This year has brought about some of the biggest changes the world has ever seen and that’s especially true in the rental market. Over the past ten months, we’ve seen national eviction moratoriums, double-digit delinquency rates in some cities and an exodus to the suburbs. Though these are unprecedented events, they might lead to some lasting changes.
Many are asking themselves when things will get back to normal, but I’m not sure that will ever happen for our industry. Landlords need to start preparing for what the next decade will bring for property owners and adjust their investment strategy accordingly.
It's a great time to own a rental.
While it may be stressful to deal with rent payments rates right now, the silver lining is that your investment property is more valuable than ever. The homeownership rate has skyrocketed back to 2008 levels — jumping almost 3% in 2020 alone. As remote workers flee downtown areas for smaller, more rural towns and purchase homes at a record pace, they are buying up all the available property. September alone saw so many existing homes sold that it sucked up nearly two and a half months of inventory alone.
Low sales inventory mixed with some of the lowest vacancy rates in the last decade spell strong housing demand in the middle of the worst recession we’ve seen in the last 20 years. Interest rates have also seen record lows and the Federal Reserve expects they will stay that way well into the future. This does explain a rush to purchase, but the long-term impact of low rates will also reduce your money sitting in the bank. Finding an asset that will appreciate faster than cash or a U.S. bond should become your investment goal as you look to the next decade.
The housing demand will remain.
Before the start of 2020, immigration into the United States was already on a decline. Travel concerns and restrictions due to the pandemic have contributed to an even sharper decline in recent months. With fewer people moving here, homes are still being bought up like never before — which means even a small immigration policy change would push to heighten the housing demand.
Another cultural phenomena impacting the housing market are the baby boomers who are reaching retirement age to the tune of 10,000 a day over the next decade, leaving an entire generation out of the workforce and into a consumer-based lifestyle. Generation X has a lower population to replace the boomers, but behind them is a swath of millennials who are renting and saving to buy a house. All of those people will need a roof over their heads and whether it’s inheriting, buying or renting, it will be a population that has an ever-growing need for housing inventory.
In short, it means we may be seeing some rent price reductions at the moment, but housing demand is so strong that higher rent prices are almost inevitable, and thus, higher rental home prices will likely continue through the next decade.
Evicting a tenant will become harder.
As moratoriums begin to retract, we’ll still see community support around harder and slower evictions. Before the recession, there were already policies focused on rent control, and although rent control may not be the main fight right now, the momentum behind tenant rights still exists. Portland recently passed an executive order requiring landlords to assist in paying for moving costs for a no-cause eviction.
Future landlords will need to become more diligent when deciding on tenants. Thoroughly vetting potential tenants will become much more important than it was in the past. Getting stuck with a problem tenant could result in a six-month eviction process that could be a bank buster.
Tenants and their rental history will become extremely important and more transparency during the application process will be necessary. Landlords who get stuck with lingering bills will not provide a positive recommendation, so doing background checks and reference calls is going to be a must. Luckily, eviction history, credit report, background checks and references from previous landlords are all accessible and fairly immediate to obtain.
Organization and communication will be key.
It’s also going to be crucial for landlords to have an effective communication channel for their rentals. The days of slow response time and bad customer service will soon end. As more tenant-friendly policies are passed, I think we’ll see an increase in more direct accountability of landlords that could even amount to rent discounts for bad service.
Landlords will need to start getting organized and track messages, maintenance and servicing. Such records have always taken a backseat to rent payments in eviction court, but will most likely become more of a pressing topic in the future.
Similarly, pre- and post-inspections should be a requirement for all landlords since deposits will likely become more protected. Documenting and storing inspections will be necessary, along with better accounting in regards to deposits. Many states already regulate whether a landlord can earn interest or not on a tenant’s deposit, so expect more transparency around deposits.
The next decade will bring a tremendous amount of growth in the real estate industry — as well as more regulation. As a landlord, you will need to be prepared to navigate both if you want to expand your real estate portfolio.