The past few years have been a somewhat confusing and complicated time for property investors, as well as renters themselves, but now that we have a few uncertainties ironed out with this pandemic, things have settled down just a bit. However, there has been a ripple effect that pushed this sector in various directions; specifically, it’s created certain 2022 rental real estate trends such as an increased demand for rentals, as well as a surge in the construction of build-to-rent homes. With that in mind, let’s dive into these trends so you’re well informed and, therefore, won’t miss out on any investing opportunities.
Rental Real Estate Demand – 2022 Trends
Here we are in 2022, and we’re now in a place where, although still not out of the woods of this pandemic, we have been able to grab hold of the reins to gain some control and stability once again. With that comes more promising rental real estate trends than the last two years had to dish up, and I’ll be discussing a few of the most notable ones below:
1. The Demand for Rental Real Estate is High in 2022
The current affordable housing crises, along with multiple housing market trends, have created a surge in the need for rental properties across the United States, and the total number of those seeking to rent this year is showing no signs of slowing down. In fact, the occupancy rate is at an incredible 97 percent.
So, what caused this high rental real estate demand trend to occur? Well, there are a few factors that have contributed – let’s take a look at them:
Elevated Housing Prices & Inflation are Making Home Ownership Unattainable and Pushing Many to Rent
Surging home prices of 15 to 20 percent, and rising inflation are stomping on the homeownership dreams of many Americans, making it impossible for them to pay for a higher than normal down payment. On average, houses are worth around $50,000 more than they were a year ago, and the prices rose almost 17 percent. Couple these stats with the current inflation rate that’s over 7 percent, and the fact that incomes are not rising along with them, and you have a recipe for an affordable housing crisis.
There is also the issue of being approved for a bank loan when many homeowner applicants may have a less than stellar credit rating and a lower than usual income level on last year’s records due to the pandemic job losses, pay cuts, and the like. It all provides for a dim outlook in 2022 for those wanting to settle into the home of their dreams – the only alternative is to rent.
A Portion of Millennials are Being Priced Out and Funneled into Rentals
In addition to the astronomical home price hikes, there is also an availability issue. One aspect of this home shortage is that it’s causing a great number of millennials to be pushed out of a highly competitive market. In many cases, they’re being priced out by the baby boomer generation who have a longer record of credit history, as well as a longer time frame to build up a hefty savings for a large down payment. Some stats do show that millennial homeownership is on an upward trend, but because of their large population, if a majority of them are leaning towards renting, it can impact the numbers on the rental real estate demand 2022 trends scale.
Countless People Moved in with Family During the Pandemic but the Reverse is Happening and it’s Flooding the Rental Market
Over the past two years, so many people were sent home from their jobs due to mass shutdowns and lockdowns, experienced employee pay cuts, and failed businesses. Because of this, some had no choice but to move in with family members. Sure, most received unemployment benefits, but in many cases, this was not enough to keep them afloat, especially those with multiple children. Instead of getting deeper into debt and falling further behind on their rent, they joined forces with family by moving in with them until they could get back on their feet.
Things are more under control with the vaccines keeping people out of the ICUs, and our government is now not so fast to order lockdowns. This has caused the fear to lessen, and there are now plenty of job openings for those who want them. With all that said, these people who were forced into financial despair are now seeing the light of the new year. Many of them are ready to move back out on their own, and this is greatly adding to the rental demand we are now seeing this year.
2. New Construction “Build-to-Rent” Homes are a Prominent Rental Real Estate Trend in 2022
The current high demand will provide many investors the opportunity to recoup their pandemic rent losses, as well as offer the ability for investors to jumpstart their rental portfolio. However, an increased demand in rentals equates to unavailable properties to invest in, which is one factor that’s fueling the new construction boom. Also, market indicators are predicting that rent increases are expected in 2022 when they are already up about 18 percent, which is another motivating factor behind the surge in build-to-rent single-family homes.
Check out our video on the rising demand for rental properties in 2022 – if you’re pressed for time, you can skip the pre-show and fast forward to 12 minutes into the show where it dives into the topic!
Let’s take a look at a few other things that have pushed new construction rentals into the spotlight this year:
Historically Low-Interest Rates Allow Smaller Investors to Take Part in this New Construction Trend
Because of the competitive financing that has been around for the past few years, interest rates have been at an all-time low, which has made it possible for the little investor to have access to new construction loans that were mostly only accessible by big developers in the past. Now with the smaller investors on board, new construction numbers are continuing to climb the charts. Despite this rise, builders are having a difficult time keeping up with the number of rentals needed on the market.
For those who are thinking about investing in a new construction rental property, but don’t have all the funds yet, I highly recommend looking into Fund & Grow. They help investors obtain the funds needed to move forward with a deal. Feel free to read over our Fund & Grow review, as well as take a look at our main funding page, if you’re interested.
The Internal Rate of Return for a Build-to-Rent Property is High Making it an Attractive Investment
The average internal rate of return for new construction rental properties is said to be around 8%. It’s worth noting that at Morris Invest, because of our built-in financing, as well as other factors, investors who work with us typically see an internal rate of return that’s actually much higher than this average, normally around 18 to 20 percent on the low end.
In addition to an attractive internal rate of return, new construction rental properties are less risky investments compared to rehabbing an old home. They’re not only appealing to the lenders, but also to buyers, and therefore offer up an ideal exit strategy. By this I mean if an investor ever decided to sell their rental property, it’s fairly easy to do this with a newer property, compared to one that is 40-50 years old.
Renter Migration Patterns Shifted with the “Work From Home” Trend
During the past couple of years, so many people were forced to work from home due to the pandemic. This gave those who worked an office job a taste of what it’s like to work remotely. Because of this, employees were able to grasp the concept of being able to get the same amount of work completed without the commute, without sending their children to an expensive daycare facility, and without being stuck in an office for eight hours with possible covid positive coworkers that can put their families at risk.
Once the pandemic started to settle down, employees who had the opportunity to continue working from home grabbed it, and there were those who were asked to come back – some did, but many flat out quit.
Working remotely brought about the realization that they can work from anywhere, and prompted a multitude of people to leave major cities to reside in suburban areas. It also created an exodus from overcrowded, expensive states to settle in less populated, lower-cost areas such as Texas. While people were moving to suburban areas before the pandemic, the pace has certainly been accelerated to the point where the rental demand has surpassed the supply in many areas and has therefore caused a surge in build-to-rent homes in these locations.
Area-Specific Investors are Motivated by The New Migration Patterns
Because of this mass migration, those investors who deal in specific areas, such as lower-cost states, have been working to meet the needs of the accelerated rental demand by building new properties. This new construction trend is so hot that it has led to “land grab” wars among developers, with some getting ahead of the game by acquiring the land before it’s even on the market.
Best City & State for New Construction Build-to-Rent Homes
For those who are interested in keeping up with the rental real estate demand 2022 trends by jumping on board with new construction properties, it’s essential to ensure you’re investing in a prime location, one that matches up with these rental migration patterns we’re seeing. I’ve been on top of this for some time now and know from experience that investing in Texas is a smart move.
Not only are people who work from home moving to Texas for all it has to offer, but families in general who are fed up with certain locations are relocating to the Lone Star State. In addition to this, large businesses are known to favor Texas and relocate there, like Tesla did recently. Why do I mention this? Because the employees of these large companies will need a place to rent, which further fuels the rental demand in this state.
Plus, TX is a landlord-friendly state, has a growing population, affordable housing, and low-cost land prices – it’s really the perfect scenario for new and seasoned investors who want to get on board with this rental real estate trend in 2022.
You can read more about investing in this state by heading over to our article titled – Is Texas a Good Place to Invest in Rental Real Estate?
If you want to get specific as to where to invest in new construction rental properties within TX, I suggest Lubbock. This city offers a hot rental market with room to build, which works out perfectly for meeting the current high rental real estate demand.
The city of Lubbock is a lucrative area to invest in new construction properties because it has a growing population, booming economy, and outstanding job market. In fact, there are many Fortune 500 companies that reside in Lubbock, which fills the city with long-term renters. Another aspect of Lubbock that provides steady renters is the fact that it’s a healthcare hub that employs thousands of workers who boost the need for good rental properties.
Texas Tech is also located in Lubbock and has around 40,000 students and thousands of employees who all need a place to live. As you can see, if a build-to-rent property was placed in Lubbock, it can be filled with a tenant immediately. Lastly, Lubbock was on the top 10 list of recession-proof cities, making it an even more attractive place to invest.
Also, you can actually see one of our new construction properties in Lubbock by visiting our YouTube page for a walkthrough tour.
Keep Up with the Rental Real Estate Demand & Other Trends of 2022!
I highly recommend that you don’t miss out on the current opportunities these trends are presenting. It’s worth considering because it’s not every year that the occupancy rate is at an all-time high of 97 percent.
If you’re a real estate investor who wants to make 2022 a year of change, and the year you decide to build great wealth, now’s the time to jump in and make it happen. Morris Invest is here to help you along the way if you’d like to invest in build-to-rent, new construction properties. With that said, feel free to schedule a complimentary phone call. We would love to hear about your investing goals and your plans for 2022.
Here’s a full video on Lubbock for those who had their interest sparked by this city:
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