MReport January 2020

TheMReport — News and strategies for the evolving mortgage marketplace.

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28 | M R EP O RT FEATURE I n 2020, real estate will be a top choice to invest in. Rental demand is soaring, allowing real estate investors to start making money right away. After the purchase, thanks to tight rental inventory, properties should rent immediately, generating rental income and a solid return on investment. It is a great time for any begin- ner to get into the market, too. With a favorable market in place, brokers only need the right lender and loan products for their begin- ning or seasoned investor clients. Lenders are excellent resources and have loan products specifical- ly created for property investors to build their portfolios. Current Market Conditions H omes—and in particular, entry-level homes—are getting more expensive and inventory is still tight. According to the Federal Housing Finance Agency, home prices increased 4.6% be- tween August 2018 and 2019. The same is becoming true for rentals. The supply of rental homes is de- creasing, making rental prices rise. This is a stark difference from just a few years ago when foreclosures where plentiful as a result of the housing crisis. From 2010–2016, investors rushed into the market and bought up thousands of dis- counted foreclosed properties and turned them into rentals. While inventory has dwindled, the demand remains strong, making for a lucrative real estate market for investors. Seasoned real estate investors know that while increasing prices pose a challenge, there are still viable options across the country. Investors who are just entering the market need not be concerned as finding cheap properties is still a possibility, and an experienced broker can help them. The lack of affordability is isolated to certain markets. In fact, the greatest challenges are mainly in high-cost markets where it is harder to find a deal. Otherwise, great deals are plentiful coast-to-coast, making real estate a great investment strat- egy in 2020. It is projected that rental growth for lower-priced homes could outperform the rest of the market. 2020 Projections and Trends I nvestors are now looking at single-family starts as builders are putting up more entry-level homes. Many builders will cater specifically to the investor market with brand-new rental communi- ties. The build-to-rent market is exploding, and builders want in. The homebuilding sector has underperformed in the past few years, and this is an area set for growth. The build-to-rent market could become an ongoing investment strategy where homes are built and sold in bulk. One new trend is developers building cohesive, single-family rental com- munities for renters looking for a lifestyle and community they can't find in apartment complexes. The current economic climate is perfectly timed for single-family rental market success. Credit markets are still fairly tight, many people have lower credit scores and less money for down payments, and home prices keep going up. revealed that investor activity was up 5.6% in Q2 2019, which accounted for 7.1% of all home sales. This is the highest Q2 share since 2013, confirming that the investment market is hot. Who might be interested in renting still? In a word: millen- nials. The largest generation in American history is now ready for the single-family market. For this demographic, renting single- family homes have become the new starter home. This makes for happy property investors as the demand for single-family homes for rent has increased and rent growth accelerates. It is predicted that 2020 will be the year that the millennial generation will enter the SFR market in full force. Single- family for rent is the fastest growing segment of the U.S. housing market according to the Urban Institute. The Urban Institute's Housing Finance Policy Center issued a report in 2018 that estimated that 3.4 million millennials do not own homes, preferring instead to rent. That doesn't mean they aren't moving, though. They are moving from urban areas in apartments to the suburbs, looking for homes to rent with enough room to start a family. Student debt and rising home prices are still forcing many millennials to wait longer to purchase. These projections and trends should make any real estate investor confident in the potential for positive ROI in 2020. Now they just need the right originator to align them with a trusted lender and mortgage loan product to get it done. That could be you! Leveraging the Millennial Rental Market A thriving market, optimistic projections, and investor cash flow loans can help close more loans for investor clients. By Tom Hutchens

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