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2022 Challenges for Small Rental Property Owners

Since 2011, property owners have largely enjoyed a ratio of high rents and low costs. But that market trend is never a given.

Predictions for the 2022 market show that renters are not able to keep up with higher rent prices, combined with young renters expecting different services.  For landlords that are resisting change and technology, pressures and responsibilities are mounting.

With the pandemic adding government regulations and new compliance requirements - it's never been a more challenging time to own and lease property.

As home prices skyrocket, a good portion of the population cannot compete for a home or condo purchase. This is where the rental market was born, and today it is a fast growing and dynamic industry. 

When the rental housing market failed last May, the government leaned heavily on all landlords to pay the bills while tenants and mortgage banks trembled in fear. We all discovered how important local landlords are to communities and local economies.

While big real estate corporations received infusions of stimulus cash, small landlords found rent default was a problem and receiving stimulus funds themselves to be difficult. Many of them reported selling condos, apartments etc., at a discount to to cash rich buyers.

Despite an unfair playing field, it is likely small real estate investors and small business landlords will find a way to buy rental income properties and flourish in 2021, 2022 and the next 5 years. We’ve learned that for some, being rental landlords is a business not a hobby.

Although vacancy rates are down for all residential types, many landlords still are not seeing returns on their investment that they are accustomed to.  As property ages, often managing the expense and risk of modernizing older units can impact your returns.

Working long hours, handling too many tasks are also a drain on resources - consider finding a good property management company if your UUM is no longer manageable on your own time.

Most analysts are not encouraging property owners to increase rent this year (plus, in some states/provinces governments have implemented a temporary rent freeze to cope with the pandemic). Why would raising the rent not be a good long-term solution for most?

Although rental vacancy rates are especially low, the affordability index is also at an all-time low. Overall, 2021-2022 show that renters are getting squeezed too hard: new rental housing is not being created for low-mid income earners combined with housing costs increasing steadily with wage increases stagnant.

Screen Shot 2021-10-18 at 10.50.09 AM

According to the Harvard report (graph above), 10.9 million renters spent more than half of their incomes on housing in 2018. In that year, the number of severely burdened households increased 155,000, reducing the total improvement since the 2014 peak to just 483,000. Cost burdened renters rose again in 2018, rising by 261,000 to 20.8 million.

Immigrants are a big component of rental demand and the US rental market is expected to focus more on immigrant buyers in the next 12 years.

In their report, the prediction is that property prices will fall as buyer incomes fall in 2021 and 2022.  Their survey revealed those who foresee good/excellent prospects has dropped this year.

Screen Shot 2021-10-18 at 11.15.23 AM

Renter households are typically younger, less affluent, and more racially diverse than those who own their own homes. Statista reports that half of renters are under 30 years of age and 36% of those renters are in arrears. 38% of renters cannot afford to buy their own home.

The balance for property owners is that long-term good tenants are the best ROI for you. High turnover units typically see more maintenance and upgrading needs, and higher costs overall to list, screen, and place new tenants.

The lever a property owner can to pull to increase their return on investment may not be an increase in rent in 2022. Rental income units are an increasingly important part of the US housing market, and the return on expenditure in the property market is still much better than many other sectors.

(Attom Data reports that the average annual gross rental yield (annualized gross rent income divided by median purchase price of single-family homes) in the US fell to 7.7% in 2021, down from an average of 8.4% last year.)

Source: https://managecasa.com/articles/us-rental-property-market/

 

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