Rent Affordability Could Be an Issue For Real Estate Investors
As a property management company reviewing hundreds of applications monthly for a handful of vacant properties, we get to see first hand the affordability and income issues that face today's renters. However, is that a rental problem or an income problem. Inflation is outpacing earnings growth and rental households have more than doubled in the last 15 years. Yet, earnings have stagnated at best. So, is this an issue?
A recent report released by Zillow showed that rents hit the least-affordable point in history during the 2nd quarter of 2015 with rent swallowing 30.3% of a renters income. Traditionally, that ratio is a safe and affordable ratio. However, when put in context of a renter with less stable means of income and more instability surrounding other debt obligations, this number is the highest it has been in history and could spell trouble ahead.
To be fair, the affordability issue hits mostly metropolitan areas where housing prices have skyrocketed in recent years like New York City, Chicago, Los Angeles and Miami. In other areas of the country such as Dallas, Memphis and Houston, affordability over-all is not as much an issue today, but still requires careful watching.
As real estate investors, we purchase in these markets based on today's rental rates and our ability to earn a satisfactory return. However, as smart investors, we are also looking for both price and rental appreciation mixed with the affordability of the initial investment. These markets are not going to appreciate like the above mentioned markets. They are not going to see value and rents double in 5 years like San Francisco experienced from 2010-2015. At the same time, the median home value in San Francisco is now over $1 million putting it well out of reach for the average investor.
So what does this really mean for those of us investing in the Midwest? It means we need to keep a close eye on our assets. Buying the best asset at the best value is going to be crucial. Cap-Ex on low-priced housing is going to eat many investors alive who invest in high-risk assets. Renters are going to be squeezed for their dollars without wage growth and renters are going to look for the best value. That means a good price for clean, well maintained and responsive property management.
The team at Affordable Online Colleges released an info graphic focusing on the brewing rental crisis and the implications it could have. Take a look below...
Want to learn more about investing in real estate with Memphis Invest? Dallas, Houston and Memphis are all fantastic markets for real estate investing with steady and consistent property value and rental appreciation...