Rentals are booming right now, thanks to falling home prices and economic uncertainty. Real estate pros who don’t take advantage of this situation will miss out on money-generating opportunities.
Rising demand and a tightening supply is force both commercial and residential rents upward, and signs point to an increase in prices continuing over the next few years.
For one, office construction starts have been at their lowest level in more than 50 years, and on record. The lower starts means that there will be fewer spaces for businesses to rent, which will likely give landlords the upper hand in pushing rents even higher.
Residential renters can also expect an increase. Nationwide, rents in December 2011 increased 2.5 percent compared to December 2010, the Consumer Price Index shows. Rising rents have led to rents to reach their highest levels in 2011 since 2007, Reis Inc. reports.
“The supply side is so constrained because nobody has been building for years” due to the economy and the struggle developers face in getting loans, Mark Stapp, professor of real estate practice at Arizona State University, told MSNBC.com.
While rents have risen, the cost of home ownership has dropped. In fact, in 74 percent of major U.S. cities, renting may be more expensive than owning a home, a Trulia.com study has found.
Amid widespread falling values, a large shadow inventory, and general economic uncertainty, perhaps the biggest positive development in the real estate industry in the past year has been the booming rental market.
Vacancies in rental properties are falling, and this sector is the driving force behind housing starts right now. The swelling demand is also driving up rental costs, a trend expected to continue throughout this year.
While sales volume and housing values may improve nationally in 2012, it’s safe to predict that renting will continue to be a popular option for many people who remain wary of a home purchase — or who have left an upside-down mortgage.
For reasons ranging from personal income to quality of life in their communities, real estate professionals will almost always prefer the business of home sales over rentals. But that doesn’t mean there isn’t a silver lining of opportunity in the rising rental market.
Here are three ways to ride the rental wave:
As the cost of renting has gone up, the affordability of housing — due to falling mortgage rates and home values — has gotten more favorable. What’s more, the Federal Reserve has publicly committed to a strategy of keeping lending rates low to facilitate economic recovery. Consequently, home ownership is considerably less expensive than renting in many markets, and probably will be for the foreseeable future.
If you’re operating in one of these markets, you can use the “buy vs. rent” argument in your promotions. For example, you could have brochures or print ads that say something like: “Still renting? You could be saving money every month and building long-term wealth! Contact me to find out how.”
2. Extra Income
Finding and negotiating leases for consumers can provide another income stream for real estate professionals whose primary focus is on homes. Many practitioners recoiled from these transactions in the past because the returns were not that great for the effort involved, especially compared to the standard commission on the sale of a house.
But new Web sites and online applications make it easier than ever to connect consumers with the rental properties they’re looking for. You can also establish relationships with local landlords and property management companies to get the inside track on what’s available for rent.
Plus, if you’re working with owners who can’t sell their house, you can suggest leasing it as an option. Given the state of the market, they might take you up on it. Additionally, multifamily property management and investment may be options to explore, depending on the amount of time, capital, and experience you have.
3. Consumer Relationships
The millennials, the oldest of whom are just now entering their 30s, still have fresh memories of the housing crash and financial crisis. Many of them are struggling to find any kind of work at all, let alone decent jobs. As such, most of them aren’t ready to be home owners yet. (To be fair, because of their age range, this would be the case even if the economy was performing well.)
The good news is that despite these current conditions, the millennials’ view of housing hasn’t really soured that much. Most of them still want to own a home someday. But if they don’t have the financial wherewithal or will to do so now, that means they’ll have to rent for at least a few more years.
That’s where you come in: By employing your customer service skills and expertise to help them find a rental property they like, you’ll be positioning yourself as their go-to agent when the time comes for them to buy a home.
Likewise, if former clients fall on hard times and need to find a new place to stay for a short while, you can assist them in their search for a rental. If they get back on their feet and want to purchase a house, you’ll be there for them again.
Even if you don’t make much from rental transactions, you’ll create opportunities for repeat — and hopefully more lucrative — business.
The rental market will likely benefit over the next couple of years from upheaval and insecurity in the broader economy, but the current boom will not last forever. Home ownership will enjoy a renaissance as soon as the economy stabilizes. Instead of just waiting for that to play out, you can be proactive and adapt to current conditions. If done right, taking advantage of the rental market will allow you to earn more now, and put you in a good position with clients when that turnaround comes. 2012 | By Brian Summerfield
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