By Mr. Land Trust
My mentor, Jack Miller, told me 20 years ago, “Eventually, our nation will become like the housing market in Europe where 90% of the population rents, and instead of passing down property to heirs, they pass down leases to their children.” I think we are headed quickly in that direction.
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I have been a landlord for 53 years and have NEVER seen a rental market like the one today. I realize all markets are different (and local), but my market (like most others) has changed dramatically. For 50 of my property management years, I had about 80% of my tenants renew each year and 20% move out. In recent years, since Covid, 95% have renewed their lease with me and only 5% have vacated at the end of their lease. This represents a drastic change in the market. Why did this happen?
The very low-interest rate climate of the early 2000s is partly the cause of this change in the rental market. Rental property owners could sell at a high price for cash to homeowners. This took the rental houses off the rental market permanently, which reduced inventory for those wanting to rent. The other factor in play is the shortage of housing nationwide. The US population is still increasing but not enough houses are being built to accommodate the need. Government regulations, building permit restrictions, and environmental limitations have made it time-consuming, and expensive to build. In that regard, to a certain degree, we are creating our own problems.
What does this mean for investors in single-family homes for rent? BUY NOW! Many investors buy for appreciation, and I like the benefits of my houses going up in value without me having to do anything in return (if I keep the properties adequately maintained and occupied). But appreciation is “gravy.” You cannot count on it.
Think about it. Would it be ok if your houses did not go up in value, but you could live off the positive cash flow? I think so. Money is money. Many real estate investors are “equity rich and cash flow poor.” The future rental market may be the solution to their problem.
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I graphed out my houses over a 40-year period. The trend lines were interesting. When the houses increased in value, the rents did not (or not very much). When the rents increased, the house values leveled off. Either way, I won. If my houses stopped increasing in value, but my rents tripled because of the “new American housing market” do you think I would complain that I was receiving no appreciation?
It is still important to negotiate when you are buying rental houses. Get the best deal you can but I can tell you from experience, that losing a good long-term rental house over a $5,000 (or less) price negotiation difference, is crazy. Those houses that I did not buy because of ego in the negotiation process, cost me hundreds of thousands of dollars in the long run (appreciation and cash flow).
Now go out and find a “Killer Deal.”
Randy Hughes, Mr. Land Trust
I encourage you to learn more by going to my FREE online training at www.landtrustwebinar.com/411 and text the word “reasons” to 206-203-2005 for my free booklet, Reasons to Use a Land Trust. You can also reach me the old-fashioned way by calling me at 217-355-1281. (I actually answer my own phone, unlike most other businesses in America today!)
