Rental Market Trends in 2024: Navigating Economic Challenges and Investment Strategies
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March 13, 2024

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Despite the obstacles real estate investors continue to face in 2024, including inflation and high home prices, there are plenty of growth opportunities.

In this article, we’ll dig into the current economic outlook, incoming rental market trends, and investor financing options for purchasing their next property.

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What is the current economic outlook for the rental market?

Rising mortgage interest rates, persistently high home prices, and raging inflation throughout 2023 created a difficult environment for real estate investors to thrive.

However, the beauty of real estate investing is that a diverse portfolio and adopting a long-term investment approach can help investors weather any economic storm.

Let’s take a look at the latest data and rental market expectations for 2024.

Are we in a recession?

Economic experts continue the back-and-forth debate: Will there or won’t there be a recession in 2024?

At the end of 2023, many experts believed the U.S. would be in a mild recession by early this year. 

But as new details and reports emerge, experts now foresee a “sharp slowdown of economic activity,” rather than a recession.

Persistent interest rates and an increase in new multifamily rentals will temporarily cool rental demand and continue to bring more balance to the market.

Rent and inflation have a complex relationship: Rent significantly influences inflation, and its costs are also influenced by inflationary pressure.

The price index for shelter, which includes rent, is the largest portion of the consumer price index at 34%.

Impact of interest rates and home prices

High-interest rates and home prices affect both investors and potential home buyers.

These factors contribute to higher rent costs for investors, which then get passed on to renters.

Higher rent costs contribute to inflation, and the cycle continues.

On the other hand, these factors make homeownership unattainable for many people, which contributes to more renters—including long-term renters.

While a cooling of rental demand will help balance the market, it doesn’t mean that the need for rental properties or affordable housing options will dive.

Projected rental demand and vacancy rates

Fannie Mae predicts that the national multifamily vacancy rate will peak at 6.25% this year, and decline to 6% by 2025 as economic conditions and job growth improves.

Rental growth is expected to be lower than normal but improve over the next few years.

Current market conditions will keep home supply low, and sellers unwilling to give up their ultra-low mortgage rate earned during the pandemic.

The greatest opportunities for investors lie in multifamily properties—and build-to-rent properties in particular.

The rise of multifamily properties

2024 is expected to be the strongest year for new multifamily supply since the 1980s, according to Census Bureau construction data.

The number of new units under construction reached 1 million for the first time in 2023, and completions should peak this year.

Multifamily properties are solving multiple issues for investors and tenants alike

  • Addresses housing affordability: Multifamily properties offer a more affordable housing option compared to single-family homes, making them accessible to individuals and families facing challenges with high home prices and limited affordability
  • Mitigates impact of high-interest rates: Multifamily properties can serve as a hedge against high-interest rates for both investors and tenants
  • Diversifies investment portfolios: For investors, multifamily properties offer diversification opportunities, helping to spread risk across different asset classes and mitigate exposure to fluctuations in the housing market
  • Generates rental income: Multifamily properties provide a steady stream of rental income for investors, offering a reliable source of cash flow even amidst economic uncertainties and market volatility

Multifamily properties serve both short-term needs and long-term needs, as they are a resilient long-term asset class in the face of numerous economic landscapes.

Demand is growing for build-to-rent properties

Along with multifamily units, build-to-rent (BTR) properties are a growing solution in today’s market.

Build-to-rent (BTR) housing refers to residential properties that are purposefully constructed to rent out to tenants rather than being sold to individual homeowners. 

These properties are typically designed and built with the specific needs and preferences of renters in mind.

Key features of BTR housing

  • Single ownership
  • New construction
  • Long-term leases
  • Flexible leases

BTR housing represents a trend in the real estate market driven by increasing demand for rental options among various demographics, including young professionals, families, and empty nesters.

BTR benefits in today’s market

BTR housing offers several benefits that address challenges in today’s housing market, including:

  • Helps alleviate housing shortages
  • Provides more affordable rental options compared to purchasing a home
  • Offers investors a reliable and steady stream of rental income
  • Mitigates investor exposure to market volatility and economic downturns
  • Offers investors the potential for long-term capital appreciation
  • Serves as a hedge against inflation
  • Provides multiple exit options, including holding onto property for long-term rental income or selling for a profit in the future

To purchase or build a rental property, investors need access to the right types of funding.

Loan options for investors

Two key loan options for investors in today’s market are debt service coverage ratio (DSCR) loans and ground-up construction loans from a private lender.

DSCR loans

DSCR loans are designed to provide financing for income-producing properties based on their ability to generate cash flow, making them a popular choice for investors seeking long-term financing solutions.

A DSCR ratio greater than 1.0 indicates that the property’s cash flow is sufficient to cover its debt obligations, while a ratio less than 1.0 suggests that the property may struggle to meet its debt payments.

Investors love DSCR loans for their flexible terms and competitive rates.

Ground-up construction loans

Ground-up construction loans provide the financing to purchase land and cover construction costs.

They can help investors build a BTR property to hold for long-term rental income.

Construction loans from a hard money lender have more flexible terms, higher loan amounts, and a simple, straightforward draw process.

Apply for rental investment financing today with Park Place Finance

Park Place Finance is your trusted hard money lender for your next investment property.

We pride ourselves on providing you with a personalized and efficient lending experience. 

When you choose to work with us, you can rest assured that a team of real people will be dedicated to funding your deal as quickly as possible.

We offer the following loan options:

  • DSCR loans
  • Bridge loans
  • Ground-up construction loans
  • Fix-and-flip loans

Get started to unlock your personalized loan options, or call us at (866) 407-1599 to speak with an account executive.

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