Purchase or Lease?
It is widely known that we are in a housing market of unprecedented strength, and with seemingly endless challenges for people who are frustrated in attempts to purchase a home. Now that interest rates actually have begun to increase, the cost of buying a home is greater, and this is resulting in even more difficulties.
There are always options, of course, including the purchase of a home that does not quite meet as many of their criteria as they had been wanting. In fact, many have eventually succeeded in winning a bidding war by accepting several compromises in either the location, size, or condition. However, for those unable or unwilling to make such trade-offs, and yet there is a necessity to move into a different home, the solution in some cases has been to lease rather than purchase.
There has always been a strong leasing market in the Palisades, and monthly rents have increased right along with the increase in home sales values. In fact, the rate of leasing here is nearly identical to the rate of sales, as compared with the inventory available for each.
As of April 1, 2022, there is less than a 2-month inventory of homes available to lease, with 264 having been leased in the preceding 12 months. Palisades’ lease prices have increased over the last year by an average of 11%, with the current median price being $9,625 per month. A typical lease in that range is 3-4 bedrooms, 2-2.5 baths, and about 2,300 square feet.
Some owners have decided to not sell their property, for various reasons, and inquire about how the leasing process works and whether it is a good investment decision.
Who’s Responsible for What Costs?
Generally, the owner of the property remains responsible for landscape and pool/spa maintenance costs, as well as the homeowner insurance and taking care of miscellaneous maintenance costs that may arise during the lease. They also need to pay any monthly homeowner association fees. Some owners choose to use a property manager, while others prefer providing a home warranty plan to cover most types of repairs that may come up.
The tenant typically is responsible for all utilities, including any security or cable connections they may choose to have. Nearly all of the leases our team has done include a 2-month security deposit which is intended to be used in case there are damages to the property during the tenancy.
Whether or not a lease is a good investment depends on many factors. Of course for the tenant, it is purely a monthly cost, even if there may be some slight tax write-offs depending on their situation.
For a landlord who has owned the property for many years, their cash flow will be substantially greater than for someone who might be purchasing a property now to use as a rental property. In fact, the net return after property taxes, insurance, maintenance, etc, on a new purchase to lease in the Palisades might not even yield 2% before various other taxes! We highly recommend anyone considering leasing their property first consult their own tax advisor before making such investment decisions.
Does Our Team Do Many Leases?
Yes, in fact, we probably represent more landlords and tenants than anyone else in the Palisades. At present, we have 30 properties leased from $5-28,000 per month. The average time it takes us to obtain a satisfactory lease in the current market is 3-4 weeks.
How are leases handled? They are marketed in much the same way as the homes we sell, with professional photography and print ads as well as online, and generally are shown by appointment only. Our role as the agent is to obtain tenant application information and credit reports for the landlord to review. They are also encouraged to check with the potential tenant’s current or previous landlord to see if rent payments were on time, etc.
We are always glad to provide complementary information to local property owners who are considering a plan of action to either sell or lease their property.