Real estate is like anything else that is cyclical in nature, with trends always changing.
Over the years I have learned what is important to watch for, not just for today but also what is coming down the pipeline, sort of like having a dashboard perspective of the investing arena.
I find it is important for us as investors to know what is trending as well as to know what our tenants are looking for.
So what should investors watch for as we enter the new year? I see a number of trends occurring, and mostly centering on the increasing demand for rentals:
Renting expands while homeownership contracts
Foreclosures, short sales, job loss and bankruptcies forced many into renting. While some want to get out and buy, many struggle to get or qualify for loans. Also, a number are feeling comfortable not having the worry of the recent memories surrounding mortgage debt.
Rents are rising, but at a reduced pace:
Supply and demand is definitely in favor of the landlord, which keeps rents rising. However, with rents rising considerably higher than the cost of ownership, the increases in rents need to stabilize to avoid pushing tenants into buying rather than renting.
Keep an eye on Millennials
As a landlord, do you know how to capture the Millennial tenant?
Millennials are being highly sought after, so it is imperative to keep an eye on this group: These young professionals represent the largest pool of renters and buyers. They are seeing the largest increases in job opportunities as well as pay. This group typically prefers to rent. They want to be flexible and less tied down to home mortgages, so they tend to be your new tenants. The real estate and mortgage industry, however, are promoting now is the time to buy campaigns as they understand there is huge opportunity for them.
How landlords are capturing the Millennial tenant
This group prefers inner city living. They like to be located close to employment and entertainment. Also they are very techy. Landlords wanting to attract them are advertising on mobile friendly websites with direct links to online applications. Of course their rental units need to accommodate their inner city living lifestyles.
Empty nesters and retirees are renting more
Fueled by the desire to be less tied down to responsibilities of maintaining a home, this group of people is finding comfort in renting. This adds yet a larger pool of tenants for the landlords to choose from. These retirees opt for smaller communities in areas where cost of living is cheaper.
More apartments are being built
Like any industry when there is a need, there is someone there to fulfill it. Rentals are in demand and larger investors are building apartments to fulfill that demand.
Downpayment requirements
Down payment requirements are declining but restrictions remain high. In attempts to capture a larger buying audience, the down payment requirements have been dropping. Lenders, however, have too much risk to be lowering restrictions such as debt ratios so many people continue to struggle to qualify for a loan. Landlords love this trend, which is likely to continue for the foreseeable future.
Marriages have been postponed
Fewer people are getting married these days and when they do, it is at a later stage in their lives, which means fewer children are being born. With smaller families comes less need for larger homes. This phenomenon also adds to the desire of renting versus buying.
Smaller cities
Smaller city rental demand on the increase: Some renters are entrepreneurs. Others are older and with smaller families, and smaller cities are becoming more and more popular with this group.
Higher mortgage rates
Yes, the federal government has pulled back on stimulus programs and the country is getting back on its feet so the interest rates are expected to rise. Probably only about a percent or so this year and continuing to grow in the future, but they are definitely going to be on the increase. This will make ownership harder to obtain by many, keeping further desire for rentals.
The great takeaway for you landlords reading this is rental property demand is going to be stronger than ever for the foreseeable future.
With such a large audience of renters from the Millennials to the retirees and everything in between, investors with a variety of investment niches have a great future in front of them.
As I tell all my clients and especially new investors, identify the niche you wish to invest in. Study it, master it and most important stick with it.
The future suggests that the purposeful investor has a bright outlook in the landlord tenant business.
Visit Larry’s website here.
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