Central Valley

Real estate woes make it a renter's market in the San Joaquin Valley

It's a great time to be a renter and lousy time to be a landlord.

Rents are down and vacancies are up at many Northern San Joaquin Valley apartment complexes. The same is true for many private rental homes.

To lure tenants, many property managers are slashing rents and offering move-in deals.

Flip through The Bee's classified ads and you'll find apartment specials like "half-off the first three months rent," "$400 moves you in" and "first month free with one-year lease."

Apartment owners are giving such discounts because they can't fill their units.

Modesto's apartment vacancy rate is at 10 percent, which is among the highest in California, according to RealFacts rental statistics for July, August and September.

Example: Meadowlakes Apartments on Lakewood Avenue is leasing two-bedroom apartments for $695 a month. Those same units used to rent for $830, which is 19 percent more.

"We're offering a big, deep discount because we ended up with five upstairs apartments open," said Wanda Francek, who manages the 196-unit complex. "This is one of the lowest prices we have had a Meadowlakes in a long time."

The average rent charged by Modesto's 28 largest apartment complexes is $816, which is within 1 percent of what units were renting for three years ago, RealFacts data shows.

But those rental rates don't take into account the discounts new tenants are getting. So in reality, the typical tenant is paying less these days.

Despite that, many tenants are abandoning apartment life to move into rental homes.

There are plenty of rental houses to choose from. Renters can thank the foreclosure crisis for that. During the last three years, more than 16,400 Stanislaus County homes were lost to foreclosure, including about 7,800 in Modesto.

Many of those homes have been resold by banks to investors who have turned them into rentals.

In 2005, for example, the U.S. Census Bureau determined there were about 57,500 rental units in Stanislaus County. But last year census workers identified more than 60,800 rentals. That's nearly a 6 percent increase.

"Tenants have a lot of choices now," said Ben Sweet, who runs Sweet Properties rental management in Modesto. "Apartments and multiples (like duplexes and triplexes) have suffered because you can rent a single-family home for relatively the same amount of money."

Sweet said he rents small, two-bedroom homes for as little as $575 a month.

To get some houses rented, Sweet offers deals like: Half-off the first month's $950 rent for a three-bedroom, one-bath home on Modesto's Catalina Way.

"The prices for house rentals are maybe 5 to 10 percent lower now than they were a year ago," Sweet said. He estimated that a typical three-bedroom, two-bathroom Modesto home now rents for about $1,100, but landlords could have gotten $100 to $150 more per month a couple years ago.

Bigger houses are tougher to rent, and their prices have come down even more. Sweet said he used to be able to find renters for homes priced up to $1,600, but now it's difficult to get anyone to pay more than $1,350.

Investors who have purchased rental property "are just amazed" when he tells them how low rental rates are in Modesto.

The average California apartment rents for $1,374 per month, which is 68 percent more than what the typical Modesto renter pays. San Francisco renters pay $2,270, which is nearly triple the Modesto rate.

"Sometimes investors didn't do their homework before they bought," Sweet said. He said they don't like hearing his projection that rents — at best — will remain flat in Modesto. "I don't see how economically in the near term you could have any kind of rent increase."

Rental rates are tied closely to family incomes, Sweet said, which have fallen for many in the region.

Stanislaus' unemployment rate is 15.3 percent, so many families have lost one or more sources of income.

"In the interest of saving money," Sweet said, "we're seeing people joining together in rental homes, whether they're related or not."

Another trend, Sweet said, is that "we're starting to lose some of our better tenants with good credit because they're buying their own houses."

Four years ago at the peak of the real estate market, the median-priced Stanislaus home sold for $396,000, which was far beyond what most local families could afford.

But the median-priced home sold for $140,000 last month, which means monthly mortgage payments may not be much more than rent.

Bee staff writer J.N. Sbranti can be reached at jsbranti@modbee.com or 578-2196.