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Booming Rental Income

  • If the homeownership rate is at a 20-year low then the renting rate must be at a 20-year high. One consequence of this trend is a significant rise in rental income across the country. The total rental income of everyone combined has more than tripled in the past seven years.
  • The total rental income grew by a whopping 240 percent from 2007 to today. This gain arose from more renter households and rising rents. By contrast, the overall salaries and wages of everyone combined grew by 17 percent – due largely to more job creation and from some wage boost. The comparison clearly implies a much better time for landlords as opposed to wage earners.
  • Looking at other income categories, unemployment insurance payments have sharply fallen. More jobs have also meant fewer people on the public dole. Farm income has been shaved by a third in the past year as crop prices have fallen. Alert: agricultural land prices could be vulnerable to a meaningful correction if farm income continues to fall.
  • Most REALTORS® are not forking over higher rents. That’s because 86 percent of members are homeowners. Because real estate is their life, 46 percent of REALTORS® also own rental properties. Some REALTORS® specialize principally in property management, and among those who do they managed 49 properties on average in 2012. The three most commonly reported tasks of property managers were selecting tenants, taking tenant applications, and collecting rent.
  • The continuing fall in the homeownership rate is not good for the country on many levels. However, for business people, they have to follow the money and the rental income is where the action is. An owner of a rental property, if history is a guide, can expect rents to have doubled in 20 years while mortgage payments (if financed at fixed rate) to have not risen at all.

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Lawrence Yun, PhD., Chief Economist and Senior Vice President

Lawrence Yun is Chief Economist and Senior Vice President of Research at NAR. He directs research activity for the association and regularly provides commentary on real estate market trends for its 1 million REALTOR® members.

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Comments
  1. Over the last five years, not only have landlords seen their mortgage payments stabilize, they’ve actually been able to reduce them quite a bit. Thank you, low interest rates. It is helpful that Fannie Mae has returned to allowing the maximum of 10 mortgage properties. Other providers will allow even more.

    As an investor in real estate, you must look at the prospective property like those buying a commercial property. Do the numbers work? There are still some pricing real estate areas in the country where rents are quite a bit lower than the mortgage, taxes and insurance. You will be underwater as an investor in these areas for many years, shelling out more than you’re taking in.

    Have a savvy mortgage lender help you breakdown the numbers to determine if your area is right to make this investment. Yes, lower your risk by buying in areas you know best.