The Renter Nation: What’s Behind It?

“After going through what was the housing market’s darkest hour, housing is now one of the most popular investments in America.” (StreetAuthority)

During the recession, many homeowners found themselves facing some very tough decisions. Renting a home became a viable, albeit temporary, housing option. Or so Americans believed. However, some former homeowners have permanently embraced renting, along with those individuals who cannot yet purchase a home, or those who remain indecisive about home ownership.

Along with these changing views of the rental lifestyle, real estate investors are loosening the strings on short sale and foreclosed homes in their portfolios, allowing more rental homes to flow into the market.

Together, these forces have created a renter’s nation. Jeffrey Friedman, CEO of apartment REIT Associated Estates Realty, predicts that “of the 5.5 million new households (newlyweds, boomers, college grads) that will be formed between now and 2016, an estimated 3.8 million, or nearly 70%, will be renters, not homeowners.” Census Bureau and Bank of America Merrill Lynch Global Research data reveals a 16-year high market share.

Why Not Buy If You Can?

But what about those who are financially able to purchase a home, but choose to continue renting? These former homeowners belong to the “keep my options open” group of renters. Home buying can be a complicated process. Home ownership ties up cash. Home repairs are expensive. As additional financing opens up to real estate investors, more homes become available for long-term renters, meaning more home choices on the market. As well, real estate investors can gain greater returns than through the stock market by advocating buy-to-rent strategies, relieving some of the financial stress of home buying. It’s a win/win.

A Word About REITs

With real estate prices bottoming out, major firms like Goldman Sachs, Blackstone Group, and Berkshire Hathaway continue to race into the real estate market to ensure their fortunes over the next several years. However, not all real estate investors want the hassle of purchasing and renting properties. An excellent alternative is to invest in real estate investment trusts (REITs), a type of company that own properties and collect rent, passing the income to investors (90% as required by law).

Clearly, whether buying rental properties or investing in REITs, the renter nation is a huge trend from which real estate investors can benefit.