Rentals, rentals, rentals

Real estate investors are banking on the future success of rentals.

National rental property sales have increased dramatically over last year. Market factors such as low interest rates, declining inventories of available units nationally and a stagnant construction market are leading to a push from investors to acquire what they believe to be cheap property while it lasts.

In addition to low prices and declining national vacancy rates, investors are sitting on the huge cash reserves they hoarded during the Great Recession. Rather than let their bankrolls continue to burn holes in their pockets, investors are betting that the millions of families dispossessed and disenchanted by the housing bust will choose (or be forced) to rent.

first tuesday take: Although national trends indicate declining vacancies and a resurgence in the rental market, vacancies in California are still high and rising in most areas.

The current atmosphere of the California real estate market seems to be ripe for success in both multifamily housing investments as well as broker/agent specialization in property management. The persistent rash of foreclosures and bankruptcies resulting from the unsustainable excesses of the Millennium Boom can only lead to one clearly predictable trend: success in the rental market — ultimately.

The California market has yet to demonstrate it has hit a solid, sustainable bottom in sales volume and prices in any type of real estate, thus leaving the crucial questions of pricing, timing and location still unanswered.

Because the Golden State is running slightly behind the positive growth cycles of the rest of the country at the moment, patience will be a necessity for those looking to rentals as a new source of revenue.

Due to more aggressive development in California during the Millennium Boom, as well as the staggering backlog of foreclosures yet to be processed, vacancy rates remain elevated and rental inventory is still over-saturated in most areas. [For more information on foreclosure rates and vacancy rates in California, see the first tuesday market charts, NODs and Trustee’s Deeds Recorded and Rental Vacancy Rate.]

As long as multi-family housing starts remain low and default rates on single family residences (SFRs) persist at their current rate (which they will for quite some time — probably into 2013), California is sure to experience substantial growth in the investor demand for rentals, particularly in the densely-populated urban areas. [For more information on construction starts, see the first tuesday market chart, SFR and Multi-Family Construction Starts.]

One does not need to be a real estate investor with overflowing coffers of cash in order to capitalize on the multitude of opportunities to come. Real estate brokers and agents interested in staying well-trained and relevant to the demands of the market in coming years would do well to specialize in property management and stay abreast of all issues relating to rentals in California.

Once informed as a property manager of income properties, the next step for brokers and agents as insiders is to syndicate those investment-grade properties that come onto the market.

For more information on forthcoming trends in the California real estate rental market, see: