With the US housing market crash and subsequent recovery over the past few years, real estate investors have been snatching up so-called “starter homes”. The subsequent hunt for available, affordable homes for young families and Millennials has become significantly tougher as a result.
Starter homes are usually lower-priced houses around $250,000 or less in pricing. They are often single-family homes that are perfect for families just starting out, as a place to call their own while building up both their careers and savings for something bigger in the future. With the job market steadily improving combined with sustained low-interest rates, now is the perfect time for young workers and their families to begin making those initial home investments that their parents and grandparents did before them.
Unfortunately, though, many of those properties that would have been available to do so have been snatched out from underneath them. According to the National Association of Realtors, the inventory of homes within the starter home price range ($250,000 and below) has dropped more than 12 percent over the past year, from June 2015 to June 2016. Some reasons have conspired together to account for this sudden grab for affordable homes.
Why Starter Homes Are Dwindling
First, higher land, labor, and building permit fees have forced construction companies to focus more on building higher-end homes, where the profit potential is high enough to offset the increased costs. As a result, new construction of smaller homes that would have fit in the “starter” category has diminished. With new homes in this range being built less and less, for the time being, buyers have been forced to search for existing properties for a chance at a home they can afford.
Second, real estate investors also noted the previous abundance of houses in that price range and decided to purchase as many as possible to turn them into rentals. This trend is supported by data collected by the U.S. Census Bureau, which found that from 2006 to 2014, the number of single-family starter homes that were occupied by renters instead of owners jumped by nearly 34 percent. Both of these trends find their roots in the subprime mortgage crisis.
As home values fell precipitously, investors understood the opportunity and purchased as many foreclosed and undervalued homes as possible to turn them into rentals. While these investor-driven sales peaked around 2013, the buying spree led to nearly 20 percent of all homes valued at $300,000 or less being owned by companies and used as rentals according to research conducted by ATTOM Data Solutions.
For investors, this has proven advantageous in the REIT (real estate investment trust) sector. Since a good share of the largest REITs deal heavily with single-family starter homes, the housing bubble and crash injected tremendously value into their stock value. What it boils down to for the average family looking to make its initial major real estate purchase, bidding wars are now the norm for these lower-priced properties as pre-existing supplies dwindle.
Add to that the reality of many young workers having to contend with significant student loan debt to pay off, the housing rental market looks secure for some time to come for those who have such properties available. If you are an investor with real estate interests, how well protected are you from liability in case of accidents or other issues involving your renters?
Even though you may be earning significant income from your holdings, without the right asset protection strategies in place, you could be in a position to lose everything you have worked for and not see it coming. That’s why Anderson Business Advisors has spent the last twenty years helping real estate investors create legal entities that can protect their holdings and secure both their own and their families’ financial futures. If you need to make this investment yourself, feel free to contact our office and speak with one of our experienced advisors.