Rents are Climbing and Rental House Supply is Tight

Mike Nelson
Mike Nelson

Rents are Climbing and Rental House Supply is Tight

Across the country, rents are increasing at an annual rate of approximately 3.7% per year according to Zelman & Associates which is well ahead of the current rate of inflation which is below 2%.  Reduced supply is putting upward pressure on rents.  But tenants in Metro Atlanta are still picky when it comes to the property’s condition.  Properties that are in excellent condition are renting quickly while properties that are not fully rent ready are continuing to sit empty.

This increase in rents is attracting more investors to rental houses as a way to re-position money in the stock market.  But it is also driving Cap Rates lower.  B quality properties that we were buying with 6%+ Cap Rates earlier in 2019 are now selling at about a 5.5% Cap Rate.

Remember, when investing in rental houses, do not choose your properties based on the Cap Rate.  To choose based on Cap Rate is to limit your evaluation to only the monthly cash flow.  Instead you should select your properties based on the forecast Internal Rate of Return (IRR).  The IRR will factor in the property’s cash flow, appreciation, and loan amortization.  The appreciation of your rental house is not normally subject to Cap Rate and NOI.  Usually, the value of your rental house, when you sell, is what an owner-occupant is willing to pay.  And this is often a significant part of your return on investment.

Buy your next rental with us and your first leasing fee is free. Learn more about investing in Atlanta rental property here.

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