Rental rates are rising and there is no end in sight. The outlook is less than desirable for lower income renters looking for a break in the amount of income allocated for housing. As illustrated in the adjacent graphic, almost half of the rental market is earning less than $35,000 per year. This shows a stark contrast to the target price point of most of the new housing constructed in the past year.
The Joint Center for Housing Studies at Harvard University states, “Between 2001 and 2014, real rents rose 7% while household incomes fell by 9%. In combination, these trends pushed the number of cost-burdened renters (paying more than 30% of income for housing) up from 14.8 million to a new high of 21.3 million. Even worse, the number of these households with severe burdens (paying more than half of income for housing) jumped from 7.5 million to 11.4 million, also setting a record.”
The number of lower-income renters, those typically paying between $500 and $1,000/month for rental assets, has seen a steep rise since the 2007-2009 recession, but construction of new developments geared toward this market segment has risen only 12%. On net, the number of low-cost rental units increased just 10% in 2003–2013 while the number of low-income renter households competing for that housing rose by 40%. Similarly, the net gain in moderately priced units (with rents of $400 – $799) was 12%, while the increase in renter households that could afford only this price range was 31%.
There is a tremendous opportunity for small-scale investors to grab a piece of the profit margins generated by 1-4 unit rental market. A flipping house loan can help you jumpstart your rental portfolio. “Ownership of rental properties is fragmented. National Multifamily Housing Council data indicate that the 10 largest investors owned about 6.3 percent of rentals in structures with five or more units in 2014 (1.3 million units), while the 50 largest investors owned about 13.8 percent (2.8 million units). Although ownership of this segment of the rental stock is more concentrated than other segments, it is still fairly decentralized and highly competitive, with no single company owning more than 1.3 percent of all apartments.”
The opportunity to capture this portion of the renter market offers a unique opportunity for landlords looking to expand their operation into lower-income areas and offer quality and affordable housing for the market demographic that needs it most
Colony American Finance is a company that is in tune with the needs of landlords looking to maximize their returns on rental assets. We specialize in many types of landlord financing loans. Spawned out of necessity within the rental portfolio market. With competitive real estate loans for investors with portfolios of 1-4 unit properties, we are able to finance up to 75% of the value of your properties value filling a void in the financing space.