The dynamics of Ann Arbor's income property market is something that is not often seen by outsiders, but I am here to let you in on some of the great secrets of tenants and their mindsets and how it effects the pocketbook of income property owners. While Ann Arbor has the University of Michigan, the central campus area is not the only rental area in town. I have clients who own outside of the "golden triangle" of campus and have done quite well. That is not to say that central campus properties are not desirable, but someone purchasing rental properties in Ann Arbor has to ask a fundamental question. That is "what type of renter do I want to have?" An investor should not be looking for the property which will gain the most income, have the lowest GRM, maximum amount of bedrooms, etc. They should be looking for the properties which will fit their ideal tenant client.
This is something that took me a long time to understand, but it is so fundamentally simple that it should be the basis for all those looking for income properties to diversify their portfolio. For as we all should know in being tenants previously, we all treated our apartments/rental houses differently. Also, at different times in our lives, we were willing to pay different amounts for rent. So this comes back to the question, what type of tenant do you want? Are you willing to pay a little bit more for a house near campus which will maximize your return and pack a lot of people into a small amount of space? I know some of my clients love them, and they have done very well in investing in central campus 4-7 person houses. These houses may be treated harder than other places, but their standards can also be lower due to their proximity to campus. They may fetch a higher price to buy, but they can also get a lot more per bedroom in rent. These are the expensive, high rental amount houses, but they also come with some higher turnover expenses. They may come with a few more maintenance requests and loud parties, but much of the time the high rental amounts are worth the worry.
I have some clients who prefer a more mature tenant, who may typically demand a smaller place (1-3 bedrooms) and will want the area slightly quieter for studying. Depending on the location, you may get less per month in rent for these places, but the units are not lived in as hard and are returned in much better condition. Rent is usually paid more frequently, and you may have less problems. Turnover costs with these may be less, which could help your bottom-line, but do you need more volatile place to make more money? Is it worth your time?
There are also others who don't go near campus and all it entails, for they feel that the prices of the properties are much better off campus and they have longer termed tenants. Long term tenants are great because they don't cost money for turnover, and you know you are going to have a tenant month in and month out. But you may not be able charge as much for these places, and you may not be able to raise rent much while they are in the units.
There is also the question of location. While the "golden triangle" will always get high rental amounts, many new areas of town and campus are becoming new rental hotspots. Parts of Burns Park are being taken back and rezoned by the city, so that it will go back to being a residential area and not predominantly rentals. New apartment complexes are going up and seemingly raising the bar for rentals. What was acceptable five years ago as a good rental is now not so much. The modern landlord or income property owner has to be in touch with his tenants and the emerging rental market (or have a good management company) or else be in jeopardy of becoming behind and not having what today's tenant will want.
I still believe that properties are the greatest investment which you can invest in, as their returns and tax benefits are significant. If you have the knowhow, or at least some good direction, property ownership can be unreal to your investment portfolio.
What kind of tenant do you want to have? Answer me that question and I should be able to find you a few properties which will fit your criteria, along with insight into the tenant trends which I have been seeing. David A. McNamara - Tree Town Realty www.DAMcNamara.com Email: David@TreeTownRealty.com Cell: (734) 476-9768
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