Austin Economy Supporting Rent Increases

Posted by Monte Davis on Thursday, June 2nd, 2011 at 6:03pm

If there's one thing that's music to a landlord's ears it's the news that the market is trending toward rent increases. According to a Marcus and Millichap survey quoted in the Austin Business Journal, rents on 1-4 unit properties are inching up this quarter by 4.2% with another 5% predicted for next quarter. Add this on top of the overall 2010 gain of 5% calculated by the Texas Apartment Association and this is a very, very good time to be real estate investors.

Essentially three factors are contributing to this upward trend, starting with improved unemployment figures and, in general, a better economic outlook, yesterday's plunge on the stock market notwithstanding. It's very tempting and very easy to watch a day like that and to listen to newscasters pitch around the word "depression" and get truly disheartened. What you need to remember is that you are a real estate investor in Austin, Texas where unemployment is at 6.8% -- almost the lowest unemployment rate you can find anywhere in the nation.

This is not, however, to say that times are great. They're not, a fact reflected in the increasing difficulty would-be home buyers are facing in getting financing. If they are first-time buyers, it's almost impossible, which means these people will continue to be renters longer than the generation that came before them. This absolutely does not have to be a bad thing for anyone. While these people are not gaining equity, they are in a position to resolve debt and to increase their wealth through savings. And we are here to offer them high-quality rentals and fair market prices.

The availability of rentals stands at the opposite extreme of the the lower number of new multi-family construction projects coming online. That situation won't last, but when those homes do come up for sale, they won't be cheap because the initial sales price will also have to cover the cost of building and development. We have an existing supply of rentals. Any market is about supply and demand. We can charge rents that are lower in relation to potential mortgage payments and still make a profit.

I have said before, and will continue to emphasize that real estate investors are in a position to make a positive difference during this economic downturn by providing a needed service -- affordable housing. No one expects a businessman not to turn a profit -- so rising rents are good news -- but at the same time, we are helping people who can't get financing or who have lost their homes to foreclosures and who are repairing their credit -- to have a place to live.

Remember, people who have been homeowners have a different relationship to a property and make good tenants. Many very much want to get back into a place of their own, and it is not out of the question in single-unit rentals to assume some lease situations could ultimately turn into purchases if that's your goal for the property. Either way, the economy in Austin is definitely favoring real estate investors and that's good news for us!

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