Amid a cold housing market, rental property investments remain hot

Rental properties are taking center stage in a market where homeownership is becoming increasingly difficult for many Americans to achieve.

May 14, 2024

5 min read

News

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 made millions off of their real estate investments. 

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

The demand for rental properties isn’t going anywhere

Rising demand and a variety of economic factors are just a couple of reasons why it’s worthwhile considering 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 (representing 38% of all rental units) 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 amid a recent uptick in mortgage rates. Roughly 44.1 million U.S. households are renters, and that number is only likely to increase as homeownership continues to remain out of grasp for the majority of Americans. In fact, a recent New York Fed’s 2024 SCE Housing 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 average rent across the U.S. hitting $1,983 in March of this year. As for the best cities to invest in rental properties? While Miami tops the list of most desirable destinations, the Midwest has also emerged as a competitive region for renting thanks to its affordability and growing economy. 

Homeownership moves increasingly out of reach

Barriers to homeownership, such as high for-sale prices and rising inflation, are factors worth considering when evaluating whether or not to invest in rental property. 

Consider that the median home-sale price either increased or stayed the same in all 50 of the most populous U.S. metros in April, a trend that hasn’t happened since July 2022. Another factor driving home prices up is the relatively low housing inventory, resulting in many would-be homeowners choosing to either stay put or continue renting. And finally, with 30-year fixed mortgage rates sitting at 7.33%, many buyers feel they’re being pushed out of the market as their purchasing power continues to decline. 

While investors will likely face similar challenges as single-family home buyers, investing in an income property will pay off quicker and in the long-run as the rental market continues to grow in importance. Understanding the buying and selling landscape can help investors on the fence about investing in rental real estate determine if now is the right time to get into the rental space. Given the state of the sleepy for-sale market, all signs suggest a rental property investment could be a profitable venture to seriously pursue.

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. 

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

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. These days, rental property investments no longer necessitate the intense hands-on maintenance that was required in the absence of smart home technologies. 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 paused, investing in rental real estate is quickly becoming a stable source of income that many investors are actively pursuing for the long run. 

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