If you're riding the stock market roller coaster, which has recently seen many down days, an alternative could be investing in a single-family rental home. And preferably in an area where 20- to 34-years-olds are looking for jobs, but not ready or financially able to buy a home.
An online marketplace for single-family rental investment properties, Roofstock, has compiled the 10 highest-growth markets for this type of investment in 2018.
This survey doesn't match up with other lists of the hottest real estate markets that often, where prices are rising the fastest. That's because Roofstock looked at places where population growth among younger workers just hitting their stride is the highest, not necessarily in the high-tech sector. "Those workforce positions often preclude home ownership, supporting local rental demand," said co-founder Rich Ford of Oakland, California-based Roofstock.
Major tourist destination Orlando, home to Disney World, ranked No. 1. The second- and third-place finishers have something in common: Raleigh, North Carolina, is home to the famous "research triangle" comprising three North Carolina universities, and Austin, Texas, is a mecca for high-tech firms like Apple (AAPL) as well as the University of Texas. In both instances, it's likely that students, faculty and tech-support personnel are supporting the demand.
All told, two of the hottest areas are located in Florida, two in North Carolina and two in Texas. Only one, Seattle, is in the northern portion of the country, indicating that a southern migration by younger Americans in search of jobs is still underway. They're also more likely to rent, given that home ownership has drifted downward from nearly 70 percent pre-recession in 2005 into the mid-60s currently.
Roofstock caters to individuals who feel more comfortable owning real estate rather than fluctuating stocks. "Many investors are searching for diversification options due to the current stock market volatility, and single-family rental housing is highly uncorrelated with the stock market," said Ford. This $2.5 trillion market includes 16 million U.S. rental homes and is still open to individuals, he said, with less than 3 percent owned by institutions.
What's the catch? Rental housing often shows up in not well-known places like Henderson, Texas, and Parma, Ohio, according to the website, so investors need to be aware of local conditions. And as real estate listing firm Trulia points out, you always have to consider the price-to-rent yardstick. If the purchase price in an area is high -- as it is in Austin, where an average home sells for $300,000 -- it may take a long time to recoup that in rent.
But owning to rent can be profitable even in out-of-the-way places. Said Ford: "Some of our more desired markets are in in the Midwest such as Indianapolis where the rent-to-home value ratio is currently strong."