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Limited Housing Inventory Brings Investment Opportunity


As you may have heard, we're currently experiencing the tightest housing market and lowest housing inventory we've seen in years. As of January 2018, the U.S. had a 3.6-month supply of homes for sale, meaning that at the pace of sales underway, inventory would deplete in less than four months. A healthy housing market, which offers balanced opportunities to both sellers and buyers, consists of a six-month supply.

Currently, there are 10% fewer homes for sale than were on the market this time last year. Buyers searching for starter houses or looking to downsize to a smaller home have it especially rough, as home builders are concentrating on higher-end homes and existing homeowners are staying in their homes longer than in years past, creating a severe shortage of smaller homes priced under $300,000.

The good news is that misfortune for some means opportunity for others. The shortage of available homes for sale is creating an excellent environment for real estate investors who own and rent out single-family homes.

  • There's definitely not a shortage of good tenants. According to the U.S. Census, renting households comprised 31% of U.S. households in 2005, but that number rose to 36% in 2017.

  • Many would-be buyers are easily able to afford monthly rent or mortgage payments, but they don't have the necessary 20% down payment or keep losing out on home purchases to more knowledgeable and attractive buyers, such as investors paying cash.

  • Prospective buyers who can't find a suitable or affordable home to buy often will choose to rent a single-family home, which offers a yard and more privacy than an apartment.

  • Renting can be lucrative, and today's tight housing market is making it even more worthwhile. Rents have risen faster than inflation for the last several years, with increases of 2.6% on average in 2017. Generally, rents are rising faster than home values.

If you're considering entering the landlord market and want to purchase a single-family home to rent, here are some ways you can make your offer the most attractive and come out the winner in a tough market:

  • Make a down payment of at least 20%. The more, the better, and all-cash offers give you the best shot at beating competing offers.

  • Check your credit score and debt-to-income ratio. High scores and low ratios will show sellers that working with you is not a risk.

  • Remove contingencies whenever possible, since contingencies can lead to delays in the closing process.

There is no reason to believe the housing inventory or rental markets will change substantially anytime soon, so you might as well consider capitalizing on it if you think buying an investment property is a possibility for you. To learn more about the rental market and current trends, check out our rental trends report.

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