Is Rental Property a Good Investment
Photo: © scyther5 - iStockphoto
Harvard University recently published a report of the rental market in the United States. This study included rental-market trends over the last decade and predictions for the next ten years. One of the most surprising facts from the study is that renting a home has become a more common option for almost all types of Americans.
These are some of the results found in the report:
The number of renters increased for people with all levels of household incomes.
The number of renters increased for single people, couples, and parents with children.
The number of single-family houses that have been converted to rental units also increased.
Rising Rent Costs in Most Cities
This housing study also looked at America's largest rental markets. Three out of four of the biggest population centers had vacancy rates of less than five percent. Typically, 95 percent occupancy is considered full occupancy by property management professionals. Only one out of the 75 biggest markets had a vacancy rate that was over 7 percent.
Because vacancy rates are low and demand is high, property owners have been steadily increasing rents. While renting has become popular with people in different economic classes, it may be the only choice for people with modest incomes. The main concern of the study was not that landlords would have trouble finding people to lease properties but that people with lower incomes would be unable to find affordable housing in many parts of the country.
Will the Rental Boom Continue?
The study predicted an even greater demand for rental apartments and houses in the next decade. The baby boomer generation is now aging into senior citizens. The authors of the study believed that many seniors would choose to sell their houses in order to cash out their home equity and enjoy the simplicity of renting. If the predictions in this study are correct, many of those sold homes will get converted to rentals. This is because upcoming generations don't seem as eager to buy a house as their parents or grandparents once were. The study cited higher levels of student loan debt and tighter qualification rules for mortgages as some possible reasons.
Even though both small and large investors have been supplying more inventory to satisfy the needs of all kinds of renters, the supply is not keeping up with the demand in some places. The next great real estate opportunity in the United States might be an investment in rental property. Vacancies are very low and rental prices are rising. Of course, markets differ across the country and even in different parts of the same city, so wise investors should do their research.