In the post-crash US housing markets, rents are rising in many cities while low interest rate loans are making housing purchases relatively easy. These two intersecting trends create a window of opportunity for new investors interested in applying Jason Hartman’s rental investment strategies. But the upward swing in rent prices adds a new twist for rental real estate entrepreneurs.
The rental market is booming. In several major markets around the country, including Chicago, Houston and Los Angeles, renters outnumber homeowners. This shift is partly due to the 2008-2010 housing collapse that led to dramatic increases in foreclosures and bankruptcies. Homeowners who lost their houses to foreclosure and can’t qualify to buy another property have now become renters once again. Other reasons include a rise in the number of “working poor” households that simply can’t accumulate money for a down payment or qualify for a loan, immigrant households with all members working at low-paying jobs, and young professionals for whom renting better suits their lifestyle.
Because of the demand for quality rental housing, supply is dwindling while rental prices are soaring in some areas, creating the potential for another shift in the market. Renters in these areas are paying rents far in excess of a monthly mortgage payment. So some of these renters, if they’re qualified for a housing loan, are shifting toward purchasing a home, simply because it’s cheaper than renting. These buyers are not investors; they simply want a house to live in.
What does this mean for rental property investors? Conditions are favorable for buying rental property now, probably the most favorable in years. And in many areas of the country, quality properties are still available, partially due to lingering fallout from foreclosure cases working their way through the courts. For those investors able to snap up some of these properties quickly, either by paying cash or by negotiating terms to buy multiple properties at favorable rates, opportunities exist for creating a stable investment income from rents made competitive with the surging rental rates in markets across the country.
But as some renters trade monthly rents for mortgage payments, the number of single-family homes available for purchase in a given area may be shrinking. Rental property investors who can pay cash or who can qualify to purchase multiple properties at once have an advantage in these markets. Also, since non-investing homebuyers are primarily interested in purchasing single-family homes, rental property investors may find it easier to focus on buying multiplex properties — duplexes, triplexes and even quadruplexes count as single properties for some housing lenders.
The recent upswing in the demand for rental housing, coupled with rising rents around the country, point up the possibility to create a stable income flow from rental property investments. But those same factors, combined with low-interest mortgage rates and the lingering presence of many foreclosures on the market, may pose challenges for investors in some markets. As Jason Hartman advises, buying as many properties as possible in different markets is a smart strategy for making rental investing work for you.
The Jason Hartman Team
