Why Multi-Bedroom Homes Could Be Appealing for Investors
A cost of living crunch is driving a new trend among renters – and it’s changing the wish lists of some property investors. Here’s what’s happening across the rental and investment markets.Investors have been a significant force in the property market recently, with lending to investors increasing by almost 30% over the year to May 2024. The appeal stems partly from rising property values, which have jumped 10.14% nationally since late 2022, resulting in substantial capital gains for many investors.However, successful investing also involves purchasing properties with strong tenant appeal. New research from CoreLogic indicates that renters are increasingly opting for homes with more bedrooms.
Why Are Renters Choosing Larger Homes?
Cost of living pressures are affecting most people, including renters. They’re facing higher utility bills, increased costs for everyday items, and rents that have risen 8.2% nationally over the past year.To mitigate these rising costs, many tenants are looking to reduce their weekly rent by leasing larger homes for use as sharehouses or to accommodate multiple family members.CoreLogic data supports this trend, showing higher rent increases for homes with more bedrooms:
- Rents for 1-bedroom units and studios: up 7.1% over the past 12 months
- Rents for 2-bedroom apartments: up 7.9%
- Rents for houses with five or more bedrooms: up 8.7%
Despite these higher rent increases, it’s often more cost-effective for renters to share a larger property. The average weekly rent per bedroom in a 5-bedroom house is about $175 nationally, compared to $293 in a 2-bedroom unit or $541 in a 1-bedroom apartment.
Implications for Investors
While multi-bedroom homes are experiencing stronger rent growth, they may not appeal to every investor. Larger properties often come with higher purchase prices and can experience greater wear and tear due to more tenants, potentially leading to higher maintenance costs.Additionally, 4-5 bedroom houses are often located in outer suburban areas, which may see slower price growth compared to inner-city locations.Investors should consider their goals when purchasing a rental property and choose investments that align with these objectives.
Investing in Multi-Family Properties
For investors interested in larger properties, multi-family real estate can offer several advantages:
- Greater potential for passive rental income
- Easier financing options
- Faster portfolio growth
- Economies of scale in property management
However, it’s crucial to weigh these benefits against potential drawbacks, such as higher initial costs and more complex management requirements.
Conclusion
The trend towards larger rental properties presents both opportunities and challenges for investors. When considering an investment property purchase, it’s essential to find an investment loan that suits your needs.For more information on your borrowing power and financing options for investment properties, don’t hesitate to reach out to a financial professional.
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