There just don’t seem to be enough homes to rent! Over the past year, our company Audu Real Estate, have observed an escalation in the number of requests for homes to rent. The reasons are varied:
1. Potential renters don’t want to become potential buyers because they are scared of loosing home equity.
2. The potential renter may have lost a home or has credit issues and is ineligible to obtain a mortgage.
3. The potential renter thinks their job may require them to move, so they don’t want to be ‘stuck’.
4. The potential renter doesn’t want to live in an apartment & would prefer a home setting.
As a result, we’ve seen rental rates increase. I’ve heard predictions which indicate that there will be a 3-6 percent increase in rental rates during the next year. This news has not escaped the attention of some major deal makers across America. In fact, a recent Bloomberg Businessweek article entitled ‘Your Next Landlord Might Wear Pinstripes‘ highlights a significant rise of interest from institutional investors who are looking to beef up their portfolios by purchasing homes and turning them into rentals.
Last year in the fall, the Administration asked for public comment about the idea of renting out a growing inventory of foreclosed homes. Earlier this month, Fannie Mae, the government controlled mortgage agency initiated a program to allow qualified investors to bid in bulk for foreclosed homes as long as they maintained them as rental for a period of time.
So why are investors interested in a housing market that has seen some dark days? Well, it’s all about opportunity. Today the US home ownership rates is about 66%. While that is one of the highest rates in the world, it is still below the peak of 69.2 percent recorded in June of 2004. Many Americans remain skittish about the prospects of home ownership even as the facts seem to indicate that this may be exactly the time to buy a home.
For starters, interest rates are insanely low. I’m hearing rates below 3.4% on 15 year mortgages. The inventory in West Michigan is actually pretty good. We’re showing homes which would have retailed for 50-60% more just a few short years ago which have been totally re-vamped and are in move-in condition. I’m talking about homes priced in the $40,000 – $75,000 range that could easily have retailed for 3-4X that amount in the past. With today’s interest rates, the mortgage amount would be significantly below the rental rate for a similar home.
Investors are interested in these homes because of the cash flow potential. Single family home rentals tend to fetch premium rates and can retail for 3-5% higher than apartment rentals. And, this is not about a quick turn around. Most investors expect to hold on to these homes for five years or more.
Think about that! I just attended a forum on commercial real estate that indicated that the residential market in West Michigan could be poised for a surprising rebound within the next 3-4 years due to several factors including an uptick in manufacturing, more hiring for jobs and a work-force that is fairly well trained and prepared to meet the demands of today’s emerging economy.
If this proves to be correct, homeowners who have had a few years of dreadful travail may find themselves once again smiling on the way to the bank. The question is…who will be the homeowner. You…or a corporation?
- Is Renting a Waste of Money? (rentersinsurance.com)