What Rentals Should You Be Looking At?

The hot topic of the rental market right now is the multi family market.  Prices everywhere have increased for multi family units and keep continuing to grow.  For example, in Bakersfield, a ‘C’ neighborhood property used to be available for $50,000 – $60,000/door and now they are selling for close to $100,000/door in some areas.

Part of this is due to investors from low return cities looking to earn a higher return a market that is close to theirs, for example, Los Angeles investors looking in Kern County, but now we are seeing a growth in a different segment of rentals.

The single family rental market has been growing steadily in the recent past and there are some good predictors that shows it could keep growing into the future.  Single family homes represent about 44 million units in the country right now, and of those, a little over 1/3 are used for rentals.  Not only that, but it seems like those numbers will increase into the future because housing prices keep rising, college debts keep rising, and people are waiting longer to have kids.

Although our largest growing sector of productive income earning individuals is the Millenials currently, we are seeing that instead of buying, they are preferring to rent because of the amount of money required for a down payment and the debt payments they have to make because of school, etc.

On top of this, almost half of the investment units owned in the US right now are owned by ‘Mom and Pop’ owners who own just one unit, and with real estate investing increasing in the long term, people are starting to purchase more units to help fund their retirements and have excess cash flow in the future.

The biggest problem with this strategy is possibly the management of these units, because if the units are not taken care of and one out of every three homes starts to lose value, then we can see values start to plummet over time.

Speaking about Bakersfield directly, there are a lot of ‘Mom and Pop’ investors that own less than 3 doors and will also self manage those units.  In that case, most properties seem to be well taken care of, however, there are some management companies that will let the unit deteriorate and the owner will be none the wiser because they are collecting their rent check passively and do not want to be hands on with the property.  This could provide a good opportunity for investors in the future, regardless of the lower pricing of Bakersfield to some other cities in California because people seem to want to rent more than own.