In a recent article citing a report from the National Low Income Housing Coalition, it was reported that a minimum wage worker earning $7.25/hr would need to work 97 hours per week to afford to rent a 2 bedroom apartment at the national average of $1276/month without spending more than 30% of their income. That is crazy (and a mouthful)! Of course, a headline like this is meant to sensationalize and does not take into account widely varied market conditions around the country.
Here in Virginia’s New River Valley, the wage to rent/mortgage ratio is not as bad. A 2 bed apartment in Blacksburg or Christiansburg can rent for $800-$1000/month and if you look to Radford or Pulaski a reasonable rental can be found for an even lower price. While this still does not make up for the gap between earnings and rents for a minimum wage worker, it does make renting slightly more attainable for a renter on a single income and possible for a rental with multiple incomes represented.
Let’s take a moment to look at what this might mean for rental property investors. I will use a property in Radford at 1908 Third St that I am listing for $124,700 (or listed years ago depending on when you read this) to give a real world example.
Bottom line: For investors, affordable rentals are an incredibly stable, fairly easy to obtain asset that should always be in demand.
Two Takeaways for Investors:
Ensure that your rentals stay rented by purchasing low to median priced rental properties that will be affordable to the largest number of renters. Are there units in our area that rent for $2k and higher? Yes. However, there is a limited buyer pool for this type of property and you might risk your property going unrented by competing for them. Someone who can pay top dollar for rent can also likely afford home ownership so might go this route instead.
This is great news for newer investors who might have less capital to invest. The reality is that building a portfolio of $100k-$200k in Blacksburg/Christiansburg/Radford that rent for $700-$1300/mo (depending on area) will both be attainable in terms of saving a 20% down payment for newer investors and be the kind of properties that will be easy to rent. And, you can feel great knowing that you are providing a quality, affordable home to someone who needs it!
An Example: 1908 Third St, Radford
1908 Third St, Radford, VA. Click on the pic to check out my new toy for listings - a 360 Tour Camera!
1908 Third St in Radford is a 4 bed/2bath and will easily rent for $1000/mo (probably more) and listed for $124,700. It would be a great rental for a family working in Blacksburg or Christiansburg who would like the comfort of living in a large, single family home at the rental price of a smaller townhome/condo near VT.
If you purchased this property with a conventional loan and put 20% down ($25k), even after factoring in 10% of gross income for both maintenance and property management, you could still expect to have a 28% overall return on your initial equity!
Numbers like this are why I am all in on rental property investing and am buying properties like these myself. Homes like these are stable, appreciating assets that stay rented because of the large renter pool they draw from (… and also provide greater overall returns than the S&P 500!).
Conclusion
I have enjoyed reading investment advice from a real estate investor named John Schaub. Schaub’s advice is to buy one affordable rental like 1908 3rd St. every year. You might enjoy reading his book, Building Wealth One House at a Time. Just doing this, a person could build massive wealth in 10-20 years while serving their community by providing stable rentals that the average worker/student can afford.
In 2020, with the uncertainty in the market due to Covid-19, buying homes that will attract the largest pool of rentals that also cash flow is a good strategy to consider as an investor.