Landlords Prospering in Pandemic Destination Cities
If you’re a property investor or property management startup entrepreneur who isn’t up on the latest trends in rental property markets, you might enjoy reading some of the posts here on ManageCasa.
We talk a lot about the changes in this sector which were happening long before Covid 19 razed the rental landscape in the US, Europe, and Australia. Last April, one trend in particular didn’t get much notice.
That trend is now powering many housing markets, particularly in the US. There might be two distinct types of landlords currently: apartment landlords in large high-density areas of big cities, and house landlords in the pandemic destination cities and towns.
The Migration to Pandemic Destination Cities Continues
The pandemic 2020/2021 trend is people moving from crowded, high-density neighborhoods in major cities, outward to the suburbs and beyond. In some cases, people are moving very far from where they were living to places like Idaho and Florida.
Moving companies such as Uhaul have more business than they can manage. This trend will compel city landlords to be more creative to retain their tenants through this winter.
“For real estate investors, this news is incredibly important in terms of price-to-rent ratios and return on investment. Expensive rental markets, which already had pretty atrocious price-to-rent ratios in recent years due to exorbitant housing prices, are even less attractive for investors since housing prices have increased and rents have dropped significantly… Markets that are growing in rental price, on the other hand, may become more attractive to real estate investors” said Neil Gerstein, growth analyst at Zumper in an interview with Gobankingrates.
What is the long term effect of this trend, and is something that will persist in 2021 and beyond?
This shift in population has pressured inner-city apartment landlords and multifamily investors, while creating huge rental profit yields in low-density towns and regions. And this demand grows amidst shortages, house rental landlords could see significant upside.
For instance, the latest pandemic surge and shutdown in the USA in California is another big push to real estate owners and landlords in San Bernardino, Nothern California, and areas of Arizona. It’s changing which California cities are considered good places to buy a rental property.
Cities with Highest Rent Growth
Zumper ranked these cities highest for rent growth in December and year-over-year growth. Cities such as St Petes and Fort Lauderdale aren’t necessarily the least densely populated regions, so this trend might also have weather, lifestyle, and retirement destination benefits as well.
|1 Bedroom Rentals||2 Bedroom Rentals|
|City||Price||M/M %||Y/Y %||Price||M/M %||Y/Y %|
|St Petersburg, FL||$1,300||2.40%||23.80%||$1,740||4.20%||24.30%|
|St Louis, MO||$1,050||8.20%||22.10%||$1,260||-0.80%||11.50%|
Note: rentals covered by Zumper include many types of housing.
Lower Cost is Becoming a Key Driver
Right across the US, the same trend is evident in most states. And now that stimulus/relief funds aren’t forthcoming amidst new shutdowns and record health care costs, the next three months could accelerate the trend.
People are moving to wherever is lower cost and where they can have more room and isolation from infected people. Some of the most active pandemic destination cities include St. Louis, Fort Lauderdale, Salt Lake City, Phoenix, Las Vegas, Cleveland, Indianapolis, Durham, Newark, Providence and St. Petes.
Some of the newly displaced from the cities are reveling in their new trailer, mobile home or tiny house to survive this horrible pandemic downturn.
It’s not just the pandemic itself that is driving some of the investment in homes and rental properties in these destination cities. Some are already considering which towns and states will be better to live in after the pandemic.
“People who can work remotely are re-examining where they want to live, and for most of them that means they’re looking at places that are less expensive,” said Veronica Clyatt, a Redfin agent in Pleasanton, CA in an article on Redfin.com.
Will Things Change Back in 2021?
No one is certain about the long term changes Covid 19 is bringing to rental demand and property management, but it may be that this redistribution is fairly permanent. Why?
- people won’t want to move back to the cities
- workers have gone mobile (some landlords have gone mobile too)
- small businesses in cities are going bankrupt (retailers, restaurants, etc.) and they may not have the resources to start all over again
- cost of living is too high for those who are leaving
- cost of apartment rental is too high as rent prices are rising again in cities
- work from home has enabled business advantages for companies in the cities
- digital business brings additional productivity benefits
- companies are leaving the big cities (e.g., Hewlett Packard and Tesla leaving California) for lower cost regions
- increased poverty will drive people out of high priced cities to smaller lower cost towns
Shortage of Housing Will Ensure City Rents Will Rise
The problem with many pandemic destination cities is a lack of housing. Construction is happening but it can’t keep up with the demand. Landlords in these regions can ask for higher rents, and they will likely find some high-quality tenants to rent to.
With rent yields so profitable, investment money will continue pouring into these towns and rural areas. It’s actually a very healthy thing for rental property investors in that more housing stock is available.
The mega-sized rental management companies who are gobbling up properties can’t buy everything. There are great opportunities for digital landlords and for startup property management companies, to get their businesses off the ground.
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Opinions and outlooks in this post are not necessarily those of ManageCasa and its affiliates. Any rental property investor should conduct a full investigation of opportunities and refer to a licensed real estate investment consultant for investment decisions.
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