Have you been wondering whether
to invest in a modest rental property?
Good news: Rentals are not only
showing signs of life for the first time in years, but demographic
and economic indicators point to an improved rental market for the
Robert Sheehan, consulting economist
for the National
Apartment Association, predicts that apartment-vacancy rates
nationwide in buildings of five or more units will decline from
10.2 percent to 10 percent by year's end, the best level since the
fall of 2001. That means fewer competitors if you own a duplex,
triplex or fourplex.
Apartments will likely see rent
increases of 4 percent this year, the highest since 2002, according
to Witten Advisors LLC, a Dallas consulting firm.
"From a market perspective,
rentals are starting to look a lot stronger than they have in the
past few years," says Rachel Drew of the Harvard
Joint Center for Housing Studies, or JCHS. "Vacancy rates
are slowly declining, which is, of course, good for landlords, but
the rents are going up only modestly, which is also good for landlords
but at the same time not detrimental to tenants. Demand is increasing
at the same time that supply is stabilizing, so it's good for everybody."
From an investment perspective,
residential rental markets have been flat or in decline the past
decade, largely due to the double whammy of recession and the single-family
housing boom. "I heard someone say, 'Anyone who can fog a mirror
can buy a house,'" says Drew. "The pool of owners to be
drawn from rental housing has been largely tapped."
Despite the exodus to homeownership,
fully one-third of American households (34 million) reside in rental
housing, according to the JCHS.
That figure has remained remarkably consistent during the past decade
as the influx of immigrants replaced those who bought their own
homes and the conversion of rentals to condos helped offset new
construction, primarily in the nation's suburbs.
The baby boomers have been the wild card in
the deck. As they matured and raised families in homes of their
own, they created a post-baby-boom lull that cast a big chill on
the rental market. However, flush with the largest intergenerational
transfer of wealth in history, they also have been gobbling up rental
properties by the neighborhood-ful, either directly or through real
estate investment trusts, or REITs, in anticipation that their children,
the so-called "echo boomers," will shortly be along to
take up residence in them.