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The case for rental revival

Have you been wondering whether to invest in a modest rental property?

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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 next decade.

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.

 
 
Next: "The reverse gold rush"
Page | 1 | 2 | 3 |
 
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