Understanding the demand trend
Demand for rental units is the key component in current high rental prices for real estate investors. And this demand has been created by several major trends in the world of real estate investing of late. The national trend towards household consolidation, present and increasing since the financial crisis of 2008, means less homebuyers. Less homebuyers, due to their having to sit on the sidelines because of tight credit and a poor labor market, and uncertainty en masse about their job security, means more renters. More renters means higher rents in the marketplace for investment properties.
Infrastructure as key driver
Also feeding this demand on a more local level, is the growing importance of repairs to current infrastructure, as well as newly built infrastructure. That road crew you passed this morning on the highway – well, those repairs ultimately help keep tenants looking in your area. Without road repairs, for example, your geographic area becomes less attractive as a place to live in – or commutate to and from.
Likewise, any new subdivision, office building project or retail mall that’s about to be built in your area all help to create a greater demand by tenants for your particular neck of the woods. Certainly as each project is built, they also have concurrent infrastructure building going on to support the project. Roads, electric lines, cable, phone, internet, transportation lines and a whole host of other support infrastructure are required with new builds. When investing in real estate, always keep an eye out for potential new projects being approved by your local town boards. The growth afforded your community can only help to increase demand for rental units, and therefore, rent prices. With this new growth also comes ancillary services, as well as demand by renters. Schools, hospitals, shopping centers – they all grow outwards to meet demand as new expansion is created by disparate physical property projects.
Job growth is crucial
Ever notice the type of housing stock in non-vacation, rural areas? Slightly different than a typical suburban housing area, right? Typically, homes are flimsier, poorly constructed, or haphazardly constructed in these rural areas. And so, too, the rental demand and prices in rural communities is much smaller. The main reason? Jobs. In areas with less job creation and sustainability overall, relative to suburban or urban communities, you’ll certainly find much lower rental prices in their rental housing stock. Without a strong job base in any particular geographic area, rental housing will always remain weak. And this translates into very low rents for real estate investors.
Identifying the trends locally
So if you see that a new, major employer is coming to town soon – you can bet that demand for housing will jump. Infrastructure will most assuredly be upgraded, or added completely. And real estate investors should always be on the lookout, and become aware of these trends in your local community. Be certain to capitalize on them to maximize your dollars when buying rental property. Let these trends act as directional arrows for areas you should be focusing your real estate investing efforts.
photos courtesy of newsroom.aaa.com, flickr.com, usatoday.com, m8property.com, prospect.co.uk