“We definitely see demand improving, especially the younger demographic coming out of college and being in their prime renter years,” Perozzi says. “Even though the single-family home market is coming back, it’s still somewhat cumbersome to obtain a mortgage and come up with a down payment.”
Jaswinder Bolina knows something about that.
An assistant professor of English at a the University of Miami, Bolina couldn’t afford to pay the roughly $2,000 rent for his two-bedroom, two-bath apartment in an upscale area of Miami and still save enough money for a 20 percent down payment on a condo.
Ultimately, his parents pitched in, helping him buy a $340,000 condo that he expects to close on in May.
“It could have taken me 10 years to save enough for a down payment because property values have rebounded out here to the point where I’m priced out of the market,” Bolina says.
CHASING LOWER RENTS
Rising rents in San Francisco compelled Marc Caswell to move to Los Angeles in September. He and his girlfriend couldn’t get past the cost of renting a two-bedroom apartment in the San Francisco Bay area, where such housing listed recently on Zillow.com for an average asking rent of $4,100 — more than double what the couple hoped to pay.
“In a year or two, there would have been no money put away,” says Caswell, who works for an environmental nonprofit.
The couple, who earn a combined salary of about $120,000, now pay $2,000 a month for a two-bedroom apartment in Los Angeles, the 12th-most-expensive rental market last year.
Even with more buildings under construction, rising demand will push rents up in many markets. Reis expects a stronger job market to enable more people to start renting their own places instead of living with roommates or parents. As a result, the firm predicts that effective apartment rents will increase 3.3 percent this year to an average of $1,118 nationally.
GOOD FOR INVESTORS
Higher demand and rising rents, unwelcome as they are for tenants, will produce more income for owners such as apartment REITS. These real estate investment trusts operate buildings they acquire or build.
Steadfast Income REIT, based in Irvine, Calif., is counting on rental growth and demand to continue rising in Texas, Illinois, Kentucky, Oklahoma and the seven other states where it’s invested $1.6 billion to buy buildings with a total of about 16,000 units.
The company has avoided coastal markets, where apartment buildings for sale tend to command high prices, making it harder to turn a profit without charging rents that could price out many tenants. Steadfast likes to buy buildings where it can make money while serving tenants who earn between $45,000 and $75,000. On average, it charges $950 in rent, says Ella Neyland, Steadfast’s president.
Steadfast has 40 percent of its holdings in Texas, where an energy boom is creating jobs faster than the national average. Those jobs are luring people to cities like San Antonio and Houston and driving up demand for rentals.