Rising Rents & Lower Vacancies Indicate That Rental Property Investments Could be a Wise Way to Go
With market conditions as they are today, real estate investment in rental properties is making a lot of sense to real estate investors everywhere.
While it is true that unemployment rates are slightly improving and that is helping to increase home buying activity, according to reports from the National Association of Realtors, (NAR) even recently improved interest rates have not prevented year to date home sales from dropping to a small percentage (about 13%) of what they were a year ago. In addition to that, despite incidences of foreclosures leveling off, homeownership dropped to 66.5% at the end of 2012; that is down from 69% in 2004 according to the US census Bureau.
Regardless of low interest rates like those quoted in June by Fannie Mae (4.5% on a 30 year fixed rate), lenders are still displaying an excessively high aversion to risk, making lending conditions unreasonably tight and preventing many from being able to buy. According to a Realtors Confidence Index report by NAR, in the years prior to 2005 about 40% of home loans went to applicants with credit scores that exceeded 740. Today that average is about 50%; economists at NAR indicate that we could see an improvement of 500,000 to 700,000 home sales if credit conditions improved.
That’s all great news for real estate investors who are interested in becoming landlords, with demand for rental properties appearing to remain strong as average US rental property vacancies dropped from 6.6% in 2012 to 6.2% last quarter; the lowest vacancy rate since 2008.
The average advertised rental rate in the US is $1047 with actual rents averaging $991; those rates are slightly up at about 2% and 79 cities are reporting rent increase and lowered inventory. It a report by Reis, a provider of commercial real estate marketing information and analysis, it was also noted that while landlords were giving huge incentives on move in deals for 12 to 15 month leases in 2012, now such promotions are nearly unheard of.
For those who are new to real estate investment and trying to find their best investment strategy, cash flow properties or rental real estate investment, could be a great place to start. It seems that the homeownership dream of years gone by as slipped into more of a distant hope as those facing tough credit issues and 20% down requirements are content to sit back and wait for better days in a rental.