Prime Time for Rental Investors

After five years, the housing industry decline is finally showing signs of slowing. But unless we encounter unforeseen changes, it looks like a full recovery is still a long way out. And whereas home ownership may no longer be every person’s dream, rental investors continue to have an opportunity for long-term returns.

Slow real estate rebound
Experts predict that housing sales and housing construction will rise in 2012. But they also predict that recovery will be slow.

According to the Standard & Poor's/Case-Shiller home-price index released Jan. 31, home prices fell for the third month in a row in November 2011. Even though some reports indicate that the housing market is improving, inventories of existing homes will need to drop dramatically before homeowners see the benefit of that improvement.

In addition, foreclosure rates remain high, and real estate professionals expect housing prices to continue to drop in order to compete with foreclosed properties.

Rental market remains bright
While housing sales struggle, the rental market is booming. As new jobs are created, the demand for housing increases. However, strict lending rules prevent many people from owning a home, so they become renters. This trend creates a high rental demand, and because little rental construction is occurring, rental rates increase.

Apartment research firm Axiometrics predicts 10 years of a strong apartment market. The firm expects apartment rents to jump 5.5 percent in 2012, which would mark the third straight year of rising rents.

A different kind of dream?
Home ownership used to be the American Dream. But now for many Americans, that dream has shifted. According to RBC Capital Markets, although the housing industry is showing signs of improvement, homeownership will likely continue to fall throughout 2012.

A recent CNBC real estate article explains that the move away from home ownership to renting may be a fundamental shift for Americans. The article cites rental expert Richard Key, district manager for Camden Property Trust in Washington, D.C., who believes the attitude about owning a home has undergone a dramatic change. And he doesn't expect the pendulum to swing back to buying within the next few years.

Whether the decline in home ownership is due to foreclosure, inability to meet strict lending standards, or a reluctance to invest after being burned in the recent housing crisis, more and more people have chosen not to purchase a home.

And fewer home owners means more renters.

Real estate professionals can take advantage of this trend. The most valuable opportunities for many of your investors will be in the rental market. Investors who own several rental properties should see continued income from those properties for the long term.

A high demand for rental units and rising rent rates combined with low housing prices and mortgage rates makes right now a prime time for investing in rental property.

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