Rental Properties in The United States Are More Profitable Than Ever
According to a recent report from iProperty Management, 36% of Americans (around 44.1 million households) are currently renting. Since the pandemic, the housing market has become incredibly competitive.
Many buyers are fighting tooth and nail with other buyers to secure homes. This is mainly due to low supply since the start of the pandemic. A lack of labor, lumber, and supplies reduced the number of new properties being built - and the market is still trying to recover.
Even with vaccines and differences in mandates that vary from state to state, there is still a lack of labor for another reason. Many people who already own homes found themselves needing more space to accommodate their new lifestyles.
Parents were working from home while simultaneously utilizing the space for educating their children. More families began to cohabitate to help reduce costs. Labor was being used to renovate and expand homes that were already built. People started paying extra attention to maintenance and repair issues, restoring value to their homes through tasks like roof repair or gutter replacements.
Experts have stated that low mortgage rates are showing that owning a home is more affordable than renting. However, because of high competition, it's nearly impossible for homebuyers to close the deal.
Since many people lost their jobs due to the pandemic, more people were looking for other means of making income. This began a surge of people looking into alternative investment opportunities, with real estate being the highest among the different portfolio options.
With such a high demand for housing and many people unsuccessful in their house buying endeavors, rental properties have become incredibly lucrative. Single and multi-family homes have now been turned into rental properties for those who are either unable to afford to buy a house or haven't been able to purchase one.
Current homeowners have now found it to be more profitable to rent their current home, even with the necessary repairs and renovations required, and purchase a second house. While renting your current home doesn't alleviate all the financial costs that come along with becoming a landlord, owning a home is more affordable than renting.
It's become significantly easier for those who already have equity in their homes to purchase a second house. It gives a leg up on the competition with first-time home buyers, showing they have the financial backing from lenders to afford the payments.
Homeowners also can borrow money from the current home's equity for any necessary repairs and renovations or lower their debt. It's typically less expensive than utilizing personal loans.
An article from the Philadelphia Inquirer stated that homeowners who purchased a house five years ago for $110,000 have now tripled their investment due to the current market. But more Philly-area homeowners are turning towards becoming landlords by renting out their homes due to the profitability in the rental market.
Even though metropolis areas such as Philadelphia are seeing an increase in wages, around 2.8% over the last five years, homes have dramatically increased by 6.7% annually.
This means people who are looking to invest as first-time property owners may not have the financial ability to afford it in the current market. Hence, the rise in a profitable rental market. The more demand for rental properties, the higher the overall rental prices.
It seems to be a rather unfair balance where the housing market favors the wealthy. More investment firms are seeing opportunities to gain, which takes away opportunities from the average middle-class family.
Firms can pay tens of thousands of dollars upfront in cash, whereas a family may only be able to put down the bare minimum required. Of course, the seller is going to take more cash up front, leaving families to continue fighting the competition.
As the pandemic continues to unfold, we'll see further changes throughout the housing and rental market. But as of now, current homeowners have the upper hand in both.
