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February 25, 2019
According to a number of studies, the past ten years have seen affluent households making up a larger percentage of the rental market. Renters who make over $150,000 a year are the fastest growing segment of the market, according to a study by RentCafe.com, an apartment listing website. They annualized data from Redfin, the online broker, PropertyShark, another property listing site, and the U.S. Census.
From 2007 through 2017, high income renters increased by a whopping 175% while home ownership among the same group only grew by 67%. Harvard University conducted a study on the demographics of renters and found that the number of renters with incomes over $100,000 increased by 5% in 2017. See more on that study here.
It hasn’t gone unnoticed that there has been a significant shift in those who are renting. It’s not just that more people are renting but that more affluent people are.
Many analysts believe there are several reasons why high-income families are renting more often than previous generations. The first reason is affordability. Home prices in most areas have increased much faster than incomes. This is particularly true on the West Coast. California, Oregon and Washington have all seen property price increases outstrip household income growth.
Another factor causing this shift is that the thought of owning a home – the American dream if you will – just doesn’t resonate as it used to. Many younger people witnessed the 2008 financial crisis and saw the American dream turn into an American nightmare. Millions of homeowners lost all their home equity while others lost their homes. The notion that buying a home is a sure way to build wealth over time, became dramatically undermined.
Finally, unlike previous generations, many young and affluent renters today have massive student loans to pay off. This, of course, hinders one’s ability to afford a home. In fact, a recent Pew Research study noted that younger people today are much more likely to rent than ever before. See more on that study here.
This shift has attracted the attention of real estate investors, many of whom used to invest in single family home construction and sales. Now that home purchasing has slowed - while demand for rental units increased - many of these investors are putting their capital into buying multi-unit rental properties.
However, they have a problem and that is finding suitable properties to buy. Some of these investors need help scouting the market. Once they do find a potential property to purchase, they typically “run the numbers” to see if it makes sense. A broker or agent who knows these metrics is a valued commodity because there aren’t enough investor savvy agents around to satisfy demand.
The timing of this problem of too few agents schooled in residential real estate investment is auspicious. With fewer homes being sold to traditional home buyers, brokers and agents are looking for revenue streams that can replace this lost commission income from traditional home sales.
The obvious remedy is to target real estate investors who want to purchase rental properties. As all the trend data shows this is a growing market segment. This is particularly true in high priced property markets like Washington. For an agent, a few investment property transactions would more than replace lost income from selling homes.
Importantly, because so few brokers and agents pay much attention to the investor market – or even know how to operate in one - the opportunities seem wide open. However, selling rental units to investors is very different than selling a home to a traditional home buyer. Many brokers and agents don’t go after investors because they don’t know much about the market. Moreover, the they don’t know how to add value for the investor, besides perhaps, knowing the local area. Simply finding properties is not enough.
Luckily, it’s really not that hard to master the real estate investment market. Brokers and agents can learn the fundamentals pretty quickly with the right help. Once they do, the sky is the limit.
RealPeek can help brokers and agents master the details of that market. Furthermore, it provides the analytical tools that add value to the transaction, helping to steer investors to the properties that have the best potential of providing a robust ROI.
For example, agents who use RealPeek’s data can provide their clients with useful, real-time search and advanced AI analytics. It has unique filters that search based on cash flow, cap rate and rent-to-value projections. These are the metrics that save investors time and allow them to weigh a property’s various ROI scenarios.
Imagine showing a prospective investor-client these valuable data driven insights. They probably have never had a broker or agent pitch this information to them before. Leveraging RealPeek’s insightful data analytics will make brokers and agents “experts” in the field of investment brokerage and sales.