Five Trends and Themes to Watch in 2022
Rental demand is high. It’s expected to keep rising in 2022. If you’re thinking of investing in real estate now, you’re coming in at a propitious time — yet you’ll have a lot on your radar.
Here are five big topics for investor-owners now.
1. With Many People Unable to Buy, Rental Demand Is High—For All Generations.
People of all ages and many walks of life are looking for rentals today. Many of these people have tried to buy, but found themselves unable to compete in a prolonged seller’s market. And many are expected to stay in the rental market for years to come.
Thus, there’s a constant and strong demand for affordable places to live. The irony in this is apparent. The higher the demand, the higher rent prices are pushed.
There are new opportunities for the suburban investor. While modestly priced rental homes are big draws in most areas, applicants are looking especially at spacious apartments outside the city limits. Remote and hybrid work is allowing some workers the freedom to move out of urban job hubs. Expect to see renter interest in easy access to local attractions and outdoor space.
2. Expect Heightened Competition From Large Rental Property Investors.
Of course, the surging demand in the rental arena isn’t lost on developers. Given the massive need for housing, we’re seeing large management corporations and institutional investors staking their claims in the “multifamily” market. This creates multilayered challenges for local property owners, as large companies can enjoy bulk pricing and other advantages.
While some local owners are selling their buildings to corporate buyers, there will always be spaces for small investors to thrive. Locally based owners and management companies appeal to renters who think of renting as a relationship. Small business owners’ ability to know their renters, and to provide individual attention to their properties, can set them apart from large corporations. For just one illustration, consider all the home deliveries going on in our new era. When packages go astray, it helps to know who and where the residents are.
Small investors can take advantage of the 1031 exchange opportunity, too, in order to afford new rental properties in 2022. The Internal Revenue Service defers capital gains tax where an investor-owner “swaps” one parcel for another under the 1031 exchange rules. The investor, using a professional 1031 exchange accommodator, can keep trading up as long as desired. A tax deferral on one sale can free funds for down payments on subsequent properties. In fact, taking out a mortgage on the subsequent property can then enable an owner to get tax breaks on the mortgage interest.
☛ Want to know more? Here’s a step-by-step guide to the 1031 exchange process.
3. Worker and Supply Chain Delays Are Real—But They’re Expected to Ease.
Investment property owners are still dealing with shortages and delays when ordering lumber, fixtures, appliances… and the technicians who install all these things. Property managers have had to pay more to ensure timely workarounds. Some have carried out the simpler fixes themselves. There’s no time to let maintenance orders back up. Orders will just keep flowing from renters who are increasingly spending time at home, and using their appliances and systems more than ever.
At the same time, inflation has become a big issue on everyone’s radar for 2022. Pricier goods and services will lead to higher business expenses. To an extent, this will cause pressure to raise rents during a time when affordability is critical.
There is some good news. Clogs in the supply chains are starting to clear. This should ease some of the pressure on investor owners, and their construction and maintenance budgets.
4. Professional Assistance Is More Than Just Nice to Have.
The devil is in the details for investor-owners. It’s important to keep abreast of changing laws. In some situations, owners must anticipate and work with changes in residents’ financial situations. The ban on evictions during the coronavirus crisis, and the need for owners to help renters obtain government assistance, made this clear.
As state and federal rent moratoria wind down, and property owners await their stalled payments, legislatures are looking at ways to keep people housed. One policy tool is capping rents. Potential investors need to know where affordable housing plans are taking hold, whether this could impact them, and what kind of strategy is best in the local market.
Small investors might look to professional management firms to assist them with these issues. This shift is underway. Before 2020, just over half of small investors employed professional property managers. Now, according to research from Buildium, that number is up above 60 percent.
Professional management teams offer a range of services. First, they’re gatekeepers. Professional administrators review rental applications with trained eyes, looking for income instability and other risks. To help avert new pitfalls, professional leasing contracts and security deposit requirements are carefully geared to protect the owners’ investments. For example, some rental properties are shifting to shorter lease terms for new applicants. Financial management is a complicated art, given that so many credit profiles were impacted by pandemic-related hardships, job changes, and lifestyle adjustments.
5. Technology Helps Local Investor-Owners Punch Above Their Weight.
Technology for buying and managing property has ramped up in the most recent two years. It will continue to play a major role in investors’ lives. The use of online portals and apps to handle applications, lease signings, work orders, and payments is now a practical necessity. So is the use of text messages to notify residents of water shutoffs, snow removal procedures, common area closures, and so forth.
Online and self-access apartment tours have also emerged, even among small business owners. Given the high competition for desirable units, it’s not unusual for renters to sign leases for the properties they want without having physically toured them. So, rental managers are holding onto the technologies they first adopted for public health reasons. Everyone’s adjusted to the apps and portals, which have improved processes for owners and renters alike.
Because technology frees them from repetitive and time-consuming tasks, property managers can shift more of their attention to their client relationships. And relationships are the small property owner’s competitive edge. According to Buildium, 30% of property owners will employ technology to energize their revenue growth in 2022.
All Things Considered…
Most people who’ve invested to rental properties would do it all again, Buildium finds. Close to half of them hope to make more real estate purchases in the future. And the market outlook is very good.
Meanwhile, lessons from the public health crisis have underscored several points for the real estate investor of 2022. And a very big point is integrity. Those who earn the best reputations are the owners who care about their renters, and provide top-notch customer service.
Supporting References
Robin Young for Buildium.com: The 2022 Property Management Industry Report.
Buildium Blog: Eight Trends That Property Managers Believe Will Shape the Industry in 2022 (Dec. 19, 2021).
Lauren Shanesy for LoopNet.com, Three Trends That Will Drive Real Estate in 2022 (Oct. 21, 2021).
Agnes Gaddis for Mashvisor.com: 2022 Real Estate Market Forecast – Top Ten Predictions (Jun. 21, 2021).
Photo credits: The Coach Space and Miten Patel, via Pexels.