For those of you that own rental properties or are thinking of buying one.
I see a lot of households consolidating lately. Is it harder to fill vacancies? Do you expect that answer to change in the next five years? Will you have to lower your asking price on your rentals?
I haven't had a vacancy for more than one month in the past 8 years.
Today I drove up to the sweet city of Reading to look at a 2 unit and speaking with some people who didn't have pit bulls pointed directly at me I found that the consolidation was helping to drive the rents up. More people in one apt, more rent I suppose.
I can only speak anecdotally from my lofty position as an employed person, I have not seen any consolidation. In fact, among the people I know, there has been a dispersion through divorce/break-ups and "moving out for the first time". Probably about a 2% increase of households.
The outlook and demographics for the rental market has never been stronger. It's the sweet spot right now and most likely for many years to come.
Case in point: See this article from Barrons...
Ooops...I almost forgot about this one, too...
Do your own due diligence and buy right. The most important piece of advice I can give beyond that is make sure you are "cash-flow-positive" from the outset. That means that not ALL markets will support rental real estate, but there are many out there that will according to the above criteria.
I guess I'm more pessimistic about the economic recovery than both of those articles.
Also, neither on addressed the problem of houses that were/are in foreclosure coming back on the market and driving prices down. That's a real thing, right?
And who ends up taking care of all those ailing baby boomers whose kids are about to leave the nest after coming back post-college?
@hickchick
You're asking good questions and I appreciate your diligence and skepticism. If you do eventually buy, you'll most likely buy smarter than most. Either way, you'll have made an informed decision.
The rental market is stronger because of the economic problems. People who have lost their houses must live somewhere and the most viable option is to rent.
People who are afraid to buy because of the economy's uncertainty flee to the "safety" of a rental while they wait for the ground to solidify.
Very few foreclosures that have made their way to the market are becoming rentals. Many, if not most, are usually bought by owner/occupants. Those that are converted to rentals are easily rented due the reasons already listed above.
I think the Barron's article already addressed the Demographics side of the equation. It's (the rental market) looking good for the foreseeable future.
The "icing on the cake" is that when the economy (and ultimately housing) does regain its footing and home ownership comes back into a more favorable light, the value of the rental houses will rise again and you can sell them for a tidy profit.
In the meantime, the tenants will have made the mortgage payments, insurance payments and paid for the Landlord's equity (my spreadsheet calculates that my tenants are paying $7,416.00 this year towards my equity) which he can then cash out. IF you buy right you will do fine. Too many homeowners and investors over-leveraged and are paying a high price for not having done proper due diligence.
If done right, it's a win-win scenario.
Too many homeowners and investors over-leveraged and are paying a high price for not having done proper due diligence.
Amen. These are the same guys who will tell you you can't make money in real estate. To which you have to say, as I've said, "No. YOU can't make money in real estate. I'm doing just fine."
Another amen on due diligence over abstract speculation. Put another way, there is no substitute for learning local values yourself; as MikeBos points out, no shortage of naysayers. If you buy, a legion of sidewalk engineers (perhaps your own friends and family) will call you an idiot for overpaying for a piece of junk. And when you sell the same property for a profit, they will call you a fool for letting yourself be robbed. Such is the eternal background noise in the real estate business.
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