Investments in the Rental Segment Hold Strong, Driven by Expanding Demand

Real estate investments have long been recognized as a pathway to wealth, with the Journal of Real Estate Research reporting that 90 percent of millionaires have accumulated their wealth largely through real estate ventures. Among the many opportunities within the real estate sphere, rental properties stand out as a particular focus as demand in the U.S. has been surging, driven by socioeconomic trends.

The total U.S. rental market was pegged at about $251 billion last year, according to data by Statista. About 70 percent of rental properties in the U.S. are owned by individual investors, according to Census estimates.

Renting continues to play an integral role in the U.S. housing market. About 44.1 million U.S. households are renters. This number is likely to increase in the future as homeownership remains out of reach for many, with interest rates still hovering around 7 percent and property prices in many areas having reached record highs.

This resulting strong demand for rentals has been reflected in the numbers. Rent prices continue to grow and are nearly 30 percent higher than prior to the pandemic, according to industry data. In February, rents were 3.5 percent above those in the prior year. 

Regions in the U.S. with the greatest returns for apartment investors include Houston, where a strong job market coupled with a lack of affordable single-family homes have boosted demand for rental spaces. Other high-demand metros include Orlando, Fla.; Colorado Springs, Colo.; and Charlotte, N.C., according to data from American Mortgages.

The rise of shared living
Investments in the rental space have either focused on institutional multifamily properties or traditional, smaller apartment assets often owned by mom-and-pop investors. 

Yet, so-called co-living buildings where units are purposefully shared by more people are emerging as an alternative to traditional rental housing. They tend to offer more affordable accommodations with a focus on shared amenities, driven by the rising cost of living and the ongoing evolution of work arrangements. 

With remote work becoming increasingly entrenched in modern work culture, the appeal of flexible shared living arrangements — which, aside from lower costs, can also offer a sense of community — has surged, particularly among Gen Z. Taking advantage of shared living spaces can cut expenses by 30 to 40 percent, according to industry data. Platforms like Roommates.com have emerged to help facilitate roommate matching, enabling individuals to find compatible living arrangements. 

The rising importance of technology
The strong demand in the rentals has also given rise to technology designed to fill spaces and manage them. 

Automated tenant screening features are intended to help review and select tenants in an efficient, effective and fair way. Online rent collection platforms can increase on-time payments to help tenants create a stronger credit history and investors maximize their rental income. Smart home amenities are starting to fundamentally change the way landlords manage their properties by enhancing operational efficiency, reducing overhead costs, and ultimately improving tenant satisfaction. From streamlining administrative tasks to enhancing security measures, proptech solutions are reshaping rentals for landlords and tenants.

Amid these changing market dynamics, rentals remain a cornerstone of the housing market, offering investors a stable source of rental income and often providing renters a more affordable way of living. Fannie Mae’s projection of a gradual decline in multifamily vacancy rates underscores the continued demand for rental housing and the resilience of this asset class. 

Nevertheless, rising property costs and taxes, and the risk of missed rent payments, underscore the importance of smart financial management and effective tools, such as tenant screening processes.

Michael Lucarelli is the CEO and co-founder of RentSpree.