Amid a stalled housing market, rental property investments remain hot

Years ago, the billionaire industrialist Andrew Carnegie said that 90% of millionaires obtained their wealth by investing in real estate. While there’s reason to question the accuracy of that statement, it’s hard to ignore just how many people have accumulated wealth with the help of their real estate investments. 

Throw in changing consumer preferences, global economics, and an ever-evolving housing market post-pandemic, it’s clear why investors are turning their focus toward the rental market.

In this article, we’ll examine the current state of the rental market, what factors are contributing to the recent uptick in investments in the sector, and why agents and investors should strongly consider rental real estate.

Homeownership continues to stay out of reach for most

To understand why the rental market remains a hot commodity, it’s helpful to look at what’s driving the behaviors of renters, buyers, and sellers. 

For starters, high for-sale prices and rising inflation are just two factors keeping would-be homeowners as renters. Housing supply is another element to consider; low inventories coupled with strong demand only further exacerbates the housing affordability issue plaguing most first-time buyers. 

‍Data from Redfin reveals the median home-sale price increased 4% compared to last year and home sales in June were down 12.1% from a year ago. While the 30-year fixed mortgage rate fell slightly to 6.83% in the second week of July, the monthly cost of financing a home is still up compared to 2023.

The demand for rentals isn’t going anywhere

All the factors contributing to a sluggish for-sale market are the same reasons driving rental demand and why now could be the time to seriously consider a rental property investment. 

In 2023, the U.S. rental market was valued at $279.4 billion according to an IBISWorld report, growing on average 2.8% from 2018 to 2023. According to the U.S. Department of Housing and Urban Development, roughly 70% of rental properties are owned by an individual investor. 

Renting continues to play a significant role in the U.S. housing market as for-sale prices remain high in spite of the mortgage rate hovering around the 6-7% range. Roughly 44.1 million U.S. households are renters and that number is only likely to increase as homeownership continues to be a far off dream for the majority of Americans. In fact, a recent survey revealed the share of renters who expect to own a home dropped to 40.1%—the lowest since the survey was launched in 2014. 

Naturally, the rising demand for rentals is reflected in the prices. Data shows rent prices are now 30% higher than they were pre-pandemic with the median rent reaching a whopping $2,150 in July. From an investment perspective, the increase in rent prices suggests that rental properties could be a profitable venture for most investors, depending on where they buy and what type of unit they own. As far as the best cities to invest in rental properties, Miami tops the list of most desirable destinations while the Midwest has emerged as a competitive contender thanks to its affordability and growing economy.

Shared living spaces are trending up

While most rental property investments are centered around single-family and multi-family, co-living spaces are quietly growing in popularity as an alternative to traditional apartment housing. 

Often up to 50% cheaper than a standard rental, co-living buildings are like adult dormitories where individuals live together and share common spaces and chores. Co-living buildings offer an affordable option for many young adults while also cultivating a strong sense of community, a benefit that’s particularly popular among Gen Z and young professionals. In New York, for example, one co-living company has already seen success with the younger generation, with 14 properties and over 400 members.

As remote work increasingly becomes a mainstay in modern work culture and the cost of living continues to rise, expect to see more co-living options emerge as a viable living arrangement.

Technology makes rental investments a breeze to manage

These days, rental property investments no longer necessitate the intense hands-on maintenance that was required in the absence of smart home technologies. To support the strong demand for rentals, investors have more technology than ever before to simplify the process of filling vacancies and managing rental properties. 

Automated tenant screening features, for example, are designed to expedite the applicant vetting process and empower landlords to identify quality tenants in an efficient, fair way. Online rent payment solutions make it easy to facilitate on-time rent collection from anywhere while listing syndication simplifies the process of marketing vacant rentals to interested renters. From streamlining administrative tasks to simplifying marketing efforts to increasing confidence in tenant selection, proptech solutions are reshaping the rental landscape for investors and renters alike. 

In the face of ever changing market dynamics, rentals continue to be a cornerstone of the housing market, offering investors a predictable source of income and renters an affordable housing option. As the demand for rentals further intensifies and homeownership aspirations are put on hold, investing in rental real estate is a stable source of income that many investors are actively pursuing for the long run.