The Buying Beat Goes On

THE BUYING BEAT GOES ON

For Residential Rental Investors

When it comes to decisions of invest-or-not, three major factors drive the analysis and decision making of residential rental investors.

 

  • Mortgage interest rates
  • Attraction of millennials
  • High employment

 

When all three are in alignment, it becomes almost a no-brainer to consider becoming a first-time landlord or to expand an existing portfolio. That perfect storm very well may be an apt description of the Greater Richmond and Tidewater regions for the foreseeable future … and may not prove repeatable for decades.

 

Low Mortgage Interest Rates

While crystal balls remain somewhat cloudy, here’s what the experts are saying at BankRate www.bankrate.com .

Mortgage Rate Trend Index: May 17, 2017

Will rates go up, down or remain unchanged?

PANEL PREDICTION
Up Down Unchanged
0% 58% 42%

 

Click on the three tabs above to read the comments and rate predictions of mortgage experts and Bankrate analysts.

Today, 30 year fixed rate mortgages may be had in the range of 4% … perhaps the lowest for decades to come.

 

Supportive of that is the recent drop of the benchmark 30 year fixed-rate mortgage from 4.22 percent to 4.15 percent.  In contrast, a year ago, it was 3.76 percent. Four weeks ago, the rate was 4.16 percent. The 30-year fixed-rate average for this week is 0.29 of a percentage point below the 52-week high of 4.44 percent, and is 0.63 of a percentage point greater than the 52-week low of 3.52 percent.

Uncertainty is always a speed bump when making investment decisions. And uncertainty in the 2016 election year was very much a factor for residential rental investors. Well the election is over and we have four months of the new administration underway.

In a nod to all of the drama in Washington – Greg McBride, Chief Financial Analyst at BankRate commented, “there’s nothing like a good, old-fashioned political crisis to make investors nervous,” often bringing bond yields and mortgage rates lower.

So far, we have seen core consumer prices (excluding food and fuel) rise just 1.9 percent in April compared to a year before. That was the lowest reading for the core Consumer Price Index since August 2015. Lower inflation keeps bond prices and mortgage rates low.

 

Additionally, the Fed is keeping mortgage rates in check, too, because it’s poised to raise short-term interest rates next month. That would keep inflation under control, and put a lid on mortgage rates.

Likewise, multi-family rates remain historically low as evidenced by Fannie Mae … in a range of 2.78% to 5.11% depending on the loan terms.

 

So, in terms of affordability and maximizing return on rental margins, sooner rather than later this year is the superior choice for residential rental investors to make their purchase moves.

 

One last important point as it relates to our local market.  RealtyTrac®  took a look at high-yield single family rental markets that are hidden gems – undiscovered by the big institutional investors who have dominated some markets, pushing up prices and compressing yields in those markets.

 

The survey included 473 counties nationally and then condensed down to 28 final contenders … one of which is Richmond City!

 

Attraction of Millennials

Another bright light for rental property investors is tight lending standards, which continue to keep people who could otherwise afford to buy a home from qualifying for a loan to finance the purchase. That creates an additional pool of tenants, especially among Millennials.

 

RealtyTrac®    the nation’s leading source for comprehensive housing data notes that markets with the biggest increase in the Millennial share of the population enjoy renting as more affordable than buying.

 

Compared to other desirable areas, Central Virginia is an attractive residential destination based on affordable living, availability of jobs and quality of life … all magnets for Millennials.  As evidence, the Virginia Beach MSA has the highest percentage of Millennials of any metro area in the country, according to Forbes.  Likewise, Richmond City enjoys high marks with a continued significant increase in the Millennial population. That trend continues.

These enduring developments add up to major pluses for residential rental investors in Central Virginia.

As reported in the Richmond Times Dispatch, the median yearly income of Millennials living alone in Richmond is $49,500. Virginia Beach had the highest income level among the top 10 metro areas for this age group living alone, with a median income of $50,000.

 

With the income level here, Millennials can afford to live in more than 15 percent of all rentals in the area, Zillow states. In contrast, nationwide, the median income of Millennials living alone is $35,000, giving them the ability to afford only 11 percent of rentals.

 

Based on the above, both the pool of prospective tenants and an increasing rent environment are likely to continue throughout this year and in to next.

 

Millennials have a “Charm Triangle” of residential preferences. However, connectivity is high on their list which speaks well for multifamily residential property investors.

 

Here’s a graphic representation of multifamily property sale prices in Richmond compared to the Commonwealth of Virginia as reported in 2017 by LoopNet .

The bottom line of this graph is that this may be an excellent time to enjoy bargain pricing on select multifamily properties as prices have recently receded.

 

 

As Millennials begin to set up households and raise a family, single family rental homes will be increasingly in demand. Often burdened by student debt, many Millennials are not in a position to buy a home, but will welcome the privacy of a single family rental dwelling.

 

There are bargains out there for single family residences. So, for residential rental investors in Central Virginia, it may be an excellent time to expand your investment horizons or maybe put your toe in the water as a first-time landlord.

 

High Employment

A good job climate is a boon to both renters and landlords – renters because they can afford to commit to becoming a solid tenant, and landlords who may enjoy attraction and retention of quality renters plus low vacancy rates.

 

Greater Richmond registers increased employment in nearly every category tracked by the Bureau of Labor Statistics .

 

A strong and diverse economy is the driving force behind Richmond’s high income growth, with government, finance, education and manufacturing strong and expected to continue an upward trend.

.

To Sum Up

So, while predicting the future is always an “iffy” proposition, clearly there is a continued window of current opportunity for residential rental investors. Residential property values continue to appreciate, rents are on the rise, demand on the part of Millennials for quality rentals grows and interest rates are in the cellar for at least a while more.

 

What’s not to like for first-time investors as well as veteran landlords? Certainly a time for careful consideration of opportunities that may not be seen again for many years … if ever.

 

 


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