Landlords choosing between equity or cash flow. Those listing landlords getting substantial earnings.
Real Estate Investors Asking, “To List or Not To List?”
Lured by the promise of cash flow, many real estate investors are buying up properties right and left due to skyrocketing rental demand.
Other real estate investors are doing just the opposite…they’re offloading their rental properties right and left. These real estate investors are lured by the promise of large equity gains in a market environment of unprecedented price appreciation.
Landlords Can Cash Out & Earn Big with Little Effort
Landlords choosing “To List” are anticipating both large pay days and, because inventory is so tight and in demand, hassle-free sales without having to update their properties before listing them.
Ali Wolf, chief economist with Zonda, said, “Investors are typically getting into real estate for two reasons: for cash flow or for home price appreciation. Right now, we are in a housing market where either strategy is expected to pay off because rental inventory is tight and rents are rising, and for-sale inventory is tight and home prices are rising.”
“Best of Both Worlds” Strategies
Some landlords/investors are choosing both cash flow and large pay days. Those landlords/investors are taking advantage of this continuing seller’s market by selling their lesser performing properties while keeping their better performing properties as the rental market becomes more and more lucrative.
“Lucrative” translates into rent prices showing a 6.6% growth rate in 2021 as opposed to a 1.7% growth rate in 2020, according to CoreLogic’s latest Single-Family Rent Index. And remember that some cities, such as Phoenix, Tucson and Las Vegas are seeing rent growth at 14%, 11.1% and 10.7%, respectively.
There are also investors/landlords who are selling not to cash out but to reinvest their sale money via 1031 exchanges to acquire properties in landlord-friendly states.
Implications for Rental Markets
In addition to the rental market becoming more and more expensive (re: +6.6% rental price growth rate), the US Census Bureau is finding that 94.5% of single-family rentals nationwide are occupied.
The more investors/landlords decide “To List” and sell for the equity, the more the rental market will mirror the for-sale housing market and become more unaffordable for more renters.
Michelle Harrington, COO with First Team Real Estate, is concerned about this issue of increasingly unaffordable rents. Harrington said, “I don’t think the consequence (of investors/landlords cashing out) is going to be a positive one like freeing up inventory. I think it’s going to be a negative one, and rental prices are going to get even higher.”
Thanks to CoreLogic, US Census Bureau, Zonda and Inman.