Increasing Rental Costs Means Bigger Profits for Buyers

Since the housing bubble burst, there have been some pretty significant changes in the home financing landscape.

In today’s market, according to Marcus and Millichap Babb Group representatives, there are more renters than ever. Homeownership is down 63.5 percent, which is the lowest reading since 1967. Renting has skyrocketed; rental households have increased annually since 2006.

The renters of 2016 and beyond

For many millennials, renting is the perfect opportunity for staying mobile, allowing them to move at a moment’s notice to pursue career goals. There are also new graduates who are still trying to land decent jobs out of college; many of them carrying large chunks of student debt. As a group, they are choosing to delay marriage and kids into their thirties and beyond, which are the life events that usually spark interest in buying homes.

Attitudes are changing as many millennials are reevaluating what they really need. They have seen their family and friends lose their homes and wonder if they should even take the risk.

Is there a hard stop for rental prices?

Supply and demand drive renting costs up, allowing landlords and property owners in many areas to raise rents. Most property owners rarely have difficulties securing occupants. Although rents continue to rise higher than ever before, job growth and wages are moving at a slower pace. This makes us wonder: Is there any end in sight?

In the 1960s, according to Babb Group representatives, most renters spent less than 30 percent of their incomes on rent. Today, renters are spending at least half of their incomes — and sometimes more. As rents rise, there is a greater number of opportunities for buyers to invest and see healthy returns on their investments.

It’s truly hard to say when the price increases will slow down. Marcus and Millichap Babb Group representatives anticipate that prices will level off and become more stable. Rents will likely still be high, but we may not see the steady increase that we have seen in the past few years.

The reality is that there will always be people who enjoy the carefree lifestyle that renting gives them — and that’s great news for investors.

[cta]Not sure where to start? Contact the experts at The Babb Group. We’ll help you navigate the multifamily real estate market and get the most out of your investment properties.[/cta]