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The case for rental revival
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But the best news for prospective landlords? The echo boomers are coming. And the kids of the baby boomers are likely to be more mobile in their 20s and 30s than any previous generation, meaning they're more likely to rent than own.

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"Definitely from the demographic side of things, there's going to be a lot more demand for rental housing over the next 10 years relative to the last 10 years," says Drew.

That might mostly benefit owners of older rental units near major college campuses.

"A lot of young people are attracted to the city lifestyle, and not having the finances to own a house in the suburbs, they kind of default to rental housing, most of which is in high-density areas," Drew says.

If you already own rental property, Hall recommends a 1031 exchange as a great way to reap the benefits of current high prices and leverage your rental while deferring the capital gains tax.

"It's a very attractive alternative for someone who is selling real estate in California. If they want to get that money out, they can come to a state like Texas and buy two or three properties for the same price they sold the one property for in California. We get a lot of buyers in that situation," he says.

Owning a rental, even in a robust market, isn't for everyone. Hall says metropolitan Austin has 10,000 duplexes, and he has sold many for investors who "didn't want to get their hands dirty."

"I clean up a lot of messes," he says. "They were thinking of it like a mutual fund; something you buy and it takes care of itself. It's not like that. It's hard work."

Because rentals of less than five units are considered residential and not commercial real estate, they're easier to purchase; mortgage terms are favorable, and down payments are generally low. If you live in the rental, you also can avoid from 25 percent to 50 percent of the capital gains tax when you sell.

The best landlords, Hall says, are tenants themselves. Currently he estimates that 50 percent of Austin's duplexes are owner-occupied, and that figure has been as high as 70 percent in the past. It's a lifestyle well-suited for young adults saving for a home, older adults who are downsizing or multigenerational families.

"This isn't a get-rich-quick type of thing," says Hall. "It's for someone who is patient. Unfortunately in our society there are a lot of people who are not very patient, and I don't think this is the right thing for them. If, in your heart, you would be happy putting your mom in it and would be happy owning it for the next four or five years, it's a good move."

Jay MacDonald is a contributing editor based in Mississippi.'s corrections policy -- Posted: May 4, 2006
More stories by Jay MacDonald
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