The landscape of the real estate industry is constantly changing. Those that are willing to adapt with the coming cycles are more inclined to succeed. Perhaps even more importantly, neglecting to address pressing changes could ultimately end in ruin. The ability to take advantage of what the market gives you is absolutely imperative. That being said; rehabs and wholesales are a completely viable exit strategy in nearly every market. However, buy-and-hold rentals are now presenting real estate investors with an opportunity they can’t afford to miss. Now is a great time to own rental properties – maybe the best time ever.
The prospect of becoming a landlord may be foreign to some investors. There are even those who never considered passive income as an actual stream of income. However, passive income is truly the main component of building wealth. The concept of passive income is relatively simple: as a landlord you will receive income on a regular basis, with little effort required to maintain it. At the same time, real estate investors will be able to pay down their mortgage, generating equity with the money tenants are paying them.
Those that may be uncertain, or on the fence, about investing in passive income should know that now is a good time to consider it. With units renting for historically high rates, spreads are in favor of savvy investors. Over the course of nearly a decade, rental percentages have increased 31 percent. On top of that, the rate of homeownership has reached a 19-year low. Nearly every indicator suggests that rental markets will remain strong well into 2015, and beyond.
“Even though the economy is improving, many families will continue to view renting homes as more financially feasible than buying in the foreseeable future,” says Robert Pifke, chief marketing officer at Real Property Management. “In the year ahead, landlords should expect the rental market to be steady as she goes.”
While both rehabbing and wholesaling will continue to be the preferred exit strategy for many investors, the status of the market is heavily in favor of those that branch out to become a landlord. The truth is simple: affordability, or lack there of, has made buying a home difficult. There is a bigger population of renters now than there has ever been before. Take San Francisco for example: rents have increased an incredible 52% in the Bay Area since the turn of the century. Over the course of last year alone, rents increased more than 13 percent. The average rent in San Francisco will now set tenants back about $3,991 a month.
“Right now, all across the country rents are higher than they have ever been,” Skylar Olsen, senior economist with real estate data firm Zillow, said. She says rents in the Bay Area are among the highest in the nation. “In the Bay Area just take everything to an extreme. Rents in the city of San Francisco are up almost 18 percent higher than they were last year.”
While San Francisco is an anomaly, in and of itself, it is by no means the only city with soaring rents. There are several cites in which rents almost rival that of San Francisco: New York, Boston, Washington and Los Angeles each have daunting rental prices. Rounding out the top 10 most expensive cities to rent:
Surprisingly, Denver appears to be the metro with the fastest rising rents. Over the course of one month, the city experienced a 7.4% increase in the cost to rent a single-bedroom unit. The median price for a single-bedroom unit in Denver is now $1,300.
Historically high appreciation will continue to force tenants to rent, making the prospect of becoming a landlord that much more appealing. Millennials, in particular, are already finding it difficult to come up with a down payment to purchase a home. Mortgage underwritings and student debt don’t make acquisitions any easier. Therefore, Millennials should be a target for landlords looking to capitalize on favorable markets. Having said that; RealtyTrac has identified the following cities as the best places to rent to Millennials:
