It's a new year -- one that comes with many changes, some uncertainty, and quite a few unique and challenging circumstances. If you're a rental property investor, that might have you feeling uneasy. Should you plow forward as you would with any year, buying properties and seeking out tenants? Are there any adjustments you should make to appeal to today's ever-changing renters?
That's a yes to both. This year is primed to be a good one for investors, as long as you know how to leverage -- and adapt to -- 2021's unique quirks.
Want to make sure your business is a success in the new year? Here are four things you'll need to do.
Choose your locations carefully
Many urban renters got the heck out of dodge this year, looking for less-cramped quarters and the affordability of outlying cities. As a result, vacancies in urban areas rose, and rents dropped. In fact, according to the 2020 year-end rent report from RENTCafe, over half of the country's 30 largest cities saw rents decrease over the year, with San Francisco (-17.3%) seeing the biggest loss. Manhattan, Seattle, Boston, and Chicago also saw large dips as well.
Fortunately, rents didn't drop everywhere -- and like with any real estate investment, rental properties are all about location, location, location. So while 2021 may not be the year to buy a big-city multifamily building, a townhome or single-family house in the suburbs might be just the ticket.
Be careful who you rent to
The eviction moratorium issued by the Centers for Disease Control and Prevention (CDC) is still in effect until at least January 31, 2021. Given the slow rollout of the COVID-19 vaccine and surging hospitalizations related to the pandemic, there's a good chance it may get extended.
Just a reminder: The moratorium protects renters from eviction if they're unable to pay rent and make less than $99,000. They have to prove a few things, like job loss or substantial loss of income, and they need to make efforts to apply for government rent assistance. Other than that, the measure is pretty broad.
As a result, you must be choosy about any new tenants you take on. Verify their employment, make sure they're in a long-term, resilient job, and check their credit to be sure they're financially responsible. You don't want to be stuck with a nonpaying tenant you can't evict.
Consider buying your next investment
If you're thinking of buying a new property this year, it's definitely the time to do it. Experts project that mortgage rates will stay low throughout the year, making getting a loan more affordable than ever. In fact, according to Fannie Mae (OTCMKTS: FNMA), the average rate on a 30-year, fixed-rate mortgage will sit at 2.7% to 2.8% for most of the year.
Those low rates mean a couple of things. First, it equals more buying power. As rates drop, you can get more property for your money. On top of this, it also means a lower monthly payment and more cash flow for your business.
Offer short-term leases
In the face of remote work arrangements, many people are moving. They're migrating away from their employers' offices, instead settling for places they want to be -- ones close to family and friends or just locations they've always wanted to live in and experience.
Unfortunately, those work-from-home scenarios aren't permanent for most people. Though many organizations have allowed employees to work remotely well into 2021, few -- aside from Facebook (NASDAQ: FB) -- have said work from home will be forever. It's this uncertainty that has sent short-term lease demand skyrocketing. According to a recent report from Apartment List, the number of renters looking for six-month or shorter leases jumped 40% since last January.
Of course, you don't have to offer these options out of the goodness of your heart. Increase the rent to account for the extra turnover and vacancy, and make sure the lease requires a good heads up when a tenant intends to vacate or renew.
The bottom line
This year is shaping up to be a challenging one for investors, but with the right strategy -- and armed with the right knowledge -- it can also be a successful one. Make sure you study up on what today's renters are looking for, and take steps to ensure your properties align with these trends.