Although investing in a house in the suburbs can still pose a great benefit, the population growth in urban areas now outpaces growth in the suburbs for the first time in over 100 years. In more expensive markets like those in California, it’s nearly impossible for landlords to buy affordable properties to rent, especially in city centers.
Alabama was recently ranked as one of the most cost-effective places to call home for renters, according to a study by the National Low Income Housing Coalition. Out of all of the states and territories, Alabama was in the top five most affordable.
It should be noted that the study found no state, city, or county that had housing priced affordably for an American worker making minimum wage. Alabama’s housing cost reflects the need for a worker to earn $13.93 per hour in order to pay rent without spending more than 30% of his or her income.
But many states had much higher costs of living. Hawaii requires a worker to make $34.22 per hour to make housing affordable. San Francisco was the priciest city in the entire country, closely followed by other Bay Area locations. The average rental cost in the state of California requires workers to make $28.59 per hour, so it’s no wonder that home buyers living in these areas need to look elsewhere for their properties.
Absentee landlords often enlist help from companies like HomeUnion. HomeUnion offers options for people to buy, manage, and renovate properties located in markets that can secure higher rent fees compared to their low initial purchase prices. These organizations say they can eliminate both worry and work for landlords and owners, handling their out-of-state rental properties for a relatively low fee. Companies like HomeUnion are seizing the opportunity to work with clients in costly housing markets to increase demand and home prices in lower-cost locations.
One such client, data scientist Yang Guo, wanted to own property in addition to his stocks and other assets. He recently purchased and renovated a home in Birmingham, Alabama for rent. He’s able to collect rent checks from tenants he’s never met while staying put in his trendy San Francisco neighborhood.
Instead of glamour and cachet, these buyers are getting into the game for steady income. They zero in on regions where rent rates and home sale prices have risen modestly during the housing market recovery.
Although they’ve focused in on an excellent opportunity, these buyers often have no real experience as landlords, which can lead to problems. Buyers need to do their research before deciding on an area in which to buy. For instance, Birmingham has a vacancy percentage that doubles the national average, which caused Guo’s property to remain empty for months. Buyers should also be wary of properties that require expensive property insurance because of natural disaster risk.
The housing market is an ever-changing landscape and there are signals that the rental industry may be on the decline. But for now, these new absentee landlords can take advantage of more affordable markets while remaining in the comfort of their own out-of-state homes.