The rental market is seeing some new faces. Rental property investors now include people who, a few years back, may not have ever considered becoming landlords. Income tax records show 9.3 million taxpayers who claimed rental income in 2009, which is up from 8.3 million in 2003.
Several factors are contributing to this trend:
- The rental market is strong, and it keeps growing. More people are choosing to rent rather than buy homes, due to job instability, poor credit, stringent lending standards and insecurity about housing prices.
- Home prices are staying low. Prices have been falling since the bubble burst, and although experts have said we’ve reached the bottom more than once, the numbers indicate otherwise.
- Interest rates are staying low. Near-historic low rates mean taking on a mortgage makes sense for good credit risks.
- Investment returns are lousy lately. U.S. stock funds lost an average of 2.9% in 2011, and safer investments, such as bank CDs are returning rates of 1% or 2%. Investors view real estate as a better opportunity.
- People see tax benefits in owning rental property. According to Reuters, in 2009, those 9.3 million income tax filers claimed about $267 billion in rental income. However, they claimed more than that in depreciation and expenses, for a total loss of $11 billion.
Of course, things can change quickly. Housing prices will eventually recover. The jobs picture will improve at some point. Interest rates will creep back up. And rents will level off. Landlords who enter the business now when demand is high, tenants are plentiful and rents are healthy may find themselves ill equipped to deal with any downturns that will surely come.