|The case for rental revival
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.
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.