The rental housing business is becoming an institutional business. 16 million people live in a large apartment complex. Another 12.8 million live in a small apartment complex. 12 million people rent a detached, single-family home and another 3 million rent a condominium that is individually owned by somebody.
Ten years ago, NONE of these were owned by large companies. In 2012, things started to change and we saw large groups investing. As a result, 3% of all homes are owned by 12 groups that own more than 5,000 homes each.
If you look at the chart below, you will see that most of them are dealing with average monthly rents above $1,500.
For single-family homes, 28% of renters pay less than $750 per month rent. Obviously, that is not a great home in a great location. However, Congress is coming after many of these large ownership groups thinking they are taking advantage of the poorest people and that is simply not the case. In reality, the “Group of 12” is making most of their money off of affluent renters.
What I am saying here is what I have been teaching for years. The low end of the rental spectrum is a fantastic return. Because most of the homes are in less than desirable neighborhoods, individual investors pass them up. That is a HUGE mistake.
I will give you an example on a property my father and I bought in 2004. It is a 2BR/2BA condo in mini-city in Raleigh, NC. When we bought it, we paid $53,000 cash for it. Initially, rents there were only $425 per month. Now, 20 years later, rent is $995 per month! In addition, because it is a lower income area and within walking distance to many blue-collar jobs, it has over 99% occupancy rate over the last 7 years. If we sold it today, it would sell for well over $200,000.
Instead of trying to compete against the “Group of 12” corporate investors, take a look at lower end opportunities that are not in the big city areas. Go out from the urban areas and check out property near the extra-territorial jurisdictions.
When did a new construction, agreeable gray interior with LVP and granite counters become a must for investment property? Those are all upgrades that can be made later using other peoples’ money. Buy the low end and let it grow. It will allow you to leverage in the long term.