Knowing what to do with investment properties is half the battle of running a successful real estate investing business. Don’t worry, you read the title right. More and more investors are keeping their properties to rent instead of flipping and selling. But why? We’re going to show you why this trend is happening and why you should start building your rental portfolio.
First, every real estate investor knows that finding leads doesn’t come easy. If you’re not marketing your real estate investing business then you’re not making money. The best leads are online, that’s just a given. Come master online lead generation with our free weekly webinars! Did we mention they’re free? Click the button below to reserve your seat today 🙂
Why So Many Tenants?
Alright, now that that’s over with let’s get talking about why we’re really here. Having a renting portfolio has always been a good strategy for passive income, but investors still fall back on wholesaling or flipping. The trends have changed, though. Being a large-scale landlord is in your favor!
But why? It’s simple. Homeowners are making the shift to being tenants. This is happening for a number of reasons, but most notably because it’s becoming cheaper for people to rent than to buy. Money Under 30 says:
Whether or not renting is cheaper depends on where you live, the housing market, and rental prices. For example, cities such as San Fransisco and Seattle are better for renters while Omaha and Rhode Island are more favorable for homebuyers…Remember that it usually takes at least five years to break even on your mortgage. This is because you’ll be paying more interest during the first few years.Â
Those first five years or so are part of the reason why people are making the decision to rent instead of buy. There are other reasons, though. Let’s understand why people are switching to renting so that you know what to do with investment properties in your area.
Rising Mortgage Interest Rates
Mortgage rates have been rising. Bankrate found that “over the past 52 weeks, the 30-year fixed has averaged 4.28%. This week’s rate is 0.48% points higher than the 52-week average.”
Basically that means that, at the current rate, a new homeowner will pay $522.25 each month for every $100,000 that has been borrowed. Because mortgage interest rates are climbing pretty quickly, a lot of potential homeowners are shying away from the idea of entering into a mortgage.
Renting is Cheaper (in some places)
In larger cities, rent is rising faster than pay raises which makes it difficult for people to rent. However, in most places in the USA rent is still a cheaper option. When someone buys a house they’re never just paying the mortgage and utilities. There are also HOA fees, property taxes, repairs, appliances, and general maintenance. All of this adding up with higher mortgage interest rates are making people choose to be tenants instead of homeowners.
People Move Around
People always move, right? Well, recently the new generation of potential homeowners is moving around more frequently than previous generations. This is because the average adult between 25 and 40 will change careers 5 – 7 times during their working lives. Besides just changing careers, The Balance Careers found:
Among jobs started by workers with ages from 25 to 29, 87% had an average length of employment of fewer than five years as compared to 83% of workers with ages from 30 to 34. 76% of workers with ages from 35 – 39 had an average job duration of fewer than 5 years…with 69% for workers from ages of 40 – 48.
Basically, because trends show that potential homeowners are changing jobs and careers more frequently than they used to, they are moving more frequently as well. Since people are moving roughly every 3 – 5 years, breaking a lease is much easier than selling a house.
Not to mention it’s better for their pockets. Not renewing a lease costs a tenant less money in the end than selling a house after only a few years. Remember, homeowners won’t start making a dent in their mortgages for at least 5 years. If they have to sell their house before that, they’ve lost a lot of money while still compounding debt.
Property Taxes Are a Downer
So homeownership is expensive, we’ve already been over that. Because of 2017’s tax bill, it’s become more complicated for people who want to break into buying a house. Urban Institute said:
Under the 2017 tax code, a family of three with an annual income of $150,000 would be better off buying if their rent exceeded $1,507/month. But with the new tax code, they’d have to pay more than $1,885/month to make buying worthwhile. Do we expect people not to buy because of these changes? At the margin, yes.
Know What to do With Investment Properties
Take all of this into consideration. The whole point of being a house flipper is to eventually sell the house for a higher price than you bought it for. That being said, if there are less and less people buying houses then that model won’t be making you a lot of money.
Ultimately, you need to keep an eye on the housing market, market trends, and what buyers are doing. If potential homeowners are choosing renting over buying in an overwhelming majority then capitalize on it by building your renting portfolio!
Not only is having a strong renting portfolio just smart business, but it also keeps a solid amount of money coming in so you can still do flips or wholesale deals. Essentially, what you’re doing is building your real estate investing business a strong safety net. Who knows when the next housing crisis will be. If homeownership continues to decline then a business that relies on people buying your houses will suffer.
Build Your Renting Portfolio Like a Pro
We could go on, and on, and on about the benefits of online marketing and blah, blah, blah. The truth is, yes you do need to be doing online marketing. Chances are, if you’re at this blog, then you already know everything we’re about to say about online marketing and online lead generation. Yes, it works. Yes, it’s effective. Yes, it’s cost efficient. Yes, it’s better if you have a professional running it for you.
Before you can get started with all of that, though, you need to have a solid business. If you’re making the switch from wholesaling or flipping to renting then you’re going to need to define your business again. There’s no easier way to do that than with a website specifically for your rental properties.
Hopefully this article has helped you know exactly what to do with investment properties your real estate investing business owns. Having a renting website from LeadPropeller will help you to organize your properties, draw in motivated sellers to keep your inventory stocked, and market the properties you have available. It’s a one-stop-shop! Don’t just take our word for it, though. Take one of the sites for a spin before making the decision.
While you’re at it, don’t forget to reserve your seat for our free weekly webinar. We go over the best practices for marketing your real estate business online and generating high quality leads in your area. You’ll become a real estate mogul in no time. Did we mention it’s free? Get your seat by clicking that blue button! We’ll see you there! 🙂