What’s Driving the Rising Rents?

| | Fix & Flip Loans | Landlord Financing | Single Family Rentals


The U.S. housing market is more stabilized and new home construction is on the rise, but what is driving this ‘shadow growth’ in the rent numbers? The answer is simply that more consumers are renting, leading to a massive growth in not just the multi-family market, but also the single family rentals and small multi-unit space.  Suburbs of cities that were hit hardest by the recession are making the greatest improvement in rental rates over the past year.  Young families and single working adults are beginning to look for the perks of home ownership, but without the constraints of a homeowner mortgage and maintenance to the property.   Cities such as Cape Coral and Sarasota in Florida, as well as Sacramento and the Bay Area in California, are seeing the steepest rental increases at north of 17%.  As many investors are chasing yields in the cap rate compressed multi-family space, rental property landlords are looking for single family rental lending programs catered to their personal needs.

After seeing the effects that the 2009 recession had on home buyers, many less experienced investors have been timid about returning to the home-owner space. However, inexpensive rents and mobility of younger families has made it possible to experience all the positives of owning a home, without the mortgage payment or expensive upkeep associated with regular maintenance.  Landlords are privy to this growing trend and there is a tremendous opportunity for not just the large and sophisticated institutional investment groups.  Smaller private investors are also realizing high yielding returns on these growing markets flooded with young families and a mobile workforce looking for ‘temporary’ living arrangements.  With interest rates at sustained lows, access to capital has allowed amateur investors to capture a portion of this lucrative rental income flooding the market.

In CNN Money, “Cities with the Biggest Rent Hikes”, the article mentions that “Only 2% of all single-family homes and condominiums were bought by institutional investors in 2015. RealtyTrac, defines “institutional investors” as buyers who purchase more than 10 properties a year. That’s a huge falling off from 2014, when institutional investors bought 11% of all single-family homes and condos bought and sold. In 2013, institutional investors bought a much larger 13%.”

Another major factor in the growing rental market is that older generations of millennials (25-35) are mobile, actively engaged in the workforce, and starting families of their own. Many young professionals classified in the older portion of the millennial age bracket are prudent enough to realize two things. The first being that locking yourself into a home mortgage can limit mobility and disposable income.  The world has become smaller in the sense that mobility is not simply confined to geographic space, but also relates to mobility within careers and social circles.  The second hurdle millennials see in buying a home is the lack of true liquidity of the asset class.  During an upswing, such as the one we are currently experiencing, homes might sell for all-cash in 15 days with no downtime for sellers looking to cash out. But what happens to your exit strategy in a housing bust?

CNN Money states that, “Millennials want to remain mobile and don’t know if they have economic stability yet. They may have to move relatively quickly and they’ve learned from the recent past that you can’t necessarily sell your home as easily as you used to.”

The major barrier to entry for financing real estate investments is often finding the right fit with an investor financing program.   With a limited number of players in the space, Colony American Finance is able to outperform both private and institutional borrower expectations. If you have any interest in exploring the favorable financing program CAF has to offer, please reach out to us at 844-223-2231 or email [email protected]

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