Historically low real estate prices aren’t the only reason real estate investing can be so profitable right now and in the years to come. For those investors buying investment properties and planning to hold and rent for several years, the prospects for a strong rental market look good.
It probably comes as no surprise that for the average consumer, owning a home has become increasingly difficult. Lending guidelines and credit restrictions have continued to tighten resulting in a decrease of potential homeowners who can qualify for a mortgage. This is evidenced by the fact that home ownership rates for those 35 and under have hit a 16 year low.
In fact, apartment owners are already seeing a significant bump in demand as a result of more renters in the marketplace. Many of the largest multifamily REITs in the country are currently near their 52 week highs as a result of the strengthening rental market. And the projections for the next year or so continue to look good with the CEO of rent.com actually projecting vacancy rates to fall as low as 5% by 2012.
As any good economist will tell you, with demand growing and a decrease in supply, the rental market should see an increase in prices. In fact, I’ve heard projected increases as high as 10% each year over the next couple of years in some of the hotter rental markets. While I personally believe the continued glut of foreclosures will rein in any huge spikes in rentals prices, I would expect modest and consistent rent increases over the next few years.
As a real estate investor, these projections only fuel the fire to buy more investment property. I currently analyze a potential purchase in terms of what my current cash flow would look like, but truth is, these numbers will only get better over the next several years. I’ve already experienced increases in cash flow as a result of reductions in my tax assessments (thus lowering my yearly property tax bill), and now I can anticipate the added benefit of increased rents as well!
With prices and interest rates at historical lows AND a strong rental market, it stands to reason that there has never been a better time to buy investment property. More renters, increasing rents – a winning combination for real estate investors!
Image: Living in Monrovia