Worst Case Scenarios in Real Estate Aren’t Always Bad for Homeowners
Here’s a fact: Single-family homes hold a significant share of all rental properties. Half of all rentals in the Inland Empire are single-family homes, the highest proportion among U.S. metro areas (according to John Burns Real Estate Consulting of Irvine). This is locally compared to 30% of Orange County rentals and not-so-locally 35% of U.S. rentals are single-family homes (U.S. Census). Here are some numbers: 42,300 Orange County houses and 101,000 Inland Empire houses were added to the rental market from 2005 to 2014. Nationwide, nearly 3.9 million additional houses became rentals during that decade.
Now most of those rental houses are in existing neighborhoods, owned by mom and pop landlords or by investment funds that snatched up foreclosures to create huge portfolios of rental houses. A lot of people want to buy a single-family home, but for whatever reason, they have credit issues. With the market and economy still recovering, we can see why in a lot of cases. Some homebuilders caught this and quickly came to serve that market, with the number of U.S. houses built as rentals doubling from 2007 to 2012, numbers from the National Association of Home Builders show. Rental house starts represented 3 to 6% of all single-family starts in the nation since 2007, up from 2 to 3% in the prior 17 years, the NAHB reported.
Would you rather live in an apartment with someone above you and below you and beside you and perhaps a single car garage you walk to, or a house with all of the obvious benefits of privacy and non-common areas. It isn’t always about not qualifying for a home. Sometimes people are making life-changes and don’t want to deal with buying right now. Some don’t qualify for a mortgage, but others want the flexibility of being able to move or would rather spend what they earn rather than save for a down payment. It is the old adage, “to each his own.” It is, in my opinion, the goal or dream of almost everyone to own a home, but that dream doesn’t have to be an immediate goal.
The purpose of this is not to encourage people to rent over buying, because buying is almost always a much better option. The purpose of this is to let people know that if you do buy, and something in your life is preventing you from living in the home you just bought, there is always the option of renting it out. Selling one home to purchase another is not always the best option for people. Buying a home and then finding your self in a better financial position may cause you to want and buy a bigger home. If that is the case, renting out the house you’re living in is a great option. There are people that do this often and end up having an impressive real estate portfolio. Real estate investors and corporations are always keeping up on trends and they are starting to follow a pattern of purchasing SFRs for rental purposes. That is a great indicator of it being profitable.
Living in the Inland Empire, we have an option to do this. It isn’t for everyone in every market. Building new rental houses can’t be done everywhere. Land and construction costs need to be in line with rents in communities with good employment rates. Land costs in Orange County and much of Southern California, for example, make difficult if not impossible to build rental houses. Orange County’s median values are much higher than they are in the Inland Empire. If the time and the place are right, then why not go for it? Even if you don’t buy a house with the intent of making in a rental, it adds to that security that some people need when they make a major purchase. Your Realtor can talk to you about this if you have any questions.