More Renters + Increasing Rents = Good Time to Invest

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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

About Author

Ken Corsini

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market. Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.

18 Comments

  1. Great article. As rents continue to rise and the mass media continues to put out stories of people who refuse to re-enter the housing market a great opportunity is created for us investors. By the time most people catch on and the cost to rent outpaces the cost of buying we’ll have properties to sell them for a tidy profit 🙂

  2. John Evan Miller on

    Absolutely, there are great investment opportunities on the market. More people are renting, home prices are incredibly low, and interest rates are low. The market is definitely a buyers’ market and is great for investors new and old.

  3. Move, Inc. just released a survey about real estate investors. Some of the key points: by three to one, real estate investors will be more active in their local markets compared to typical homebuyers in the next 24 months and 69 percent of investors say it will be easier to find properties in the near future. What’s also interesting is that most real estate investors today are beginngers, not flippers.

      • Joshua, the survey shows that many people that don’t fit the “flipper” stereotype of buying and selling properties quickly are investing in real estate for the first time. In fact, half of today’s investors say they are planning to hold onto real estate investment properties for at least five years, which is much different than what a flipper does. Most investors today are also financing more than half of the transaction.

        • Despite what some TV shows will have people think, there has always been a large contingent of real estate investors who have been buy and hold as opposed to flippers. Is there a historic precedent for this study that we can use to make conclusions from? Without past data, do we really know that anything has changed in terms of attitudes for real estate investors — both old and new?

  4. It is interesting how even in the worst real estate markets there is still an opportunity to make money. Housing markets down? Foreclosures at record levels? People too scared to buy? Rental properties to the rescue! I agree with Ken on this one, the investment property market looks like a good bet for at least the next few years. Not every buyer will be looking to flip right now because of the attractive rental market.

  5. Certainly investing in real estate–by both long-time and first-time investors–is not a new trend. However, what’s interesting to note is that today’s climate is particularly attractive to a lot of beginner investors. No wonder. To Ken’s main point above, there’s never been a better time to buy an investment property.

    • Jill – Do you have some evidence to demonstrate new investors are flocking to real estate at any faster a rate than previous years/eras? I just hear you jumping to conclusions and would love to learn about the proof that supports them. If you have some kind of data you can share, that would be great!

        • Neither the poll or article you mention answer my question, but simply state that new investors are playing a role in the market, which I’ll content they have always done. Have you (NAR) and Move done studies in the past that we can use to draw historic conclusions from?

          For example, if you took a poll 5 years ago which said that 20% of investors were new investors and today that number was 67%, it would give us an interesting trend line to explore.

          As to the notion that now is a good time for investors, I say – yes it is. However, it is as dangerous a time to be buying investment properties as it has ever been for those people who aren’t savvy. Just because there are plenty of cheap properties doesn’t mean those properties are all good deals. Far too many people are out hyping how hot the market is for new investors – based on prices alone – without cautioning them to educate themselves on how to analyze and evaluate the prices on their ROI.

  6. Hi Joshua. You’re right and we absolutely agree that it is important for investors to be educated in today’s market. We believe in this so much that we provide a variety of resources online for those interested in making a real estate purchase.

    The Investor Survey simply suggests that a lot of people who don’t fit the flipper stereotype are currently attracted to real estate investing right now. This is a great thing for many local markets. There are many opportunities for local investors of all stripes today.

    This is the first time we have fielded this survey, and may consider doing another one in a year.

  7. Interesting, thanks for the post. I agree, here in Phoenix we are seeing a very strong rental market. I believe its because of all of the foreclosures and short sales which are causing a lot of previous homeowners to become renters. I know the properties I manage all were filled very easily and there has definitely been an uptick in rents.

  8. Robert Steele on

    I agree. I deal in SFHs north of Dallas. I started raising rents a year ago. I just raised rents on two more properties recently. The tenants didn’t even blink. When I put a new property on the market it rents quickly. As quick is 1 day. All those people that have been foreclosed on need somewhere to live and they don’t want to give up their nice McMansion style of life.

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