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The case for rental revival
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The reverse gold rush
It has resulted in a reverse gold rush of sorts, in which Californians, in particular, have descended upon the South and Midwest, looking for bargain properties.

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David "The Duplex man" Hall, who has sold and resold duplexes in Austin, Texas, for 30 years, has seen the reverse gold rush firsthand.

"Californians are cashing out and taking that money to the middle states where the prices are much less and then think their experience is going to be duplicated," he says. "They think prices here are going to shoot up like they did out there, and that probably isn't going to be the case."

Sheehan says that, while it might be a good time to buy a rental, bargains can be scarce. According to the National Association of Realtors, Americans bought a record 2.32 million investment units primarily for rentals last year, up nearly 16 percent from 2 million in 2004.

"Now the question becomes price," he says. "There has been so much bottom-fishing going on for so long that the opportunities to make the numbers work are hard to find now. You can do OK if you find a place that hasn't been mined out."

He notes, however, that all rental markets are local and rise and fall on the health of the local economy. Job growth is perhaps the most important figure for landlords to watch because it most directly affects demand and, by extension, what they can ask in rent.

Here's how Sheehan views the regional rental markets today:

  • The Midwest: "It's a basket case," he says. "You can't lay off that many people in manufacturing without ultimately impacting the Midwest. ... Minneapolis is starting to show a comeback, unlike Detroit, which is going to go through it for a while."
  • The Southeast: "Most of Florida is fine. Atlanta has come back. But when you get into North Carolina and South Carolina, the disappearance of the textile and furniture industries, in terms of domestic production, is hurting their rentals and limiting their comeback. Virginia is doing well because of defense spending."
  • The Northeast: "You have to have a lot of job growth to improve the rental market there. The existing market will benefit as soon as the labor market improves in that region."
  • The West: "The hottest market in the country right now is California, especially Southern California, which has become much stronger. Northern California is still coming back; in the Bay Area, the tech fall left a long shadow. The same is true in Seattle."

Meet the new renters
Despite the reverse gold rush, the outlook is rosy for rentals during the next decade: The economy is improving, supply of rentals is dropping, interest rates are rising and home prices are now out of reach in many areas.

Next: "The echo boomers are coming."
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