By Kayla Matthews
Are you ready to buy a new rental property? For some, it's an opportunity to make a fortune. However, like any other business, there are risks involved. If you want to make the jump before 2020, consider how the market will change and what it means for you.
1. Demand for Single-Family Homes
There's a demand for single-family rental homes, and developers and landlords are stepping in to fill the gap. In 2018, developers built more than 40,000 new single-family homes for rent, the highest number in almost 40 years.
Mark Wolf, founder, and CEO of San Antonio-based AHV Communities, "We think there's a major shift in the demographics. Empty nesters are done taking care of their homes. They want to downsize, they want portability, mobility in the lease."
Older generations aren't the only ones interested in single-family homes. Millennials also want the convenience of more space, large yards and increased privacy. They want the freedom of living in a house without the hassle of maintenance, repairs and yard work.
2. Occupancy Rates on the Rise
The current rental market is thriving, with apartment occupancy rates at their highest since 2000. Out of the 150 major markets in the U.S., 91 met or exceeded the national norm for occupancy. Experts believe this trend will continue into 2020.
With students crippled by nearly $1.5 trillion in loan debt, many forgo buying a home, choosing to rent instead. Millennials will continue to migrate out of family homes and into apartments. Baby boomers looking to downsize and who are unable to perform home maintenance are also flocking to rentals.
With the economy growing and the labor market healthy, both multi- and single-family properties will remain in demand. In 2019, the markets that saw the most substantial increase in occupancy include Cincinnati, Virginia Beach, Nashville, Austin and Baltimore.
3. A Need for New Technology
While there are plenty of renters, the market is still competitive. Property managers must look for new ways to attract prospective tenants and gain an edge over rivals. Technology could be the deciding factor in a renter's choice to lease your apartment.
According to one study, 55% of renters choose where to live based on home amenities. They want modifications like smart thermostats, new appliances and seamless Wi-Fi integration. These amenities will attract new renters, as well as justify higher rent prices. High-tech features can also help you reduce energy bills.
Renters say they are willing to pay more for an apartment if it has the right type of technology. More and more homes have adopted smart products for total home automation. For property managers to keep up, they must offer the same kinds of efficient amenities.
4. An Increase in Property Taxes
Property taxes are rising across the country. In 2018, the average property tax bill was $3,489, 3% higher than the year before. The highest taxes levied against homeowners occurred in Connecticut, Illinois, New Jersey, Texas and Vermont.
In all of the markets tracked during the study, taxes rose faster than the national average in 58% of them. Many things contribute to property tax hikes, yet the outcome is the same — homeowners, including those who rent their properties, continue to pay more.
If you're interested in buying a new rental property before 2020, invest in an area with the lowest tax rates, such as Alabama, Colorado, Hawaii, Nevada and Utah. When you buy a second property, consider property tax increases. You should save up an emergency fund of cash reserves — equal to the amount of both your home mortgage and rental property loan for two to six months.
5. The Best Markets to Invest In
If you plan to buy a new rental property before 2020, you need to understand the current markets and how they're predicted to shift. Some spots have a high demand for rental properties, with prices up between 8 and 13% within the past year. These markets include Atlanta, Charlotte, Colorado Springs, Las Vegas and Tucson.
You can also research markets with good growth, yet moderate demand. These areas tend to be former hotspots whose popularity has declined. Markets on the rise include Cincinnati, Fresno, Philadelphia and Winston-Salem.
If you plan to buy in a market with moderate demand, you can find a bargain when it comes to property. In upswing markets, you can market your property aggressively and do exceptionally well in the coming years. In markets with strong demand, you need to move quickly and strike while the iron is hot. In these areas, flipping properties is a great option.
6. The Predicted Housing Recession
If you want to invest in a new real estate property and make bank, consider what the experts have to say first. According to one poll of real estate specialists and economists, the majority believe the next financial recession will occur in 2020.
The 2008 financial crisis impacted many Americans. However, the past decade has seen a bull market, with home prices reaching rates exceeding the pre-collapse valuation. Still, experts believe this growth won't be enough to evade the future downturn.
On the plus side, a recession could prove beneficial to those who already own property. Industry insiders expect home values to rise 5.5% this year, an increase which leads to higher property taxes. The drop in home prices could lead to lower rates, a respite for those looking to save.
Buying a rental opportunity can be a way to make a living or earn a supplemental income. Even experts claim real estate is an excellent investment opportunity.
Before you make the leap, however, it's essential to understand the market and how it's predicted to change. From technology trends to property tax hikes, read the advice above to discover what you need to know before you buy.