Investors often call or email me all excited or perhaps disappointed by a headline or an article they have read on real estate investing and want to know my thoughts.
Before you move past the headlines you want to ask yourself if this is local news, county news or national news. How does that news truly affect your rental business?
Sometimes articles can sensationalize a topic, so you want to read between the lines, but there are five very exciting topics I continue to see.
Each topic is interesting but as a group they all suggest a great year for landlords to grow their businesses. Reading deeper it may also suggest the window of opportunity is narrowing.
1. Wall Street investors shifting gears
Remember the iconic headlines reporting on the interview with Warren Buffett in 2012 when he said, “I’d buy up a couple hundred thousand single-family homes if I had a way to manage them.” You can hear him talking about this here in this recorded replay which helped jump start the housing rebound.
This is exactly what Wall Street set out to do. The unfortunate part for many of my smaller individual investors is they were intimidated by these billion-dollar checkbooks buying up all the property. Headlines everywhere talked about the hundreds or thousands of homes they were buying.
The small mom and pop investors thought they were being squeezed out.
Gurus were making headlines with silly comments about the death of the mom-and-pop investors. Who were the gurus writing for? Themselves- because they wanted to sell their newest program.
Well, you rest comfortably now. This group has gobbled up all it can handle and moved on to REITs and larger apartment buildings.
The number of single-family homes owned by Wall Street investors is only about 8% of all investment homes. Tenants quickly learned that individual investors do a much better job of managing properties. Managing properties is the comment Warren Buffett stated was the challenge for large-quantity investors to handle.
So that baton has been handed back to the mom-and-pop investor, reducing the competition. With Wall Street out of the picture, individual investors are back to dominating the single-family rental home business which of course pleases many individual real estate investors.
2. Rental demand increasing in smaller cities
I have a number of happy investors because of this one.
Big cities in the past have dominated rental demands. Now more and more Baby Boomers have entered the rental market and they prefer to live in smaller cities.
The Millennials as well often prefer a smaller city. As these two groups represent the two largest segments of renters, it opens up many more markets for small investors to diversify their portfolios into markets they feel more comfortable owning property in.
Of course as I always remind investors the market should be sustainable. Which means it should be an undervalued market with plenty of job diversity and job growth.
3. Marriages are being postponed
People are staying single and will not be tied down to a mortgage.
This is pretty much what the Millennials are looking to do as I uncovered when researching Millennials in the market place.
Most Millennials are delaying marriages and delaying having children, as they like freedom and mobility. Most are not getting married, if at all, until mid- and late 30s and with such a vast population -the largest group of people by sheer numbers- they have created a huge need for rental housing.
4. Lower down payment requirements but restrictions remain high
While lower down payment requirements help people obtain a mortgage the restrictions remain high. The perception of tight restrictions is higher yet.
Studies and surveys conducted by a number of lenders show that most people do not even attempt to obtain a loan as they do not believe they will qualify.
For a number of years, headlines talked about the challenges of getting a loan. While the challenges are still there, many simply do not believe they will qualify, so they opt to keep renting.
Whether they can actually qualify for a mortgage or even feel they cannot, these people continue to rent, adding a stronger rental base for investors to choose from.
5. Rental demand increases
These are the headlines my investors love the best, and there are many of them.
Every week I read multiple articles talking about home vacancy rates decreasing and rental demand rising.
The question I often get asked is, “Will this rental demand be sustainable?”
Only time will tell this for sure, but here is my take on it:
For about a 10-year span from the mid-‘80s to the mid-‘90s we hovered around a 64% home ownership rate. Then when the mortgage industry switched gears to entice more home ownership, the ownership rate increased to over 69%.
We all know this created many challenges and the finance industry collapsed , putting us right back to where we were in the mid-‘80s with ownership rate down to more of a historic average. It appears to me without the outside influences of programs rental rates and ownership rates are sitting at a comfortable place for the majority of people.
Many people who were forced back into renting are finding comfort in the mobility and not being tied down to a mortgage. Many have found comfort in renting, so I believe we have many years of strong rental demand.
Supply and demand appear to be safely in the hands of the landlord
The question now is, “How long will the window of opportunity exist?”
This question makes me reflect back to one of my favorite lines from the movie “Other Peoples Money,” which says, “The game never changes, only the rules change.”
The comparison of course is that opportunities always exist, you just need to change with the times. I believe the next changing tide will be the increase in interest rates which will prompt changes in what, where and how we invest.
For the better part of 2015, while rates are low, I believe investors are sitting comfortably and they have taken notice that they should be building their rental business portfolio.
Visit Larry’s website here.
[hs_form id=”4″]
0 Comments