In the United States, rents are up about 8% since 2011. The allure of rental properties is growing. The 2010s are projected to be the strongest decade for rentals. As more people are renting, prices go up. A few factors contribute to this seemingly endless spike. The real estate crash of 2008 that forced many out of the home buying market contributes to escalating rents. Plus, when millennials leave college or leave their parent’s house, they seek affordable rental situations in the financially insecure period of their lives. But it’s getting harder and harder for anyone to find an affordable rental home.
Why have rents increased so distractedly?
According to The Real Reason Housing Costs are Way Up from Kevin Perk on Bigger Pockets, regulations limit the supply of options and thus increase prices.
Rent is a price that is subject to supply and demand. It reflects the overall real estate market. If demand for rentals is high but supply is low, rents (and profits) climb. The rising costs of home ownership points to what people can afford; even if people can afford a mortgage, costs show that they can’t afford a home. Mortgages are generally affordable but housing prices are too competitive. There’s no other option but to rent.
The supply of housing types are becoming more restricted as more rules are enforced. Cities and towns across the country influence rent price by dictating who gets to build and who gets to live in these buildings. Barriers such as zoning and housing codes limited rental housing options and restrict the supply of the market.
High rents have a lot of people angry. In the Silicon Valley, residents are advocating for rent control proposals, “driven by outrage over soaring housing prices and fears that the growing income gap is turning middle-class families into an endangered species.”
Leonard Siegel, city councilman in Mountain View, California (home of Google) agrees about supply and demand. He says, “the solution to the overall increase in housing prices in this area is bringing supply and demand into better balance.” However, building more affordable options takes time. In the time that those plans develop, the middle class is struggling.
According to Freddie Mac’s Steve Guggenmos, rents have climbed steadily since 2005. Meanwhile, household incomes have declined. So, the number of cost-burdened renters (those who put over 30 percent of income toward housing) grows.
Despite the overall burden of cost in the rental market, the situation presents a suitable opportunity for flippers to outfit more properties for potential renters. According to Auction.com, 56 percent of investors preferred flipping compared to 42.8 percent who preferred renting (1.2 percent said they were undecided). Those investors who made one-time purchases preferred renting (64.5 percent compared with 34.6 percent.
Flipping or renting is a personal decision. You have to determine your end goal with the property you acquire; flippers will tell you to flip it, landlords will tell you to rent it out. Rents are rising, but the transformations flippers make to previously undervalued properties can influence the supply and demand of the market.
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