Retail rental property is near a 20 year low. One group is sitting pretty - landlords.
This is the lowest that vacancy rates have been in almost 20 years! According to the U.S. Census, national vacancy rates in 2015 were 6.8% for rental housing, down nearly a full percentage point (from 7.5%) from the same time in 2014. The last time vacancy rates dipped below 6.8% was the fourth quarter of 1985 (6.7%).
As the rental market continues to become more saturated, property managers are having to do even less in order to fill apartment openings.
In 2015, 55% of property managers said that they are less likely to offer concessions or lower rents in order to fill vacancies than they have been in years past. 53% of property managers said that they were more likely to bring in a new tenant at a higher rate, than negotiate and renew a lease with a current tenant that they already know.
An overwhelming 88% of property managers raised their rent in the last 12 months, and there does not appear to be any signs of stopping. They expect rates to rise by 8% in 2016. Unsurprisingly, increased demand and low inventory were the primary reasons for increasing rental rates over the last year.
We are more of a renter nation than we have been for a while. Economists suggest favorable conditions for landlords will continue. Young people are starting to move out of their parent's homes or away from shared rooms and into their own rentals. Families who might previously have bought homes are also in rentals as they are finding it difficult to qualify for a mortgage.
The home ownership rate has been falling from its peak of 69.4 percent in 2004. By the first quarter of 2016, it was down to 63.5percent. That means about 2 million plus more households are renting.
Investors could help the market by turning empty houses into rentals.
Years of real estate chaos has resulted in fewer homeowners, and more renters. Rising rents and falling prices have allowed rental housing investment to gush green with money while other investment classes blush green with envy.
Over the next two to three years, the U.S. homeownership rate is expected to continue to fall and rents will continue to be thrust upward, in some areas over 6% annually.
(It is suggested that you) treat this as an investment as an operating partner. The typical structure is where the operating partner manages the deal flow, acquisitions, asset management and dispositions via a LLC structure. Establish a "fund" which owns the properties, the investors buy Units in the fund. The fund owns the property, and the investor buys Units in the fund. To the investor, this is similar to other financial instruments that require no active participation. An added bonus to the operator is the limited liability from legal claims, minimal exposure to the operating company's other business activities outside the fund itself, and diversification in owning a whole portfolio of (if desired) geographical distinct properties.
While low prices and high rents create an attractive opportunity to capture yield that can last many years, you should focus on opportunities with five to ten year life spans with plans to liquidate the property at the end of the term. Price appreciation will take hold over the next five to seven years that should provide an attractive return in the high teens of low twenties.
Venture Associates can assist in establishing the LLC and fund structure via its consulting and writing of the private placement memorandums.