Rental Investors Large & Small Evolving

10/18/2016 01:37 pm ET

A lot more than just a housing and mortgage meltdown started in 2006. It seems like that point marked the beginning of change in the “American Dream” for many. Of course the crash tarnished the dream when so many lost their homes and values plummeted to levels that are just now beginning to come back in many areas.

The Millennial generation saw their parents and some grandparents losing their homes, and the idea that home ownership as almost mandatory to the American life is not very strong in their minds. Members of that generation still living at home with their parents is at levels higher than in the past. Between a soft job economy and student debt, even college graduates aren’t buying homes in anywhere normal volume. Many cannot afford a down payment either, or save for one at their income level.

These points are reinforced in a recent article title Wall Street doubling down on rental home investments. If you’ve been following the acquisition of homes for rental by major investors like Blackstone, you will have seen little news lately. Their massive buying a few years ago has been throttled way down. Home prices is one reason, but they also have been struggling with the business model. It’s not as easy to get economy of scale in single family home investing that is easier with apartments.

However, suddenly a major player has announced their plan to advise clients to jump into the rental home investment space in a big way. A decade ago, Goldman Sachs took a big bet against housing and did pretty well. But today they’re turning in the other direction and advising new activity in buying for rental home investment.

Goldman makes the statement that tight credit is keeping buyers, especially younger buyers, out of the home market, so rental demand should keep rising. This will continue to push up rents, so buying these homes is a good bet in their opinion. The plan is a good one I think, but as this article states, the reason for lack of buying isn’t difficult to get credit.

Particularly in the first time buyer younger generation market, there is credit available, but this group has a tough employment market. Also, paying higher rents is nulling efforts to save for a decent down payment. There doesn’t seem to be any growing interest or ability to buy. Fewer buyers mean more renters, and that’s good for rental property investing.

Apartment construction is rising in response to better investment returns. Younger families I think will still prefer a single family home to an apartment, but it can be difficult to compete on rents with apartments. Add in the low inventory and rising home prices and you don’t see much to excite or enable younger people to buy a home.

Overall, I think it’s still a wonderful world for the small real estate investor. It’s a bit more of a challenge to buy right these days, but you can still make it happen. Rising rents help to keep viable cash flow possible at higher prices, though stretching it can be risky.

Will Goldman Sach’s advice draw in major buyers and create problems for the smaller investor? Perhaps in markets where there are still blocks or large numbers of homes in close proximity there could be pressure. However, single family homes in good neighborhoods without blight should be fine for small investors.

As Blackstone found out, it’s not easy to use big box management for individual home rental properties. They have had to increase rents and have had to deal with challenges in delivery of excellent services to properties spread out in location.

Overall, if you want to invest in rental properties, get out there and do it. I don’t seen any threats to investments made with good due diligence and careful market analysis. We’re going to be a country with a lot of renters for a while.

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