Buying investment property should not be a guessing game. Carefully evaluating potential locations will help grow your financial portfolio and bring long term success. All profitable investment locations should have the following: job growth, population growth, and affordability! Read on as we walk you through the top rental property investment trends of 2020.
Top Rental Investment Trends for 2020
- Widening the Renter Demographics: Renting has long been associated with a younger generation. Typically, it was viewed as a stepping stone towards the goal of homeownership. However, the dream of homeownership continues to be out of reach for many. That said, the flexibility that renting provides has become more appealing to people of all ages. Today, it is viewed as more of a lifestyle choice than financial necessity. According to Rentometer, in 2020, nearly 45% of renters are over the age of 45.
- Appealing to the Gen Z Renter: While technology is convenient and essential to most, Gen Z renters have never known a world without it. Landlords must utilize all tools at their disposal when target marketing to this generation. Listing across several sites plus social media will garner the best exposure.
- High Tech is the Way to Go: Technology across all industries continues to grow rapidly, and property management is no exception. So, as landlords, keeping up with the latest tech services to make life easier, such as online rent collection, virtual touring, and maintenance request submissions, is essential.
More Rental Property Trends to Consider
- Rent Control Legislation: Some states have added legislation aimed at controlling rent to help with increasing rental cost and market instability. New York and California were first, but as the COVID pandemic continues adding financial strain, landlords can expect other states to seek similar action.
- Rent Growth Uncertainty: The COVID-19 pandemic has had devastating effects on the financial capability of many people as well as the rental market. Many metro areas across the country have been some of the hardest hit with unemployment. That said, the market in a wide range of sectors will be dependent on recovery time and interest rates that may or may not see people shifting from renting to buying. Overall, the final few months of 2020 remain uncertain, and so does the rental outlook.
- Rise of the Large Investment Firms: The uncertainty of the market can scare away much smaller or accidental landlords. Eager to take advantage of their desire to exit, the rental industry is a large investment firm. These firms continue to grow throughout the remainder of 2020.
Tips for Profitable Investing During a Pandemic
COVID-19 continues to ravage parts of the country, but are there deals during a pandemic? Maybe. While some hard-hit places are bouncing back, others are struggling along. A savvy investor should consider these questions below as they start their search for pandemic deals.
Where are the rental markets historically the best?
Consider factors such as affordability, population changes, and job growth. Specifically, with job growth, note any healthcare, technology, or military activity in the area. Professions such as these draw people to the city; many could be potential renters.
What were rental markets hardest hit by the pandemic?
As we mentioned, not all areas are coming back as quickly as others. Factors like continued business restriction and closures combined with high unemployment rates factor into the viability of a market. Additionally, if an area was not doing great before the pandemic hit, it likely is not fairing well now either. Focus on diverse and affordable neighborhoods.
Where are the best job markets after COVID?
Where there are jobs, there are people. That said, seek out areas where jobs are likely to rebound quickly or even grow. While some businesses shut down and are slowly reopening, many essential professions remained open. Areas with essential workers such as hospitals, military, or large fulfillment centers may prove profitable.
What are the areas expanding amidst the pandemic?
Population growth signifies a potentially useful market for investing. However, with so much uncertainty in 2020, people are not relocating at the usual rate. That said, as cities and states reopen, it’ likely there will be an influx of people relocating to find work opportunities. Time will tell, but keep an eye on population changes in your target areas.
Is real estate a good investment?
Historically, yes. Unlike the fluctuating stock market, real estate is an excellent way to safeguard your assets. Thanks to low-interest rates, now is a great time to buy if you are thinking long term. Added cash flow from the rental income combined with long term appreciation of the property could pay off big for discerning investors.
What are Renters Looking for in 2020?
As the COVID-19 pandemic has dominated 2020, how has that changed what tenants are looking for? Renters and citizens alike are settling into a new normal of working from home and social distancing. So, what do landlords need to focus on to appeal to renters going forward? Read on to find out!
- The Need for Home Office Space: Many residents now find themselves working from home, in some cases, indefinitely. Renters may shift to seeking out larger units with a designated home office space. That said, if your rental home doesn’t have space for an office, consider adding a built-in or fold-out desk or even added shelving.
- Stronger WiFi Signals: Whether it be working from home or Zoom calls with loved ones, there is an increased demand for WiFi signals. Adding signal boosters or even just locking down security on the WiFi can help improve signal strength.
- More Space: Nothing makes an apartment feel smaller than a shelter-in-place order. As many renters continue to be home more even as orders lift, they may desire to seek out larger units or single-family homes. This both serves as more space for them and to put more space between them and others.
Renters Also Look For the Following
- Multifamily Building Business Services: Many renters now working from home face a dilemma, lack of office support machines. A business center offering printers, fax machines, computers, and charging stations can be a massive help to your tenants. If you already have a business center, reconfigure to accommodate social distancing and cleaning protocols, and your tenants will thank you.
- Outdoor Retreats: After being cooped up in a small apartment, tenants can’t wait to get out. Landlords with multi-family buildings should consider what options you can maximize for tenant enjoyment; is it a rooftop deck, walled courtyard, patio space with seating? Sprucing up these outside areas can do wonders for the morale of your building.
Rental Prices in Major Markets Over the Past Few Years
Rental property investment trends are softening thanks to both the pandemic, and it’s subsequent financial impact. Many Americans feel it is not currently safe to move, while others have to move to find more affordable housing. As unemployment continues to rise in many areas, the market will continue to bear the pandemic fallout. Even so, the decline across the country is modest. That said, more heavily impacted areas have a sharper decrease to come back from.
Major Market Rent Growth Since March 2020
San Francisco: -3.3%
New York: -2.8%
Washington DC: -1.7%
Data provided by Apartment List
Top 5 Places to Invest in Rental Property and Where to Avoid?
So, where are the best cities and towns to invest in for 2020? According to the PwC’s Emerging Trends in Real Estate 2020 report, investors might want to take a good look at the locations below. Stable growth and positive rental property investment trends make a list below very appealing to investors.
- Austin, Texas
- Raleigh-Durham, North Carolina
- Nashville, Tennessee
- Charlotte, North Carolina
- Philadelphia, Pennsylvania
- Boston, Massachusetts
The capital of Texas has garnered the attention of investors in 2020. Thanks to a boom of high-paying tech jobs in the area, coupled with low unemployment rates, the economy is thriving. The influx of jobs is drawing newcomers, making the city one of the nation’s fastest-growing over the next five years. Also, Austin has a 10-year job market growth estimate of 47%, well above the predicted US average of 33.5%.
Average Traditional Rental Income: $2,032
Traditional Cap Rate / Cash on Cash Return: 0.57%
The Best Neighborhoods in Austin: Johnston Terrace and North Lamar
Raleigh-Durham enjoys a booming tech industry landing it as #2 on the list of top 2020 markets. Research shows that as more young professionals flock to the area, the demand for multi-family housing options is growing. Both Raleigh and Durham markets are one’s where investors will benefit from higher appreciation rates. Zillow estimates homes in the area will appreciate between 4% and 4.4%.
Average Traditional Rental Income: $1,508
Traditional Cap Rate / Cash on Cash Return: 1.2%
The Best Neighborhoods in Raleigh/Durham: North Central and Rockwood
Nashville continues to have a growing and successful real estate market in 2020. Offering one of the best rental investment opportunities, Nashville is projected to grow its job market by 48.3% over the next decade. Additionally, unemployment rates are lower than the national average, making Nashville a solid investment choice.
Average Traditional Rental Income: $1,757
Traditional Cap Rate / Cash on Cash Return: 1.8%
The Best Neighborhoods in Nashville: Belair and Kenilworth Estates
Charlotte is right behind Raleigh-Durham for North Carolina’s top investment markets. Also, it is one of the top up and coming locations on the east coast. Whether you are looking to invest in traditional real estate or vacation rentals, Charlotte should be at the top of your list. Despite strong investor demand, homes in the area continue to be pretty affordable and are estimated to appreciate by 5% in 2020.
Average Traditional Rental Income: $1,566
Traditional Cap Rate / Cash on Cash Return: 1.3%
The Best Neighborhoods in Charlotte: Idlewild South and Sugaw Creek-Ritch Ave
Nearly 49% of Philadelphia residents, according to NeighborhoodScout, prefer to rent over owning a home. The investor market is thriving as there is a wealth of properties on the market for the taking. Additionally, investors can take advantage of above-average appreciation rates and strong population growth. Consider purchasing rental properties in Point Breeze, Port Richmond, Northern Liberties, or Fairmont.
Average Monthly Traditional Rental Income: $1,360
Average Traditional Cap Rate: 8.3%
Best Philadelphia Neighborhoods: Eastwick and Fairhill
Investor demand here is second only to the Austin, TX market. That, combined with a strong economy, make Boston, a key player in the rental investment market. However, increased development and redevelopment are catching up to meet the demand for property.
Average Traditional Rental Income: $2,795
Traditional Cap Rate / Cash on Cash Return: 0.56%
The Best Neighborhoods in Boston: Mattapan and West End
Places to Avoid When Investing in Real Estate
If you are looking into rental property investment trends, population and job growth are essential to choosing the right spot. The list below contains some of the places you want to avoid. These locations are seeing population loss, higher unemployment rates, and markets that favor buyers over renting. So, investors should steer clear!
- Utica-Rome, New York
- Evansville, Indiana
- Pittsburgh, Pennsylvania
- Syracuse, New York
- Erie, Pennsylvania
Buying an investment property in the questionable 2020 market comes with some added questions. As a savvy investor, focus on the above rental property investment trends. Pay close attention to locations making a strong comeback. All profitable investment locations should have stable job growth, population growth, and affordability! Do you need a trusted property management company to guide you through the stress of being a landlord? Reach out to Bay Property Management Group Philadelphia for experts in rental property management serving Point Breeze, Center City, Northern Liberties, and Port Richmond.