According to many reports from across the country, rental rates are on the rise, with more people than ever choosing to rent instead of buy homes. We thought it would be interesting for landlords to see a current snapshot of the rental landscape and see what an impact being a landlord is having on today’s economy.
In a recent New York Times article, millions more Americans are renting than ever before, whether by choice or by circumstance. According to the article, home ownership in the United States has been falling steadily for eight years. This means that rentals are booming and real estate investors are happy to see that the number of new rental households is consistently increasing, with some of the strongest numbers in recent decades. Essentially, the country’s vacancy rate for rentals is among the lowest it has been in the last two decades, according to the article. That’s good news for landlords who often worry about whether they’ve made the right decision about getting into real estate.
Here are some key statistics from the Rental Protection Agency:
- There are approximately 110,000,000 renters in the United States.
- There are approximately 23,000,000 landlords in the United States.
- Every day, there are more than 2,600 new renters.
- The majority of rental properties have just 1 renter in the unit (36.6%) while the second highest group has 2 renters in the unit (26.7%).
- More than 27% of renters fall into the age group of 25-34 years old, the largest percentage of all age ranges.
- The places with the highest percentage of renters are Washington D.C. (59.24%), New York (47.01%), Hawaii (43.49%), and California (43.09%).
- The places with the lowest percentage of renters are West Virginia (24.82%), Minnesota (25.45%), and Michigan (26.33%).
- Today, nearly half of all renters pay more than 30% of their income on rent, according to the New York Times.
So what does this mean for landlords and real estate investors? The good news is that in most places, the demand for rentals is exceeding the supply, so there are plenty of good applicants to choose from and units shouldn’t sit vacant for very long. The other good news is that when supply is limited, the prices go up, and indeed rental rates across the country are rising, leading to an increase in profits.
Something that landlords and real estate investors need to consider, however, is that in some areas, rents are getting so expensive that they are unaffordable. For example, renters in certain cities like Los Angeles, San Francisco and Miami are paying more than 40% of their income in rent. These factors, plus an overall lack of supply of places to live is causing renters to look elsewhere for affordable places to rent. This means that landlords in smaller suburban areas with access to good transportation routes may be in an even better position to keep units full as people flee those cities and towns where rent is simply too expensive.
The top 10 most expensive rental markets in the country, according to CheatSheet, are:
- Northern New Jersey-Long Island
- New York City
- Fort Lauderdale-Pompano Beach
- San Francisco-Oakland
- Los Angeles-Long Beach
- St. Louis
- Tampa-St. Petersburg
As rental markets continue to heat up around the country, landlords and real estate investors should always be thinking of the long-term for their business. While construction is rushing to meet the demand of rental units, with more multifamily properties being built this year than ever before, there is the possibility that too many rental properties will eventually cause the rental market to cool. As inevitable as the tides, real estate investing has ebbs and flows, and as the housing industry continues to gain strength over the next decade, landlords and investors need to prepare for the inevitable leveling off.
Keeping the overall reasons for becoming a landlord in mind will help property owners benefit from every twist and turn of the rental market, and paying attention to statistics can help landlords spot trends that can give them good information on what to expect in the near and distant future. Treating rental properties like a business will always help landlords make wise decisions rather than emotional ones.