Building a profitable rental property portfolio depends on researching properties and understanding the market in specific areas. These days, however, you have to understand more than the properties: you also have to understand rental demographics and how they determine the best location and type of property to make the most of your investment.
Rentals Are on the Rise
The American Dream has traditionally been built on one main foundation: buy a big, beautiful house as soon as you can afford it and spend the next few decades working to pay it off. Today’s market is shifting, with more people looking to rent instead of owning property.
Why do people rent? They don’t want the expense and they don’t want the upkeep. Renting allows people to live in attractive areas without putting down a large down payment or worrying about maintenance costs. They’re also not on the hook for the physical maintenance of the property — when something goes wrong, they simply call their landlord to handle it.
Renting also allows people to be more mobile. Gone are the days when someone would start — not just a job, but a career — with a specific company and work there for decades before they retired. These days, professionals typically stay for a year or two in one job before moving on to the next opportunity. Renting enables them to move from city to city in search of a better job with higher pay.
These numbers don’t just apply to younger renters. A review of census data from 2009 through 2015 shows that the number of renters over the age of 55 shot up by 28 percent. The rental rate among people ages 35 to 54 went up by 14 percent. These numbers are set to rise over the coming decade, with families opting to rent and singles creating their own roommate “families” in order to make the most of their income. According to the American Apartment Owners Association, by 2015, single people and unrelated individuals living together will comprise a whopping 40 percent of households in the U.S.
The rental properties people are searching out aren’t huge ones, either.
A Shift Towards Smaller
While the first decade of the 2000s saw the U.S. real estate market moving towards large, expansive properties (with McMansions popping up in well-to-do suburbs across the land), recent years have seen a shift back in the other direction. Millennials have embraced a “less is more” mentality that involves more of a focus on getting out and experiencing life rather than sitting at home surrounded by things they’ve acquired.
On one end of this extreme is tiny house living, but even those who aren’t aiming to squeeze into a 300 square-foot cabin are looking for smaller and more affordable rentals that put them in proximity to work, outdoor activities, restaurants, and plenty of interesting things to do. Keep these rental demographics in mind when choosing an investment property.
Changing Rental Demographics Means Catering to White Collar Workers
Another factor that real estate investors should be aware of in terms of shifting rental demographics is that today’s renters are increasingly educated. While only about 33 percent of Americans have a college degree, an ever-increasing number of renters are college-educated. In fact, census data reveals that the number of renters with at least a bachelor’s degree has gone up by 23 percent. Meanwhile, the percentage of renters with a high school diploma or less has only risen by 1 percent.
This makes it increasingly important to choose the right rental property location — one that will put white collar employees close to their jobs. With the focus moving less towards “living to work” and more towards “working to live,” today’s rental demographics demands an extremely short commute or the ability to bike or walk to the office. Successful real estate investing demands paying attention to what’s happening in the market and in the country in order to reduce your risk and maximize your investment. By taking the shifting rental demographics into consideration, you’ll be one step ahead of the game when it comes to making strategic investment property purchases.