Looking at changes over the last few decades, there’s no question the rental market has shifted. The types of people searching for rental property, where they’re searching, and how they’re searching has all changed drastically. So, what does it mean for you?
Before the crash in 2008, renting simply wasn’t as popular as it is today. Home loans were easy to come by, and most Gen X adults considered home ownership part of the American Dream. Most who were college educated were home owners, and desired to be in locations that suited their needs by being close to work, often times being apartments close to “downtown”.
With homeownership rather easy to come by, it’s no wonder rent values were significantly lower, and quality tenants were more difficult to come by. Those who were college educated, and hardworking, had every reason to be homeowner rather than a renter.
But, in the last decade, things have made a change.
When looking at current generations, or Millennials/Gen Z, it’s become quite clear that homeownership is not the ultimate goal. Most have lost sight of the opportunity of being a homeowner, and prefer to rent. Probably to blame was the ’08 crash as many watched countless homeowners, including their own friends and family, lose everything.
Also, the prices of homes have risen, so affordability has become a thing of the past. That holds true for investors as well, as many have become priced out of primary markets. In these cities, property values have reached a point that investing simply doesn’t make sense for most individuals. That’s why many of these investors have branched out into secondary and tertiary markets.
With most cities in SWFL being a tertiary market, it’s hardly a secret why so many investors used to doing business in big cities have fled to smaller towns. Barriers to entry are significantly less, allowing more buying power for the average investor.
But, population size isn’t the only way to determine if it’s a market you should invest in.
Looking at the economic strength of an area, job growth, access to shopping and entertainment, and new large developments are always a tel tale sign of a regions strength, or weakness.
In the shifting market place, most investors in these primary markets are being faced with several issues that are worth keeping an eye on.
Tenant retention has become tougher than years past. As the job market grows, tenants are chasing their new jobs and leaving their rentals more and more. Most young people now are simply not looking to buckle down and start their lives, rather, they’re pursuing their passions and going wherever that may take them.
Meanwhile, the baby boomers have moved into a period of downsizing, many selling their homes and renting something small and affordable that’s close to the amenities they seek, such as shopping, boating, and golfing.
Affordability has certainly become a question with most investors. As home prices go up, the CAP rates get pushed tighter and tighter. Finding a good deal on an investment property seems to be more difficult to come by. Simply pushing rents up to compensate is also becoming a bit tougher. Most property managers are finding that individuals are now spending 30% of their income just on rent alone. In fact, Florida has entered a “crisis” that describes hundreds of thousands of individuals simply can not afford the new rent standard we’re facing. Most hardworking blue color Americans are finding it literally impossible to afford a place to live.
This has lead to higher vacancy rates in many cities, especially Orlando.
Here’s a great video explaining the current crisis:
Overall, rents have leveled out, or even slightly dropped. As new construction properties are breeding a new generation of homes, there certainly is a new standard of living that is expected by potential renters. In other words, properties that are featuring open floor plans with upgrades kitchens/baths are pulling significantly more rent that their dated counterparts.
This is why many investors have been seeking new construction homes as a way of keeping future maintenance costs low while gaining a competitive edge over older homes also listed for rent.
Or, investors are buying older homes for cheaper and rehabbing them to meet the standard of new properties we’re seeing come from builders. Either way, tenants certainly prefer newer, and nicer!
In conclusion, the rental market is still strong. But, there’s a limit on how high rents can be pushed, and it’s seems we’ve found it, at least for the time being. Until wages go up, this is likely where rents will stay for the near future.