If you’re going to be a foreclosure investor and own rental property then central to the value of your assets is tenant demand — the more prospective tenants the better. It now appears that the pool of potential tenants is getting bigger, in part because a large number of people simply don’t want to own.
While not all markets are equally attractive, what we now see for investors in many neighborhoods is essentially a real estate trifecta: First, there is a substantial inventory of short sales, foreclosures and REOs available at discount. Second, interest rates are near historic lows. Third, rental rates are generally rising with tenant demand. According to REIS.com effective rents nationwide averaged $1,032 in the second quarter versus $982 in 2008.
Less Ownership Demand
Last year a study by Rent.com found that “87 percent of U.S. adults no longer consider owning a home to be the most essential part of their American Dream.” This year the site is out with the new study, this one showing that “61 percent of renters have delayed home ownership, with most delaying for financial reasons.”
For investors the growing acceptance and even demand for rental status can only be seen as good news. The more people want to rent the better for property owners.
To some extent renting enthusiasm today is a byproduct of tough economic times. For example, the latest Rent.com survey shows that of those delaying homeownership:
- Forty-seven percent are waiting to save a down payment.
- Eleven percent are waiting for the real estate market to stabilize.
- Twenty-two percent are waiting for their credit to improve to qualify for a home loan.
- Twenty percent are waiting to feel more secure about their employment situation.
The catch is that “delaying” home ownership may not be the right term. It may be that we are having a broad change in public attitudes, with more people beginning to think that homeownership is just not right for them.
Changing Real Estate Patterns
Since at least the end of World War II increased real estate ownership has been a matter of public policy. To a large extent the FHA, Fannie Mae, Freddie Mac, the VA and other big players in today’s housing market were an outgrowth of the view that real estate ownership is good and more real estate ownership is better.
In years past the public bought into the idea of homeownership as a personal goal but is such thinking less realistic in today’s economy? For example, how many people will be able to accumulate a down payment given that household incomes have been declining since1999?
In the fourth quarter of 2004 the homeownership rate reached an historic peak of 69.2 percent and has been in decline since. Seen the other way, if the population keeps growing and ownership levels keep declining then rising rental demand is a natural outcome — and a good result for real estate investors.
Search pre-foreclosure short sales, scheduled foreclosure auctions and bank-owned homes nationwide on RealtyTrac.
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