Right now, there is an Oklahoma City rental property bubble.
It makes me thing of another famous bubble dating way back to 1637.
But let me first describe the Oklahoma City rental property bubble than I’m talking about.
New Oklahoma City apartment units are everywhere in the downtown area.
Most of those projects are finished, but there are still units that currently under construction.
The construction boom has both enlivened the downtown area, and changed the okc rental market.
Downtown Oklahoma City used to be absolutely dead after 5 pm and on the weekend. I remember those days.
Now it’s the hub of action.
Thanks to a concerted effort by the city, the downtown has been transformed from on life support to the place to be.
What has the abundance of Oklahoma City luxury apartments done to the market?
According to The Oklahoman, more than 3,400 new apartment units were built across the metro area. And 25% of those were in the downtown area in just three developments.
The oil boom that ended in 2014 drove this development. But as the article in The Oklahoman points out, apartment complexes are like battleships in that you can’t stop construction on a dime.
Layoffs resulting from the current slump in the oil market have softened up the real estate market. By the time the oil market cratered in 2014, the developers were already too far along in their construction to stop.
Therefore, you ended up with a big glut of inventory.
Luxury apartments are not sprouting up in just the downtown only. You also see them in other parts oh the Oklahoma City metro such as south Edmond along Memorial Road.
There are other pockets of development such as near Tinker Airforce Base.
These new Oklahoma City apartments have all the latest and greatest updates. What’s not to love?
What do those new downtown Oklahoma City Apartment units mean for the overall rental market? An Oklahoma City rental property bubble.
One-bedroom apartments typically rent from $900 to $2,000 per month.
There is definitely a range. In one recent development, the one- and two-bedroom apartments ranged in size from 789 to 1,267 square feet. These units rent for $799 to $1,299 per month.
These Oklahoma City apartment units compete against other $1,000+ rentals, because small families or couples can live in either. Prospective tenants can lease a luxury apartment instead of leasing a 3 bedroom 2 bath house in that price range.
The supply of $1,000+ per month home rentals (older properties) is much higher than even a year ago. For example, the numbers of rental homes in Edmond is currently 431, which is about twice the normal number. As a result, rental prices in the $1,000 price range are declining.
Back to the Price of Tulips in 1637
In the 1630’s, the tulip market in Holland went absolutely crazy.
According to Invostopedia, between November of 1636 and February of 1637, the price of tulip bulbs increased 20 fold.
By my May 1637, the prices dropped 99%. During the peak of craze, some tulip bulbs were more expensive than luxury homes.
The demand for tulips drove prices insanely high.
The rising prices drove tulip bulb production through the roof, leading to a surge in supply.
The surge in supply caused prices to crash.
You see a very similar thing happening right now in Oklahoma City.
You can see an Oklahoma City rental property bubble.
I doubt the bottom is going to come out from the market, but the effect is similar.
It’s supply and demand. As the supply goes up and up, the demand goes down and down.
What can you do?
Here are five ways you can beat this trend.
If you have a dated condo or apartment, adjust.
There has definitely been a migration of people from older units to the newer ones, as pointed out in The Oklahoman article. If you happen to own these older properties, you are going to have to adjust what you are doing. You may need to:
1) drop your rents, or
2) upgrade your property.
If you have one of these, properties, they are going to have to be sharp looking. If the properties are sharp, you can keep the rents up.
Here is a short list of what tenants love to see in a unit:
- New carpet,
- Freshly painted walls. Avoid floor to ceiling white – consider a more contemporary color. If you are in doubt, watch some HGTV. If you google “contemporary colors” you’ll see every color of the rainbow. Don’t let that bother you. Find something that works for you and stick with it. Paint your walls one color throughout.
- In the kitchen, think granite counter tops. If you have a really dated kitchen, consider changing out the cabinets. But don’t waste money here. Use an ornamental mosaic tile back splash. These really add a nice touch to the kitchen. The lady of the house will love it.
- Tenant love open layouts. Sometimes it makes a lot of sense to remove a wall here or there. But be careful with this because you can really start spending some dollars where you don’t really need to.
- Make certain she’s going to love the bathroom. When in question, ceramic tile. And not the cheapest thing your contractor can find. Make it nice. Use accept tiles in your shower surround. It doesn’t add that much cost to the project.
Otherwise, drop that rent!
If you have a $1,000+ per month house to lease, get your property management locked down!
As I said previously, rents for $1,000+ per month houses for rent are dropping. If you are trying to lease a house in that price range, you’ve absolutely got to have your property management locked down. You’ve got to be responsive to tenant requests. The last thing you want is for tenants to move out of your property.
Think about it. It’s going to take you longer to fill vacancies because of the glut on the market.
You’ll likely have to drop the rent somewhat.
As always, you’ll have cost in make ready, vacancy, and leasing fees (if you employ a property management company).
Get your property management locked down!
I don’t think it’s a great time to sell a property like this unless you are planning to reinvest the money back into other real estates that is more profitable. For example, rental properties in Midwest City.
The Lower Price Range in the Oklahoma City metro area is strong.
However, there is hardly any effect, that is, a decrease in rental demand, in lower price properties ($500 to $800 per month). There is very little housing stock in the lower price range being added to this price range. Developers aren’t building apartment units in this price range. For the most part, the only housing stock being added in this price range are older homes previously out of service that are being renovated.
The numbers of people who need rental properties in the lower price range is increasing. In fact, between year 2000 and 2014 the population of the Oklahoma City metro area grew annually 1.6% (Oklahoma city data).
The lower-priced rental market is an excellent property to own because very little housing stock in that price range is being added. Remember, it’s all about supply and demand.
When I originally wrote this article in early 2017, one- and two-bedroom units were hot. We couldn’t keep them in our rental inventory. They rent right away, especially if the units were nice.
One-bedroom units are now in less demand as more and more units have come onto the market. Rents of those units have dropped.
The highest demand as of summer 2018 is not 2- to 4-bedroom houses.