benefit you in two ways. One is having a steady source of income for the incoming year, and another is not having to compete with other properties during peak seasons in the rental market.
3. Offer Incentives for Current Tenants
Tenant retention is one way for property owners to make sure they don't have to deal with slowing rental demand. You can offer lease renewal incentives to encourage tenants to stay. These may include rent discounts, delaying rent increases, extended access to amenities, or other options that help reduce housing costs.
If you're already offering access to amenities for a certain amount of time, you can offer an extended period. This is especially true for quality tenants, since it will be harder to find replacements when people start relocating to cheaper cities.
4. Temporary Short-Term Arrangements
When you're not receiving any long-term rental applications during the slow season, you can offer short-term leases. This setup will only be temporary, of course, but it's your job as the landlord to ensure that you have an income stream to pay your bills.
During the holidays, even a single-family home would have many potential renters. California has plenty of attractions that can help you appeal to a different target market for the time being. Just note that the screening process for finding long-term qualified tenants can be different, and you'll have to do your research to set the right rent price.
5. Cut Rental Property Operational Costs
Audit your expenses and eliminate any unnecessary costs. That means upgrades you have planned. Stick to the necessary expenses like utility bills, maintenance, and mortgage payments. You can get back to your original plans once there is higher demand for rentals and you have savings for the costs.
Property owners may also rely on tools to streamline operations and not strain their budget. One thing your real estate investment can benefit from is property management software. It will provide you with the assistance you may get from property managers or accountants. Of course, it's still better to rely on professionals when you are aiming for quality.
Why are People Moving Out of California?
The Golden State has been the most expensive market in the country in the past few years, and tenants are starting to look elsewhere for a more affordable living situation. If you want to live in the metro area of Santa Cruz, for instance, reports show that you need to earn $168,920 a year to afford a two-bedroom apartment unit.
Most people are moving to Texas, seeing as they can rent a larger home for around $1,800 to $2,000 per month. In Florida, major cities have an average rent price of $2,036 per month. Despite the close price range, the cost of living still shows a vast difference. Florida's cost of living is only 3% higher than the national average, while California is 50% higher.
Additionally, it doesn't just affect tenants. Overall, the economic conditions can impact maintenance costs, mortgage interest, and utility bills will also affect property owners. This makes it harder to lower rent to compete with similar properties.
California Rental Market FAQs
Should I sell my California rental properties?
- The California real estate market currently favors sellers, so it can be a lucrative decision. However, you should still consider many important factors like its current property value, your cash flow, mortgage interest rates, and investment opportunities.
Who can help me when rental demand is low?
- It may seem counterintuitive, but hiring professionals, such as real estate agents or property managers, can benefit your business. Even savvy investors turn to people who are experts in the field to help them overcome challenges in the industry.
What if my rental business continues to have negative cash flow?
- Negative cash flow is always a risk landlords may face. If that happens despite your efforts to stay profitable, it may be time to explore other investment opportunities. Focus on areas where rental demand is strong and housing supply is limited.
Gain the Upper Hand by Hiring the Best
Property management companies can help you gain useful insight into market trends, as well as expertise in navigating a tough rental market. Ensuring that your investment property has steady rental income should be your priority, and it is ours as well.
Blue Line Property Management offers comprehensive services, including market analysis to set the right pricing and marketing to increase your rental listing's visibility. There's no better time to maximize your property value than today.
Contact us, and we can get started!
