Savvy real estate investors have always found rental properties to be extremely profitable. However, this has become even truer in recent years as more and more millennials choose renting over buying. As an amateur or experienced real estate investor, 2016 is a great year to keep an eye out for rental investment opportunities.
The Rise of the Rental Nation
In 2015, the United States was given the unofficial nickname of “Rental Nation.” Several factors influenced this title, but it’s largely a result of how eligible homebuyers view renting. They no longer see it as a sign of weakness or financial struggle. It’s actually viewed a prestigious form of ownership. In fact, between now and 2030, there’s expected to be a 59 percent growth in the number of households who choose to rent rather than buy.
Reasons to Invest in Rental Properties
Naturally, this means investors are starting to flock towards rental property investing. In other words, if more people are renting, you should be buying. Here are a few of the specific reasons why these make good investments:
- Cash flow. The upfront benefit of investing in rental properties is the regular monthly cash flow. It’s not unusual for a single-family rental property to return 15 percent or more of your initial 25 percent down payment. This is a higher rate of return than most stock portfolios.
- Appreciation. The biggest advantage is the appreciation of the property value. Historically speaking, housing prices tend to increase somewhere between three and five percent per year. In other words, when you decide to sell, you’ll be able to generate a hefty return.
- Leverage. The third reason rental properties make good investments is that they provide you, the investor, with leverage that can be used as collateral for other investments down the road. This includes a personal home loan, business loans, and more.
These are the three biggest advantages of owning real estate properties as investments. Keep them in mind as you explore this opportunity.
Markets to Watch in 2016
While all cities have a handful of good rental investment opportunities, certain cities are poised for more growth than others. Specifically, experts believe the following cities will offer prime rental investment opportunities in 2016 and beyond:
- Detroit. Believe it or not, Detroit is actually one of the top investment markets this year. The median asking price for a three-bedroom house is $44,900, while the median rent is $850. This gives investors a gross yield of 22.7 percent.
- Texas. Okay, Texas isn’t a city – but there are too many cities in the Lone Star State to simply mention one. Three-year home price growth projections for San Antonio, Dallas, and Austin are 26 percent, 33 percent, and 27 percent, respectively. Houston isn’t too far off, either, meaning there’s ample opportunity for investments across the state of Texas.
- Boston. If you have the ability to purchase pricey homes in Boston, you can enjoy a pretty healthy yield. Depending on who you ask, the gross yield should be somewhere around 10 percent in 2016. This is definitely a market to watch.
There are plenty of other rental investment opportunities spread across the country, but these represent some of the top ones.
Consider Rental Property Investing
While rental property investing isn’t for everyone, it’s a great way to produce regular cash flow while enjoying gradual appreciation. And if you’re going to try this investment strategy moving forward, it would be wise to consider the cities listed in this article. Moving forward, you don’t want to miss out on an opportunity to be a part of the “Rental Nation.”