Top 5 Real Estate Investing Trends to Watch - Quarterly Update
One of the key differentiators attributed to Investability's uniqueness in the single-family residential (SFR) investment space is our strong data backing from RentRange®. RentRange has been collecting data since 2008 and has since expanded its database into a robust national rental and housing market analytics powerhouse. As we wind down from summer, our team wanted to highlight some of the top trends from Q2 and what they mean for investors like you.
As a nation, we are seeing pretty consistent job growth. Seattle, Portland, Southern California, Denver, parts of Texas, and most of the Eastern part of the country are experiencing particularly strong employment gains, exceeding 25,000 new jobs since Q2 of 2016. As we’ve discussed in a few recent podcasts, the Rust Belt is another hotspot right now, attracting a new, educated workforce. However, as jobs are created, increased housing demand swiftly follows. While much of the country is adding jobs and residents, the battle of supply and demand rages on as we continue to experience a significant inventory shortage.
Supply and Demand
Job creation is a great economic driver. However, when a metro adds new residents as a result of an influx of available jobs, the local housing market feels the strain. San Diego, for example, has added 28,000 new jobs over the past year, but only added 4,852 building permits. The appropriate ratio for employment growth and building permits is for every 1.2 jobs, there is 1 building permit issued. It’s no surprise San Diego is one of the most expensive housing markets in the country. While the local economy rapidly adds new residents, the inventory shortage continues to cause spikes in rental rates and home prices. Unfortunately, this is not an isolated incident. While much of the country continues to see healthy job growth, the lack of new inventory to accommodate the surge in residents is resulting in skyrocketing rents and home prices.
Rental and Home Price Appreciation
Rents across the nation are reaching all time highs. With home prices appreciating so rapidly, many first-time homebuyers are being priced out and inadvertently remain stuck as renters. While there are many trends showing the shift toward preferred rentership, there are still those who would like to transition into being homebuyers but are unable as they continue to struggle to save for a down payment. See the map below for a visual representation of the rental rate appreciation in the U.S. over the past year.
Possibly the most important investment metric is gross yield. This is the rent amount divided by the total value of the rental property. Attractive gross yields for buy and hold investors typically range between 9-15%. For investors seeking these kinds of yields, it will be tough to find in the western part of the country given the high and rising home prices. However, the midwest and west coast currently offer significantly higher yields. Texas, Florida and Rust Belt investors are yielding upward of 19% on their investment properties.
Where Out-of-State Investors are Deploying Capital
Most investors live in expensive metro areas where home prices are simply too high to yield strong returns. Some of the top metros where investors have moved beyond their own state lines to find strong investment properties are Portland, Reno, Las Vegas, parts of Arizona and New Mexico, Memphis, most of Florida, and Charlotte. These markets present affordable inventory and with increasing demand, investors may be able to maximize their rents.
If you’d like more insights into these recent trends and additional SFR market projections, tune in to the Investability Podcast’s latest episode and download the presentation. The time has never been better to invest in real estate. The data to guide your decisions has never been so easily attainable and with a plethora of viable resources at your disposal, you can break into strong rental markets regardless of your own geography. If you’re ready to start investing, leverage our team as a resource to get you in the right direction.