If stocks are going to drop, should I invest in rental houses?
The last significant downturn had a devastating impact on real estate values. Could the same thing happen again?
The last downturn was in large part caused by real estate, specifically the lending markets. During the last downturn, unemployment and those under financial stress combined households to save money. Grown children moved back in with their parents or did not move out. People found roommates to help share the housing expense. This helped reduce demand in a market that was in many areas already oversupplied due to so much new construction in the 2000 – 2007 time frame.
However, the fundamentals for real estate today are very strong. Vacancy rates for rental houses in the Atlanta market have been under 3% for a long time. And rents are continuing to grow at over 3% per year. Zelman & Associates forecasts that another 1.36 million households will be created in the US during 2019 while only 1.15 million new units will be added to the national inventory. This puts more pressure on occupancy – to the landlord’s benefit.
Once the next downturn happens, and we know it is just a question of when, rental houses can be an attractive investment alternative. Even as the down turn results in some employment layoffs, the very high occupancy rates we are experiencing allows for margin – room for a reduction in demand as the number of people per household increases and still allow landlords to rent profitably.
This may be an excellent time to think of shifting some of your investment dollars into rental houses. And Atlanta is an ideal place to do it.