With the bursting of the housing bubble, real estate investors watched their once high earnings drop dramatically as millions lost their homes to foreclosure. As the economy slowly recovers from this drastic collapse, most Americans’ faith in the housing market is failing. Only 66% of Americans in 2012 believe home buying is a safe investment compared to 83% in 2003, according to “The Meltdown of the Mortgage: Why Renting is the New American Dream” from Appfolio.
Americans stung by housing foreclosures seek apartments over mortgages and Generation Y forgoes home ownership for rented properties, allowing them to easily move for school or work. Apartment vacancies have fallen from 8% vacancy in 2009 to just 5.6% in 2011. Compared with 43% of adults under the age of 35 who owned homes in 2004 to only 39% of homeowners under 35 in 2012, investors can see a rapidly changing market where early investors can claim a large slice of the profits prepared to flood the rental property market.
Justin Change, Principal of Colony Capital, predicts that tens of billions, potentially even hundreds of billions, of dollars are poised to pour into the single-family rental business over the next 5 to 10 years. By investing money in rentals, investors can seek quick returns with low risks. Unlike a mortgaged house, which can be foreclosed on, rentals provide stability with new renters ready to move in when old renters move away.
Investors who lost money in real estate or are currently see their investments becoming stagnant can find relief in the rising of rental property numbers. Overall, America has seen a 17.5% increase in renting from 2005 to 2010. Yet individual cities have seen even more dramatic numbers. Chicago has seen a 40% increase in renting while Denver has seen 22% and Houston 31%. A vast migration is occurring from mortgaged homes to rented properties. Rentals offer a low-commitment option for renters yet offer a secure investment for continual income without the worry of foreclosures. Even in the worst cases, eviction of tenants, other renters quickly move in to continue the steady flow of income.
Rental properties also offer investors income for an indefinite period of time. While a mortgage will be paid off, apartments will see many families and individuals come and go. The statistics back up the fact that rentals are taking the place of the traditional American home. National rent prices have gone up by 2.5% as demand increases. Between 2010 and 2015, an estimated 3 million homeowners will become renters due to the housing bubble collapse, the need to move in search of work, and the desire to seek out cheaper and safer living arrangements.
The extra features, amenities, and protection offered from renting makes apartments and rented homes attractive to previous homeowners and college students or new graduates. Free internet, convenient online payment options, and free maintenance appeal to potential renters. A twelve-month lease feels much safer than a thirty-year mortgage. A surprising 83% of people say they are more cost-conscious due to the economy, and 52% rate themselves as “highly frugal.” Rental properties appeal to this sense of stability, while generating profits for investors.
Real estate has always been a stable and reliable investment. It is simply the nature of the market that is changing. Everyone needs a place to stay, and investors can follow this new trend from mortgaged homes to rentals to create solid profits on rapidly rising rental rates. While mortgage rates are down and homes sell for a fraction of what they cost before the financial crisis, rental property rates remain unaffected and continue climbing higher as people migrate to rental options. Investors will see their revenue growing steadily years beyond the first initial investment.