Rental

Arlington Single-Family Home Rental Market

Question: Can you follow-up on last week’s column about condo/townhouse rentals with an analysis on the single-family home rental market in Arlington?

Answer: Thank you to ARLnow commenter Southy4Life for requesting that I follow-up last week’s analysis of the condo/townhouse rental market with a similar analysis of the single-family home (SFH) rental market.

The good news for those looking closely at the rental stats in Arlington is that the majority of SFH rentals are represented in the MLS data presented below, as opposed to a large percentage of condo/apartment rentals not represented in my data last week because most are handled outside of the MLS (commercial rentals, direct landlord-to-tenant).

Five Year Trends

Just like the condo rental market, there has been very little appreciation in rental rates in Arlington’s SFH home rates, until 2017, which saw a noticeable jump led by 22207, 22205 and 22203.

This doesn’t correlate to what we saw in the sales market from 2016 to 2017 so admittedly I don’t know why these three zip codes saw substantial rental growth, while the rest of the Arlington market remained relatively unchanged.

Below is a summary of the average cost of renting a SFH in each Arlington zip code over the last five years. 22206 and 22209 were removed for lack of SFH rental data points.

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Bedroom Breakdown

Below is a table of all 3-5 bedroom SFH rentals in Arlington since 2016, broken out by bedroom count and zip code, with rentals in 22206 and 22209 removed for lack of data points.

Key Findings:

  • The most expensive home rented was a 7BR/7+BA home on Arlington Ridge Rd for $12,000/mon and the least expensive home rented was a 2BR/1BA home in Columbia Forest for $1,595/mon
  • It costs about 20% more to go from three bedrooms to four, 25% more to jump from four bedrooms to five
  • If you’re renting a SFH in Arlington, expect to take 5-6 weeks to find your tenant and be prepared to discount your rate by 2-3% from what you’re asking
  • For families looking to rent a home in some of Arlington’s top-rated schools, the 22205 zip code is a great value
  • 75% of SFH offered for rent allowed pets, but only 28 had fully fenced yards
  • On average SFH for rent were built in 1950 and the average lot size was just over 10,000sqft (1/4 acre)
  • Only 49 SFH homes offered for rent were built in the last ten years
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Our team is happy to assist you with rentals, whether you’re a renter or landlord, so feel free to reach out if you need assistance with either! We are happy to put together more specific, personalized data tables for your as well.

Arlington Rental Market

Question: I am moving to Arlington from out of town and not yet ready to buy. I’ve heard the rental market is high in the DC area and wondering approximately how much it costs per bedroom to rent in Arlington.

Answer: I spend a lot of time in this column talking about buying and selling homes in Arlington, but about 54% of the County is renters, so as we head into the busiest rental months, I thought it’d be appropriate to share some helpful statistics on the cost of renting in Arlington.

For the most part, renters tend to be more focused on functional space to meet immediate needs, so I like the idea of using cost per bedroom on rentals more than I do for ownership.

The good news for renters is that developers have added thousands of new rental units over the last 5 years, particularly 1-2 bedroom units in the popular metro areas of the Rosslyn-Ballston corridor and Crystal/Pentagon City. While the cost of these newer units has increased, it’s kept the cost of renting condos and townhouses from owners pretty stable (or down).

The data I pulled below is primarily made up of non-commercial rental units (condos and townhouses owned by individuals) and restricted to units leased through the MLS (agent database), so only included a portion of the total rental activity in Arlington. I also excluded single family homes from the dataset.

Key Findings:

  • It costs about 40% more to rent a third bedroom than it does to rent a second bedroom
  • Rents have not gone up for one bedroom units, and have only increased about $100/month for two and three bedroom units
  • Most rental units are on the market for 6-7 weeks before being rented
  • There’s not nearly as much negotiating on rentals as there is purchases, with only about 1% or less negotiated off the asking price, on average
  • The least expensive rentals are in the 22204 zip code because there are not any walkable metro stations and the housing inventory tends to be substantially older
  • 22204 is the only zip code where the average rent of a two bedroom is under $2,000/mon and one of only two zip codes (22206) with an average rent under $3,000 for a three bedroom
  • 22209 is the most expensive zip code to rent by a wide margin due to the fact that it hosts two of the most expensive buildings in the DC Metro in Turnberry Tower and Waterview, as well as a host of other high-end buildings. It claims this top spot, despite also hosting one of the least expensive communities in Arlington, River Place.

 

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One tip I’m happy to share with renters is that there’s rarely a better deal in the market than the deal you get being the first person to rent a unit in a new commercial rental building. The incentives they offer on the first lease usually include 1-2 months free rent, a period of free parking, and sometimes other fees discounted or removed (e.g. pet fee, move-in fee, etc). However, you should prepare for rents to increase substantially if you want to continue renting after your original lease expires.

Our team is happy to assist you with rentals, whether you’re a renter or landlord, so feel free to reach out if you need assistance with either!

Will Rental Income Return To Rosslyn and Courthouse Owners?

Question: I’ve been renting my unit at the 1800 Wilson condos in the Rosslyn/Courthouse area for the last five years and am wondering why I used to get more rent five years ago than I do today, despite keeping the unit in great condition for each renter. Any ideas?

Answer: You may have heard that over the last five to six years, the rental market has hit all-time highs across the country, so it makes sense that you’d expect your rental income to increase. However, the increased rental demand and previously undersupplied luxury rental market in Rosslyn got the attention of some major developers, who recently built larger luxury rental buildings nearby.

Developer vs. Landlord

Landlords at 1800 Wilson and the neighboring Rosslyn/Courthouse condo buildings took a hit on rental income starting in 2013 as luxury apartment buildings Slate|Sedona19Nineteen Clarendon, and 2001 Clarendon added nearly 850 units to an undersupplied Rosslyn/Courthouse rental market, while offering deep discounts to new tenants in the range of one to two free months of rent (standard for new apartment buildings).

In the last year or two, each of the buildings have finished their initial leasing cycle and the incentives have expired at all three, so 1800 Wilson and other landlords in Rosslyn and Courthouse should see a small increase in rental rates.

Don’t expect a huge jump because rental supply is substantially higher now and Central Place, above the Rosslyn Metro station, just started leasing 377 luxury units. However, many of these apartments are in the ultra-luxury market and cater to a different renter than those looking at 1800 Wilson and similar buildings in the area.

Rental Trends

I built a table of rental trends in condo buildings in Rosslyn & Courthouse with comparable 1BR/1BA and 2BR/2BA units. I limited data to 1BR units w/ 650-850sqft and 2BR units w/ 900-1,350sqft to reflect the majority of 1BR and 2BR units at 1800 Wilson. “Avg Discount From Ask” is the average difference between final rental rate and original asking rental asking price.

ROI On Remodeling Your Rental

Question: After reading your article two weeks ago about remodeling before selling a property, I was wondering what your thoughts are on remodeling our rental property. It’s a 1BR + den a couple blocks from the Virginia Square metro with a perfectly functional bathroom and kitchen, but about 15 years old.

Answer: A couple of weeks ago, I warned about spending money on major remodeling projects before selling your home and you should be equally cautious about making major updates to a rental property. In your case, it doesn’t sound like spending $15,000+ remodeling the bathroom and kitchen is a good investment at this time. Here are some of the questions/factors you should consider:

Payback Period

How long will it take to break-even on your remodeling expenses based on projected increase in rent? A moderate remodeling of your bathroom and kitchen is likely to increase the amount you can rent your unit by $150-$200/month (this is case-by-case), meaning your pay-back period is likely 10+ years. Keep in mind that the market value of your updates will depreciate annually and usually at a faster pace under the wear and tear of a rental unit.

Tenant Profile

The ROI of remodeling is heavily based on the type of tenant you’re most likely to have. Your tenants will most likely place more value in convenience, affordability, and functionality than they do aesthetics and upgraded finishes/appliances. As the tenant profile shifts towards families and higher-end properties, the ROI of upgrades increases.

Length of Stay

The less time a tenant plans to stay in a property, the less concerned they’ll be with updates, but tenants planning to stay for three or more years will consider their rental to be more of a home and place great value in an updated kitchen and bathrooms. As the tenant profile shifts to longer rental periods, the better the ROI on remodeling. In your case, the tenant profile is more likely to stay for 12-24 months, diminishing the value of remodeling.

Tax Write-Offs

According to Joseph Aiken, CPA with Aiken & Company, the current tax code considers any capital expenditures on remodeling to be depreciable assets, meaning you can’t write off the cost of your remodeling in the year you spent the money, rather deduct it over a 27.5 year depreciation schedule.

My advice for investing in a rental property is similar to investing in pre-sale improvements. Fresh paint, quality floors, lighting, and a deep clean go a long way on a rental property without breaking the bank and can usually be written off as maintenance expenses on your taxes. Check out IRS Publication 527 for tax details on rental properties.

Best and Worst Months To Advertise Your Rental

Question: I’m wondering statistically what the best months are to advertise a property for rental. On my own I can figure out it’s probably not the dead of winter, but was wondering the answer from a professionals data driven point of view.

Answer: The best way to measure this is to look at how long a home is on the market and how close the final rent price is to the asking price. Since 2010, the data shows that the best time to list your home for rent in Arlington is from March – June, with June listings moving the fastest and May listings commanding rents closest to the ask price. Homes listed for rent in November spend the most days on the market, taking an average of 25 more days to rent than homes listed in June. Somewhat surprisingly, landlords who list in September cut rents more than any other month, compared to the asking price. My guess is that it’s due to owners offering a higher original price because it’s still summer, but missing out on the spring/early summer rental demand.

Best Months For Landlords To List: March – June

Worst Months for Landlords to List: October – January

The data was pretty consistent across different housing types (detached/single family, townhome, and apartment) and by zip code. Check out each table below for some specifics on your home type and zip.

The Data

The data below represents all 12,256 rental transactions recorded in MRIS (Realtor database of record) in Arlington since Jan 1, 2010. The data is organized by the month they were listed for rent.

There are three data sets presented. The first is all rentals by month, the second is by housing type (detached/single family, townhome, apartment) and month, and the third is by zip code and month, presented in two separate graphs because the table was too long (email me if you’d like to see the data table).

Table #1: Rentals By Month

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Table #2: Rentals By Housing Type And Month

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Graph #1A/B: Rentals By Zip Code And Month

Ask Eli graphs

Building New Apartment Projects vs Condos

Question: Why are there no new big condo projects coming? All of the major announcements such as the old Macy's Furniture plat, the Mazda dealership plat and the bar at Quincy and Fairfax Drive are going to be apartments.

 

You’re right; we’ve seen a ton of large apartment projects recently and in future plans. Just around the corner from where I live in Rosslyn, we’ve added about 1,000 new apartment units in the last 2 years at Slate & Sedona, 1919 Clarendon, and 2001 Clarendon, but zero new condos.

Why? Here are some reasons building an apartment complex has been a popular choice (although, I believe that’s changing, hence the growing list of new condo projects) in recent years:

Millennials

According to WAPO, over 27% of Arlingtonians are age 25-34 and they’re not buying homes just because their parents did, but comfortable renting until they’re sure it’s the right decision for them. I think a lot of this has to do with job-hopping every couple of years and Fannie Mae making it more difficult for those with less savings and shorter credit history to get a mortgage.

However, Millenials are having kids and finding more value in settling down with an employer and, according to Jake Ryon with First Home Mortgage, Fannie is “making it much easier to become a homeowner by reducing down payment requirements from 10% to 5% on loans of $417,000-$625,500 and to 3% for loans under $417,000.” These two shifts are resulting in an increase in the number of new condo projects in Arlington.

I’d love to see new condo projects include family-friendly amenities like indoor/outdoor playgrounds, day-care centers, and game rooms like buildings I’ve seen in NYC.

Investment Strategy

I’d also argue that when a developer chooses an apartment project, they have some very savvy people determining that Arlington is a great long-term investment and they’ll fare better generating long-term income here than quickly flipping their project to homeowners.

Something else to consider is the condo conversion strategy where a developer may find it more lucrative (and easier, due to looser building codes) to build an apartment now, generate solid income returns while rental rates are at all-time highs, and convert to a condo building when the time is right. There are many examples of this such as 38 Place and Arc 3409 more recently and Prospect House in the 80s.

Location

I’d be remiss not to acknowledge the transient nature of our population, relative to most other cities.  With so much of our population being made up of short(er)-term/contract employees and grad students, we have an extraordinarily high demand for rentals.

Where Should They Build?

I think Cherrydale, Columbia Pike, and Rosslyn are primed for new condo construction. What neighborhoods would you like to see new condo construction instead of apartments?

Renting Your Apartment Furnished or Unfurnished

Question: I’m moving in with my fiancé and don’t need my furniture. Should I rent my apartment furnished, partially furnished, or unfurnished?

I get this question frequently and it’s common for landlords, especially new ones, to struggle with this decision. There’s not one right answer, rather a few good options, each with its own pros and cons, that you should choose from based on your financial goals and what type of landlord you want to be. I’ll go through a few, but you can mix and match strategies to fit your profile. DO NOT furnish anything you want to keep (e.g. family heirlooms).

Option #1 Quick rent, flexibility: Offer unfurnished at market rate and furnished for a 10-25% premium (depending on quality and amount of furnishings). Be willing to negotiate for partially furnished. The value of furnished vs unfurnished depends on the type of tenant likely to move in. For example, a recent college grad will value avoiding the expense of buying/moving furniture, but a young family likely has everything they need and wants to keep most/all of it.

·      Pros: largest pool of renters, best chance to rent quickly, more likely to find a long-term tenant (18+ months)

·      Cons: high chance of having to quickly sell-off unwanted furniture at a deep discount or pay to store it

 Option #2 Top $, unpredictable: Target the corporate rental market by offering short-term (monthly) rentals at a premium (50-100+% above market for comparable unfurnished, 12+ month rentals in your area).

·      Pros: great returns when occupied, low probability of late or non-payment, lower risk of excessive wear & tear during occupancy

·      Cons: high turnover, unpredictable cash flow, high cost of renting (prepping for new tenant to include cleaning service and possibly handyman), smaller pool of potential renters

Option #3 Daily rental, active management: The extreme version of #2. Use a site like AirBnB or VBRO to capture the massive tourism and business traveler market by turning your apartment into a daily rental. I’ll leave income fluctuation/predictability out of the pro & con list because ratings, pricing, marketing, and experience because they’ll likely start as a negative and develop into a positive, over time. If you aren’t living in the immediate area, this becomes a less appealing option.

·      Pros: potential for huge return, opportunity to meet interesting people and be a local tour guide

·      Cons: requires constant attention/management, high cost of operation, increased wear & tear, political scrutiny (not you, but the industry)

 

A few notes to help with your decision:

·      Fully Furnished = everything from couches to silverware to a TV

·      Property Managers handle things like rent collection, service/handy calls, and the eviction process if necessary. On average, they charge about one month’s rent annually for their services.

·      If you choose to list through a Realtor, expect to pay anywhere from 75-100% of one month’s rent, but make sure you’re getting things like a full MLS/MRIS listing with professional photos