Record Low Mortgage Rates Are Driving a Surge in New Landlords
With mortgage rates lower than ever, more Americans are scooping up rental properties to generate cash. Before becoming a landlord get comfortable with the financial risks.
The COVID-19 pandemic has produced a lot of surprises. One is the strong housing market, due in large part to rock bottom interest rates and demand for more space. Moreover, demand for second homes, both rental properties and vacation homes with rental potential, is the hottest anyone has seen in years.
“There's just been extraordinary demand for rental homes in a lot of these secondary cities, tertiary cities, suburban markets, where a lot of the single-family rental properties are located,” said Gary Beasley, CEO of Roofstock, a marketplace for buying and selling single-family rental properties.
After a lull in the early days of the pandemic, traffic as well as transactions on Roofstock have now exceeded the levels recorded last year, Beasley said. Traffic in October was up 45% year-over-year, while transactions reached the highest level the platform has registered in a single month. About 75% of the buyers who utilize the platform are first-time investors, many of whom are making the leap from renters to landlords.
“They're renting in more expensive cities and investing in properties in less expensive cities,” Beasley said. “They're becoming homeowners. It's just they're owning homes that they're not living in. They're getting a chance to build equity in a property where someone else is paying the mortgage, essentially, by renting it.”
Data from real estate brokerage Redfin further supports this assertion. Demand for second homes doubled in October compared to a year earlier, with buyers seeking properties in resort towns that they can rent out through platforms such as Airbnb.
“That's going to be a big market in 2021: the short-term rental market,” said Redfin chief economist Daryl Fairweather.
