Rental real estate isn’t what it used to be – and for investors hoping to build wealth through investment property, that’s a good thing. Changing social, cultural and economic trends are creating some surprising new groups of long term tenants with needs and interests that create both opportunities and challenges for rental property owners.
A few years ago, renting a dwelling was something most people did on their way to buying a hoe of their own – an essential piece of the “American dream.” Rental housing was seen as temporary, not very appealing, and a sign you just couldn’t move up to the ext rung of the ladder.
But that picture has changed. US homeownership rats have plummeted in the past couple of decades, and changing economic factors and social trends mean that for many, renting is a long-term option, not a short-term solution. In the wake of the housing crisis of 2008, the rental market is heating up, driven by an ever-expanding pool of tenants who are shut out of the traditional home buying process.
One of the new tenant groups is the growing number of households headed by single mothers. The growth – and sociological impact – of single-mom households has been studied for decades, as experts in fields like sociology and psychology studied these households to learn how they affected children later in life. But because single-mom households make up a relative large share of the rental market that research may be important for investors too.
In households headed by a single parent, that parent is primarily a mother. She’s usually the custodial parent of children under 18, and she can be many things: an unmarried teen struggling with school and work, a midlife wife rebuilding after a sudden divorce, a single professional woman who has a child without a partner. She might be a victim of domestic violence.
Whatever the reasons, the number of households headed by a single woman with dependent kids is growing. Recent studies reveal that about half of all American children live in homes headed by a single mother.
And many of those mothers turn to rental housing for themselves and their families. These households typically have lower incomes than their two parent counterparts. Single women juggling jobs, school and childcare may find it harder to qualify for a mortgage – or make a down payment. Some may be receiving assistance from a variety pf social service agencies, which offer help getting into rental housing.
This group of renters joins other clearly defined demographic groups with clear ideas about what they want in rental housing. One of the largest demographic groups in he US is the millennials –those young people born between 1983 and 2003. Their numbers eclipse those of the fabled baby boomers, and they’re changing the housing landscape too. This group typically caries student debt totaling in the thousands. They aren’t in a hurry to marry ad have children—typically two reasons to buy a house. And because many of them don’t own cars or other major possessions, they’re looking for convenient rental housing near work and shopping.
The millennials may have surpassed the baby boomers in numbers, but that group –and those already in retirement and beyond – are adding to the new profile of renters on the other rend of the spectrum. These individuals may have owned a home. But they may have fallen victim to foreclosure, or simply opted to downsize. They may want to travel. They’re returning to the rental market in large numbers, and most won’t be returning to home ownership.
The takeaway for investors: all these groups – single working mothers, millnnials and “empty nesters” have oddly similar needs when they’re looking for rental housing. And landlord/investors able to meet those needs should have no shortage of tenants for the long term.
A recent survey of rental trends for 2015 highlighted the expectations these tenants have for rentals: safe, close to amenities including work, school and shopping. Proximity to public transportation may be important too.
It’s not legal to target – or exclude – any particular group under fair housing laws, But investors hoping to tap this large and constantly expanding tenant pool can advertise in appropriate places – and stress these key features as long as doing so doesn’t profile any particular type of tenant.
Thanks to a variety of factors, rentals are still hot and will probably stay that way. For investors taking Jason Hartman’s advice to stay educated and keep a diverse portfolio, these very diverse groups of renters just might be the key to long-term returns. (Featured image:Flickr/wonderlane)
Gidman, Jenn. “More Than 50% of US Kids Will Live With a Single Mom.” Newser. newser.com. 17 Dec 2014
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The Heroic Investing Team