~~If you read the papers they have been talking about the upswing in real estate values for a year or so and now the papers are saying everything is slowing down. Before you start feeling that you might have missed the investing boom boat again let’s talk about a few things.
~~The most important thing to remember about real estate is that what happens to the single family housing market is usually much different than what happens to the rental housing market. In Southern California for example the percentage of people who can actually afford to buy their own home, that’s called the affordability index, is between 9% and about 40%. That means between 60 to 91% of all the others have to rent. I just checked Google and it says the Los Angeles Metro area has over 12 million people so that’s a lot of renters.
~~The other thing working in the favor of rental property investors is the difficulty of building new buildings – let’s call that competition for the existing tenants. To begin with it’s tough to comply with all the newer building codes and rules needed to build. The biggest hurdle in areas like southern California is finding land to build on there just isn’t any more vacant land in most areas. So, to get land to build on developers have to buy existing property that already has rentals on it and then tear those buildings down.
~~If you think about where this puts developers it more or less works in favor for those of us who already own nice properties. The developers have to pay and ever increasing premium for already developed property so that they can evict the existing tenants to build a new building that will then have top market rents. Not only do all the new renters put an increased demand on the existing affordable rental units but developers are increasing that number by all the existing renters that they are displacing.
~~So, always remember that most of the bad news about the single family housing market is good news for rental property owners!