A Flourishing Rental Market Indicates Growth

The recent upswing in the demand for rental housing means good news for investors but also, according to some real estate analysts, for the economy in general. A new and expanding pool of renters able to afford higher rents is fueling a significant rise in rental rates, and this indicates the potential for good returns on investments in income properties in a variety of markets.

Employment figures document a rise in the number of people entering the workforce in 2012, corresponding to some economic recovery in sectors such as manufacturing and information technology. As new job opportunities draw workers to communities, the demand for housing increases, and rents rise.

According to the US Census Bureau’s third quarter report, 2012 alone saw a net increase of 1.4 million new rental households. And the real estate analysts Zelman Associates report that between 2005 and 2010, the number of single-family rentals grew by 21 percent, fueled by the housing collapse that led to large numbers of single-family homes being placed into foreclosure. Those owners became renters, and other kinds of households, hard-hit by unemployment and layoffs, were never able to achieve the financial stability to manage nbso the costs of buying a house, and so have remained renters indefinitely.

Along with the rise in rentals of single family homes,often by former homeowners unwilling to settle for apartment rentals, comes an increase in the demand for muliplex housing, with two or more units on the same property. Offering an option midway between a single family home and apartment style living, these properties appeal to yet another type of renter, providing more options for the investor willing to diversify.

Rents, too, have been spiraling upward thanks to a better job outlook that supports a willingness to put down roots and stay, with confidence in the ability to pay those rents. Some major metropolitan areas such as San Francisco are seeing rent growth of 11 to 14 percent, and even some smaller market areas such as Charlotte are experiencing rent growth of nearly 10 percent.

A major factor accounting for a significant portion of the growth in rents in mid-2012 was the rebound of the job market in some cities, as workers moved to new cities as part of their job. The same studies suggest that, on the national average, rents rose by as much as 4 percent in a year as landlords responded to the demand for rental housing.

Combined with a growing population of younger renters, some in school, others just starting new careers, who aren’t motivated to become homeowners at this point in their lives, these groups create a large pool of potential tenants for investment properties of all kinds, — one that’s likely to remain relatively stable or even expand.

Jason Hartman’s investment strategies urge investors to consider income properties in a variety of markets. Those diverse local markets, taken together, create a broad national average. But factors such as job growth and new enterprises that contribute to an expanding demand for rental housing in different areas of the country will also create opportunities for investors who diversify widely.

The American Monetary Association Team

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