As a property investor, finding the right rental property to invest in can be a challenge. With so many options available, it's important to know the ins and outs of the rental market in America. In this article, we'll cover the basics of renting property in America and provide some tips for finding the right investment opportunity.
Understanding the Rental Market in America
The rental market in America is constantly changing. However, it's generally considered to be a landlord-friendly market, with high demand for rental properties that is at a 50-year high.
According to a report from Rent Cafe in 2022 the number of renters in America increased to 43.7 million, a number not reached since the late 1960s and due to a variety of factors, including the increasing cost of homeownership and the rise of the gig economy, which has made it more difficult for many people to save for a down payment on a home and high inflation, this number is expected to continue to rise in the coming years.
Types of Rentals in America
There are many different types of rental properties available in America, including single-family homes, apartments, townhouses, and even commercial properties. Each type of rental property has its own set of advantages and disadvantages, and it's important to consider the type of rental that best fits your investment goals.
Single-family homes are typically the most popular type of rental property for investors, as they are often require the lowed capital expenditure, they can provide a variety of price points for investing and offer a variety of advantages, including stable cash flow, tax benefits, and the potential for appreciation.
It should be noted however that single-family homes also come with higher maintenance costs and a higher level of risk, as the value of a single-family home can be affected by a variety of factors, such as the condition of the property, the local real estate market, and the local economy.
An apartment within a large-scale apartment building is another popular type of rental property.
Offering many of the same advantages as single-family homes, including stable cash flow, apartments can also come with higher (and more unpredictable) maintenance costs including ground rent and shared ownership costs connected to maintenance of the building.
There can also be a a higher level of risk, as the value of an apartment can be affected by a variety of factors, such as the condition of the wider freehold building, the local real estate market, the condition of surrounding apartments as well as their tenants as units are in closer quarters than single-family homes.
Townhouses are the type of property that can typically be found in larger cities, thus attracting investors who are local to the area.
While they offer a number of advantages, including lower maintenance costs which are included as part of home owner association costs which can include maintenance, repair (incl. roof), sewage, garbage removal, and can in many cases include buildings insurance and basic cable TV, there an also be challenges for an investor.
Townhouses can also come with lower rents due to a higher level of competition as there are often many other townhouses available for rent in a given area.
Commercial properties offer a variety of advantages, in terms of increased revenue and low costs with items like maintenance being leverages onto the renter.
However, commercial properties also come with a higher level of risk, occupancy turnover can be high if businesss fail and it is imperetive that investors consider the location and the feasibility of the business area, as well as understanding the viability of the type of business that is requesting to rent.
It should also be noted that while the value of a commercial property can be more predictable, it can be highly affected by a variety of factors, such as local competition (for example a new retail space).
Finding the Right Rental Property in The United States
When it comes to finding the right rental property to invest in, there are a few things to keep in mind.
Location is paramount for any investor for understanding not just the possible benefits/hindrances in the area, but also to understand any tax implications which vary from state to state, any benefits that may be available in things such as opportunity zones, and also any zoning requirements or issues.
Realwealth.com reports that San Antonio, TX (1), Jacksonville, FL (2) and Baltimore, MD (3) are the top 3 areas for renters using variables such as population growth, job growth, home prices, median rents, as well as 1-8 year equity growth.
Local market knowledge is important as the local real estate environment will help determine the best type of rental property to invest in. Some areas may tilt more towards more rental demand for single-family homes over condos/apartments or larger homes.
The condition of any property being considered is important as this will impact on cost conserations for anything such as renovation, and it's also imperitive to verify any documentation for things like electricity or extension to ensure they meet city code.
Once all elements have been considered, location found, then ensuring any offer made is at the right price, is essential to any property investment strategy.
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