The Disparity Between Vacancy Rates and Rental Rates
Vacancy Rates Plunge while Rental Rates Stagnate
Time for Rental Property Investors to Get Creative
Industry reports show that apartment vacancy rates, on a national level, are at their lowest level in more than ten years, falling to 4.2%, which is a 0.1% drop even from just last quarter. That’s good news for real estate investors whose investment activities center in cash flow rental properties because properties should, theoretically, be full; don’t, however, expect huge increases in cash flow.
Unfortunately, despite dwindling vacancies, rental rates have not been able to rise accordingly to meet the trend, as the job market continues to be feeble and wages remain unchanged.
According to a report by Reis Inc. the average effective rent in the United State grew by only 1% in the 3rd quarter and only 3% year over year; that increase is less than what could be expected in a tight market such as the current one. Ryan Severino, senior economist at Reis, said, “If median household income is growing at somewhere about 2 percent a year, give or take, once you back out inflation how much money is left for increased spending on rent? Not a lot.”
These low vacancy rates show that more people are renting than buying; most likely this is simply a result of still stringent lending practices, higher interest rates, increasing housing prices, low inventory in many markets and, of course, the recent government shut down which has made loan application paperwork a daunting, if not impossible, process.
This may be a time to get creative in your real estate investment thinking.
Renovate Up
If people can’t afford to qualify for a home loan, it is likely they can’t afford “class A” apartment housing either. Rental property investors are getting wise to that and investing in “class B” or even “Class C” apartment buildings, and renovating up just enough to make them more attractive, yet still affordable for the renters out there who are struggling to find affordable housing.
Invest in Trending Micro-Apartment Projects
Small living spaces are nothing really new in urban cities, but are trending hot in more areas due to lingering unemployment and wage inertia. As urban lifestyles, as well as a slowly improving economy, push the need and desire for affordability and convenience, micro-living, simplifying and downsizing is a trending phenomena.
Look to Technology Epicenters for Your Next Rental Property Investment Opportunity
While rent increases have not been happening, areas that are dominated by the tech industry have been the exception. San Francisco, San Jose and Austin have experienced rent increases despite the opposite case in other parts of the country. The average rent in San Francisco, for example, is now sitting at just over $2000 a month and San Jose is at nearly $1700.