From Home Ownership To Renting: An Investment Opportunity Awaits

In today’s Kansas City Star Business Weekly section Chris Lester writes on the subjects of rising foreclosures, too many subprime loans and historical home ownership trends. It’s worth the read if you want to look it up on KansasCity.com. Or do something really radical and buy a copy!

Ah, who am I kidding? On my whole street I think only about 5 of us still take the newspaper. But that’s another subject for another time.

Chris does make the point that historical home ownership in this country had, for decades, run between 63-66 percent of all households. During the recent real estate boom where money was cheap and easy that percentage climbed up to 69.2%. Then Chris writes (paraphrasing here) that we should look at the 66% mark for home ownership much like we look at the 4%-5% mark for unemployment. About maxed out.

And I think it’s a great observation.

So what does this mean to the real estate investor?

Well, if we are at about 68.5% home ownership and heading back to around 66%, then there are a lot of people who need to rent houses and there are going to be a lot of houses available to put them in. Chris suggest that maybe apartments is a way to go. But I would argue that…to some degree. Houses and duplexes, in my mind, are always a better way to go.

I think what hurt most of these people who are going through the pain and suffering of foreclosures wasn’t so much the house payment. It was the expectation of home ownership. They were used to renting. If they were late to the landlord, and late on a consistent basis, they would just move and maybe or maybe not get sued later.

When they had problem as a tenant they would call a landlord and it was his responsibility to get it fixed…and pay for it. Now when Mr. & Mrs. Subprime had the furnace go out there was no one to turn to.

Any bump in the road on income turned into a crisis. Any repair a choice between fixing the house and eating. $4,500 to paint the exterior of your home to protect it’s value and integrity seem like a mountain when you are living paycheck to paycheck.

Some of these people should never have taken on home ownership. Or they should have purchased more modest housing. Now the blame game is going on.

As a REALTOR I can tell you that I sat across the table from people and told them they should not buy this house. But they had a pre-approval letter and the will to do so. Backing from mom or dad helped, as well. So what was I supposed to do as their agent? I counseled them. I encouraged them to move down their expectations. But am I to refuse helping them? Please.

I sleep at night just fine because over my 5+ year career I don’t know of any homes or home buyers that have gone into foreclosure. But even if one had I would still feel okay because I told them what I thought at the time.

But I stray from my main point. (As usual.) The point is that the rental market across the country and here in the Kansas City area is strengthening. It has been for about the last year. I can remember “free months” and “no security deposits” not too long ago. Those stopped and now rents are actually creeping up. While house prices are modestly increasing, stagnant or dropping ever so slightly here in our metro.

That smells like a real estate investing opportunity to me.

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