Written By Marco Santarelli: Investor, author and founder of Norada Real Estate Investments
A recently released study revealed that a whopping $441 Billion was spent on rents in the U.S. in 2014. This represents an increase of over $20 Billion from the year before.
As shown on the chart below, rents have increased consistently over the last 20+ years. However, the recent increases have been astounding.
Why the large jump?
Many Millennials have postponed the purchase of their first home while waiting for the economy to recover. This has increased demand and dramatically lowered vacancy rates. In a recent article on the MarketWatch, economics reporter Ruth Mantell explains:
“Landlords have ramped up rents by the fastest pace in six years, with national vacancy rates the lowest in two decades.”
Zillow’s Chief Economist Stan Humphries stated that increases will continue:
“Another increase in total rent paid similar to that seen this year isn’t out of the question. In fact, it’s probable. Over the past fourteen years, rents have grown at twice the pace of income due to weak income growth, burgeoning rental demand, and insufficient growth in the supply of rental housing. This has created real opportunities for rental housing owners and investors, but has also been a bitter pill to swallow for tenants, particularly those on an entry-level salary and those would-be buyers struggling to save for a down payment on a home of their own.”
He also adds:
“[In 2015], we expect rents to rise even faster than home values, meaning that another increase in total rent paid similar to that seen [in 2014] isn’t out of the question. In fact, it’s probable.”
Out of the top 50 largest U.S. metro areas, the largest amount of cumulative rent was paid the New York-Northern New Jersey ($50 billion) and Los Angeles ($34 billion) metros.
Nationally, the total number of renters is estimated to have grown 1.9 percent in 2014. Over the same time period, the median rent paid increased 2.9 percent.
Sources: Zillow, Keeping Current Matter, American Community Survey, and the Current Population Survey.
What does this mean to real estate investors (you)?
There will continue to be great real estate investment opportunities in 2015 with strong rental demand and increasing rents. The increase in rental demand is good news for you. Don’t wait any longer to get started or to add more properties to your portfolio.