Want to cash in on the rental economy? You have to know where to look. With home prices outpacing wages, renting is now more affordable than buying a home in 59 percent of U.S. housing markets, according to ATTOM Data Solutions’ 2019 Rental Affordability Report. Major markets where renting is cheaper than buying include Miami, New York City, Seattle, Las Vegas, San Jose, Houston, San Francisco, and Boston.
But there’s a twist: Even for those who can afford to buy, many are choosing to rent instead. In fact, of the 43.3 million renters nationwide, 2.1 million are top earners. That means you’re free to extend your investment property search beyond the confines of cheap rentals.
According to the Census Bureau’s 2007-2017 American Community Survey, the cities that have seen the most significant increase in the number of wealthy renter-occupied households are Seattle and Charlotte. Seattle’s growth has been attributed to a high-salary job market in IT and quality management, while Charlotte’s rise is linked to strong STEM job growth.
Whether people are renting by default or by choice, the rental economy remains strong. The key is to determine which renters you’re seeking, where to find them, and how you can secure the funding you need to seize every opportunity to scale your business.
Varying Demographics of the Rental Market
While millennials often choose rental properties for the flexibility and freedom they provide, boomers tend to rent after downsizing from a larger family home to a smaller property that requires less maintenance and care. And while millennials enjoy renting in and around cities for increased job opportunities and cultural experiences, boomers choose to move to metropolitan areas for greater access to transportation and senior services.
Of course, urban properties are not the only rentals to consider. Mature suburbs, emerging suburbs, and exurbs have all experienced five consecutive years of increased growth rates. And, all of these locations contain a high ratio of single-family rental (SFR) units.
Though renters’ location preferences and reasons for renting differ, savvy investors can build single-family rentals and multifamily rentals that cater to all needs and demographics. In such a strong rental economy, you’re free to pursue renters of all ages and stages of life.
Growth Areas in the SFR Market
Obviously, a key consideration in your selection of rental properties is location, or designated market area (DMA). The good news is that, according to John Burns Real Estate Consulting (JBREC) data published in August 2018, the single-family rental share of the overall rental market has been steadily increasing nationwide.
Since 2006, the market share of SFRs has grown the most in Phoenix and Atlanta, gaining an additional 11 percent share of the rental market. And in Riverside-San Bernardino, single-family rentals now comprise a whopping 49 percent of all rental units.
Currently, JBREC ranks Las Vegas as the number one SFR market, boosted by strong rental and home price appreciation, and steady job growth. The top five strongest single-family rental markets are:
- Las Vegas
- Salt Lake City
Though it sits in third place in the current rankings, Salt Lake City has earned the top spot in JBREC’s future rankings, propelled by strong rental growth and home price appreciation forecasts among large markets. Consider investing in up-and-coming markets like these to boost your SFR portfolio.
Making the Most of Opportunity Zones
Another way to cash in on the rental economy is by purchasing property in an Opportunity Zone. An Opportunity Zone is an economically distressed community where new investments, under certain conditions, may be eligible for preferential tax treatment. The first Opportunity Zones were designated in April 2018, and there are now zones in parts of all 50 states and Washington, D.C.
Though an area with low income and high unemployment rates may appear unattractive at first glance, tax benefits for investors may include capital gains tax deferment, reduction, or even elimination. Visit the Treasury Department to determine if a property you’re considering is located within a federally designated Opportunity Zone.
Keep in mind that Opportunity Zones vary in their ability to yield profits. For example, the return on investment (ROI) on Opportunity Zone properties is 9.8 percent in Bolivar County, Mississippi; 8.5 percent in Wilcox County, Alabama; and 6.9 percent in Dallas County, Alabama, according to Mashvisor’s Investment Property Calculator and real estate analytics. Boost your ROI by researching the performance of the individual Opportunity Zone in which you plan to invest.
Financing Your Rental Properties
To cash in on the best rental properties in your areas of interest, you’ll need fast access to funding for the property purchase as well as the repairs and capital improvements that will provide the greatest ROI. With help from a lender like 5arch, you’ll enjoy a one-stop funding experience that includes access to the industry’s best advisors. In this rising rate environment, there’s never been a better time to leverage our superior rates, speed, certainty of execution, and advisory service. No matter your strategy, 5arch has a financial solution—bridge, construction, multi-family, rental, or line of credit—we have deployed billions of dollars across thousands of loans.
Want to generate recurring monthly revenue through high-yield rental properties? Turn to 5arch to navigate the complexities of the market and Borrow Better.
5 Arch Funding Corp. (5arch) is a nationwide direct lender serving brokers, correspondents, and real estate investors. We help clients navigate the complexities of the market by empowering them to make more intelligent lending choices with our innovative products and powerful advisory service so they can borrow better
5arch makes and acquires business purpose loans only and does not originate or acquire owner occupied residential mortgage loans. 5arch does not provide tax, legal or investment advice. The information provided herein is informational only and does not constitute tax, legal or investment advice. You should consult your own tax, legal and investment advisors before entering into any transaction.
5 Arch Funding Corp. / NMLS ID # 1039184. 19800 MacArthur Blvd., Suite 1150, Irvine, CA 92612 | 54 West 40th St, New York, New York 10018. Arizona Mortgage Broker License # 0933148; Oregon Mortgage Lending License Number ML-5475. TN Industrial Loan and Thrift Registration No. 163241. In California, loans are made under the California Real Estate Law, DRE Corporation License # 01928500. 5 Arch Funding Corp. makes first lien mortgage loans. In Georgia, 5 Arch Funding Corp. only loans to entities.
Michael Miller serves as the Chief Marketing Officer of 5arch and is also one of its principals. His past experience included positions as CMO of Epsilon Agency Services and managing director of Catapult Marketing. He also co-founded Hyper Marketing, which was later acquired by Epsilon. Miller has developed global marketing platforms across numerous brands, including JPMorgan Chase, Union Bank, Wells Fargo, Google, Intel, GM, The Home Depot, Lennar, and Tishman Speyer.