While the weakened housing market continues to be problematic for sellers, the outlook for residential rental property is looking good. A recent New York Times article on June 21, 2008 documents the significant increase in renters that thousands of foreclosures have caused. Gains had been made in the percentage of Americans who own homes, but recently that progress has been erased. The article states, "Americans are renting apartments and houses at the highest level since President Bush started a campaign to expand homeownership in 2002." (NYTimes)
Investors benefit from this trend because more renters means more demand and increasing rents. One challenge for residential real estate investors is to find properties to buy, in which the income from rents exceeds the expenses from the mortgage, insurance, taxes, and repairs. This rise in renting will lead to an increase in rents in the coming years. Many investors find that the first few years of the purchase are tight, but after 5 years or so it gets easier as rents increase and mortgage payments stay the same. But the increase in demand could cause an increase in rents that will ease those early years of the investment.
While foreclosures figure heavily in this flood of renters, other factors also have a bearing. The New York Times reports, "Many of the new renters, meanwhile, are struggling to get into decent apartments as vacancies decline, rents rise and other renters increasingly stay put. Some renters who want to buy homes are unable to get mortgages as banks impose stricter standards. Others remain reluctant to buy, anxious that housing prices will continue to fall."
Pasadena and other Southern California investors may be in an especially good position, because renters have increased more in the West than in any other region (2.1% vs. 1.4% or less in other regions) (NYTimes)
If you want to find out how real estate investing can be a much smarter retirement investment than mutual funds, even through bad markets, then contact us. You can even search for opportunities in Southern California on your own on our website.
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