Reading business and investment news, the growth in demand for rental homes and corresponding increases in rent nationwide seem to be on the front burner. Sure, there have been far fewer buyers in the housing market, and renting is the only other alternative unless you choose to move in with family.
Fix and flip investing for resale to long-term rental property investors has been sizzling for a few years now. The steady flow of foreclosures has turned up the heat, bringing large institutional investors and mom-and-pop landlords into the market at a crazy pace. Articles are everywhere telling us that many in the Millennial generation is living at home with their parents or sharing rentals. They don't have the downpayment to buy a home. When the roommate thing gets old, they may go out and rent their own place, but they're not buying, even with low mortgage rates.
Since 2011, rental demands and rents themselves have been rising, boiling on the front burner. There are fewer foreclosures now, and competition among investors has pushed prices upward. Some housing analysts are predicting a drop-off in flipping, as well as fewer rental property buyers going forward. While we may be seeing it turned down to more of a simmer this year, rental investment potential is far from dead. New information and a recent report from TransUnion Rental Screening Solutions could signal we're in for long-term rental property investment potential, more like slow cooking in a crock-pot.
The Cash Flow Component
The TransUnion report shows an improvement in the credit risk of renters. A better risk profile helps renters in choosing nicer properties and negotiating better rental terms. Investor landlords benefit as well. Even if they give some concessions to get these stronger tenants, they're enjoying offsetting lower vacancy and credit risk. It's a win-win that keeps tenants in occupancy and landlords in cash flow.
Low mortgage rates and the continued, though abated, supply of foreclosures is expected to continue to fuel rental property investment. Continued low home prices, low mortgage rates and rising rents combine to provide positive cash flow. As long as cash flows are attractive, investors will be in the market. They will have to work harder to find the best deals, but there will always be deals out there.
Every investment has an endpoint, and it will hopefully be a sale at an appreciated price with a handsome profit. The TransUnion report indicates that today's renters are building their credit scores through on-time rent payment. As the economy improves and interest rates remain low, these tenants will become buyers at some point. Many housing analysts consider 2012 as the bottoming year for home prices, and they expect sustained appreciation in the future. It's not going to rival the boom period, but should be steady for some years to come.
It's no longer a hot market, but investors shouldn't give up on rental property. There is plenty of opportunity, though it's not front-burner activity. It's that intense type of market that heated up so much and resulted in the housing crash. We're seeing a different slow cooker market now, and it will last a while and result in a perfectly prepared exit point with a profitable sale. Monthly cash flow will still be the big draw, and there's certainly nothing wrong with a lower temperature if the cash continues for years and ends with a nice juicy profit.