There are now more renters in the U.S. than ever before in history, and the situation is still developing. Not only are more people wanting to rent instead of buy homes, there is a shortage of inventory. When demand is high and supply isn’t keeping up, rents rise, and they’re doing that aggressively right now.
There is plenty of media attention being paid to this situation, as well as many articles about the cost of renting versus buying a home. It seems that the ratio is not good, but people aren’t clamoring to buy. This is in spite of continued low mortgage interest rates. It’s partly a legacy of disappointment with housing as a wealth component after the market crash. Also there are far fewer first time buyers in the market. High student debt and an anemic job market isn’t helping.
It would seem that this is still a great market for rental property investors, but maybe not for everyone. The higher prices for single family homes is making it more challenging to get them into the rental market at prices people can afford. The percentage of income on average going to rent is rising and at levels that are causing economic hardship for renters.
I believe there is still a great opportunity, if you respond to the market with affordable rents on homes people want. That “homes people want” part is crucial. Due diligence into your market’s demographics is absolutely necessary. Baby Boomers are generally downsizing, so you’ll be seeking to purchase smaller homes in markets where they are locating. In college towns, larger homes that will work for roommate rentals would be your target.
Once you’ve figured out the style and size of homes you want, then it’s time to see how you can provide a rental that meets their desires, but at a more affordable rent than the competition. Your vacancy and credit loss numbers will be sweet if you can provide rental properties that are affordable and meet your tenants’ criteria.
It’s a more challenging situation, especially if you’re buying ready-to-rent homes. If you are doing fix & flip, you have some leverage in the rehab project. Going cheap isn’t necessarily the best approach. Using vinyl countertops may help you to set the rents where you want them, but they may not attract the best tenants. But, maybe something in between that and top grade marble is best. Maybe some tile that isn’t too labor intensive can do the trick.
The point is to really nail down your costs before buying decisions, get the best deal on the property possible, then bring it to market with the fit and finishes that renters rate as important to them. But, do it at a value price to comparable sized units in your market area.