With so much chaos out there, why are so many experienced investors still so bullish on investing in income producing rental property? What do they get about the market and what’s next that many outsiders are missing?
The wealthy have grown their positions with over 30% gains this year. Many have been doubling down on real estate investments. Here’s what they see and why they aren’t waiting to invest in this sector.
A Tale Of Two Markets
It is true that there may be many distressed landlords out there. They bought in too high without really using common sense when running the numbers. Now they are struggling and tired. This is creating more opportunities to acquire properties at substantial discounts.
In other areas, the real estate market continues to hit new peaks. Areas that were under-appreciated and undervalued a year ago are seeing incredible price growth.
This all brings opportunity to buy and then quickly build in gains.
Concerns About The Property Market
It may be true that rents are falling in some overpriced areas. Demand for rentals has been shifting to new neighborhoods. The economy is also split, with some areas stronger and growing at an incredible rates, while others seem to be going extinct. Taxes are also a factor, with some counties hiking them, and others lowering them.
Some of these shifts may be more amplified and accelerated than normal given all of the other events of this year. Yet, they are really nothing new. They don’t change the fact that people will always need shelter and have to rent.
52% Of Younger Generations Are Living At Home
Recent data shows 52% of 18 to 29 year olds are living back with their parents. That’s a pretty extreme number. Then you may also have a larger than normal percentage of seniors living with their kids as well. These aren’t typically long-term arrangements. This means the potential for almost doubling the number of households in the US over the next few years. That’s a lot of new renters and units to be filled.
Even if they do stay in place, many will have to right-size their housing to accommodate extra bodies. These multi-generational households provide great built-in diversity, strength, and recession resilience for landlords.
There has been an increase in mortgage defaults and foreclosure activity in the shadows. It’s hard to pinpoint how many will go all the way through the process and when, but there is a wave in the works. Those who have been foreclosed on will have to rent.
Even normally well qualified home buyers are finding that despite low interest rates, tightening retail lending and a lack of home inventory for sale means many won’t be able to get mortgages. They’ll remain captive renters for a while.
Many new initiatives are being launched to support the rental market. This includes piloting guaranteed income programs, stimulus checks, companies paying staff to relocate out of major cities, and Yelp offering 18-29 year olds $2,000 to move out of their parents homes. All of this can help with new leases and ensuring renter performance.
The Coming Surge In Demand
The end of the year is likely to bring a whole new surge in demand for investment property. Between end of year bonuses, a post election surge in clarity and investing, and end of year tax saving moves, expect to see more competition for assets and a further sprint in the rise of asset prices.
The savvy are investing now ahead of this activity. They know the need for housing is not going to change. They are just being wise in buying in at prices that make sense and account for these fluctuations in the future.