Rental housing stays relatively strong in spite of economy

If you pay attention to the media, you might think that the real estate market has gone completely into the toilet and that nearly anyone who's invested in real estate is in serious trouble.

But the truth is that investors who own conservatively financed residential rental properties are actually doing just fine, in spite of the recession.

Ken Harney writes that
"During the second and third quarters of this year, demand for rental apartments as measured by net absorption, increased by more than 89,000 units nationwide. Rental building owners have done particularly well in keeping vacancies low, with rates in some major metropolitan markets in the five percent range. . . The national vacancy rate stands at about 7.4 percent -- well below where it was in previous recessions and remarkable in view of an unemployment rate just under 10 percent."

No matter what the economy does, people still need places to live -- and the tanking economy and tight credit market has brought new construction to a halt, which also bodes well for the future supply and demand balance. Sure, some markets are experiencing rising vacancies and declining rental rates -- but those seem to be the minority.

Owners of multi-family rental properties have seen the market value of their units decline precipitously in many markets. But if you have a fixed rate mortgage and tenants who cover all your operating expenses, you're in no rush to sell -- so a temporary decline in "value" might be unsettling, but it shouldn't keep you up at night.

Another way of thinking about it: What impact will a home's value today have on its value in 10 years?

Answer: Absolutely none. An asset's value in 10 years will be determined by market forces (especially rental rates, in the case of multi-family properties). So if you're not planning to sell now, the "market value" today is really of very little relevance.
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