When underwriting a deal under strong rental demand, it’s easy to assume it will continue indefinitely.
For investors who want staying power, it’s important to model your expectations against historic averages. History, as they say, is bound to repeat itself.
The rental market is very strong right now, but that won’t always be the case. Historically, markets have favored tenants more, so you should underwrite with a more balanced market in mind for the future.
The Historical Averages
Turnover: From a high of 65% in 2000, the average U.S. turnover ratio currently sits at 50.1%.
Rent Increases: In the 21st century, the median rent increase has averaged 4.17% annually (prior to the pandemic).
Average Vacancy Rates: Over the last 20 years, average vacancy has been 8.5%.
As always, real estate is local — make sure you understand the local market where your property is to get a strong handle on what to expect.
Areas with strong job growth tend to see higher turnover, since labor demand drives more mobility among renters relocating for new jobs. Those high-growth areas can usually support stronger rent increases, which may offset the higher turnover costs.
A high-quality local property manager can be an invaluable resource for tracking these metrics on your property.
Have questions about your local market dynamics and how these metrics affect the total return on your next acquisition? Reach out to us anytime.
