With 2022 in its fourth quarter, real estate investments for 2023 are buzzing with optimism for what’s ahead. Advancing closer to the new year, the Texas real estate market remains vigorous and appealing, especially to rental property investors looking for additions to their portfolios and income streams.
Although some reports indicate the Texas housing market started to cool down a bit in August, there’s still every reason to anticipate above-average rent price gains in 2023, according to real estate analysts. With the extensive number of investment properties in Texas, there is more than enough supply to meet the growing real estate demands in the Lone Star State.
Predictions from the Federal Reserve Bank of Dallas are that rental price growth will rise from 5.8%, as of June 2022, to 8.4% as of May 2023, with some hope of moderating. Moody’s Analytics also forecasts a rent growth rate of 5% to 7% during that same time. Pre-pandemic annualized rent price gains were only about 4% to 5%. Moody’s further expects price growth to taper off in the second half of 2023, as long as home financing costs decline.
If the Fed pivots away from continued interest hikes after inflation starts to come down, it would take a little pressure off the mortgage market and in turn, provide some price relief for renters.
Meantime, the consensus is that renters should expect to pay more. Some renters consider the suburbs as an alternative, where rent prices have grown more slowly than urban rentals. Rental demand will likely remain strong with mortgage expenses nearly doubling since January of 2022. This has forced many would-be homebuyers to stay in the rental market, intensifying already high demand. Another plus for rental investors.
Advantages of Investing in Single-Family Rental Homes
Investing in single-family rental homes has several benefits, including tax benefits, stable income, and long-term capital gains. Its appeal is far greater than that of multi-family homes, which tend to have many units under one roof. Furthermore, single-family homes are easier to sell most of the time if the market conditions are right.
Many renter households are becoming less affluent and younger. They are also racially diverse and have a lower median income. Nearly half of renters are under thirty-four years old, many of whom are not yet prepared for home ownership.
What’s the Average ROI for an Investment Rental Property?
Typically, a good return on your investment is 15%+. Using the cap rate calculation, a good return rate is around 10%. Using the cash on cash rate calculation, a good return rate is 8-12%. Some investors won’t even consider a property unless the calculation predicts at least a 20% return rate.
Looking ahead to 2023, rental property investors have good reason to feel optimistic. If you’re an investor with questions about real estate opportunities or you need some rental property tips, contact Cousin James Management. We manage real estate property throughout North Texas and have licensed real estate agents who can answer your questions about buying, selling, or renting. Property management has been the focus of our family-owned business for more than 25 years and we continue to serve property owners across the state. Contact us soon. We would love to help you.
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