Great Time to Own Rental Properties

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Great Time to Own Rental Properties

Market Conditions Ripe for a Rental Yield

According to a recent report by the Colorado Department of Local Affairs’ Division of Housing, vacancy rates are plummeting to record lows in many parts of the state—including all six metropolitan areas—and producing a veritable siren song for savvy investors in the rental market.

In 2010 the Denver metro area’s vacancy rate was among the lowest in Colorado, at 5.5 percent, accompanied by Greeley at 5.1 percent, Fort Collins at 4.2 percent and Loveland at 3.6 percent. Colorado Springs had a vacancy rate of 7.2, while Grand Junction—which experienced the most dramatic drop—reported a rate of 7.5 percent.

Low vacancy rates indicate that a surplus of renters are flooding the market.  While some homeowners have recently had to sell or walk away from homes, others may be apprehensive about making a long-term commitment to purchase real estate. Many of them, as this month’s report indicates, find themselves on the home-hunt again—this time looking for a place to rent.

But how many people in the region has this actually affected? According to data collected by the Bureau of Labor Statistics and The Genesis Group, there were more than 138,000 foreclosures in the Denver metro area between 2005 and 2010, representing a fifth of all owner-occupied households. It is estimated that 15,000 of those households have since moved into apartments, while 10,000 are renting single-family units. In that same time period, however, just 12,643 units were added—equivalent to roughly half the number of renters that have entered the market as a result of foreclosure.

With the shortage of rental housing, naturally, comes an opportunity for those with property for rent. This, combined with the current “buyer’s market” conditions—existing inventory, flat (but gradually increasing) sales, and favorable interest rates for people who qualify—has served to create a “perfect storm” in Colorado for the purchase rental properties. Many investors view this window as the ideal time to begin, or expand, a portfolio of investment properties.

Encouraging news for those who have been reluctant to invest in the rental market until now is this: the diverse demographic of renters in the region means that investment properties are likely to be viable throughout a variety of price points, settings and family accommodations—not just the conventional cross-section of tumbledown houses that skirt many college campuses. In fact, the combination of fewer available units and a more financially solvent renting populace has led to an overall increase in rent in many areas.

If you are curious to learn more about investment properties in the residential rental market, Fuller Sotheby’s International Realty would be glad to assist you. Please contact us at 303.893.3200

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