When you buy something after clicking a link on this site, we may earn an affiliate commission.
Imagine that you own a rental property that generates passive income so you only get to work 4 days in a week.
Does it feel good to have a three-day weekend? How will you spend it?
I feel very lucky that I get to work a normal 9-to-5 job as a coach from my van and explore new parts of the country — while also earning passive income through my real estate investments. – Michael Albaum (Rental Property Investor)cnbc.com
There’s no shortage of success stories of those who’ve invested in rental properties as their source of passive income. Whatever success story you decide to be in, you can start with a few right metrics to keep your eye on the rental property market.
Start with these 12 insights to stay smart and well-informed.
1.) Over 10 Million American Landlords Made Money From Rental Housing
Landlords are a key figure in the US economy. More than 10 million taxpayers reported earning some income from renting out property to others. The IRS figures show that 7.1% of Americans are landlords, with most having an average net income of between $5,000 and $20,000 per year.
Tax returns submitted to the IRS show that more than 10 million people declared part or all of their income is from rental housing.rentdrop.io
2.) There Are 44 Million Renter Households In The US
Nowadays, renting appears to be more attractive for 77% of Americans. The number of renters in the US has grown considerably to about 44 Million. Rent prices have soared because the number of U.S. households grew by 1.48 Million.
3.) 49% of renters in the US are under the age of 30
Nearly half of all US renters are under the age of 30, mostly in their prime and productive years. Only 9% of the renters are over the age of 65.
6.) Almost Half Of American Renters Spend 30% Of Their Income On Rent
For the average American renter, 30% of their gross income usually goes to rent payment. In some areas, there are tenants who spend spend 50% of their salary on rent. Renters are richer than ever, as most of them earn more than $75,000 per year.
In 2020, 46% of American renters spent 30% or more of their income on housing, including 23% who spent at least 50% of their income this way, according to the most recent data available from the U.S. Census Bureau.pewresearch.org
5.) 72.5% Of US Rental Properties Are Owned By Individual Investors
Most single-unit rental properties are owned by ‘mom and pop’ landlords. The average individual landlord investor owns 1 to 2 single-unit rentals. If the average asking monthly rent is $1,900, that would be $45,600 yearly gross passive income for two single units.
6.) All 100 Largest Cities In The US Experience Fast and Consistent Rent Growth in 2021
From March to September 2021, all 100 of the largest cities in the United States experienced fast and consistent rent growth.
“You had a lot of people at the end of 2020 beginning of 2021 looking to buy a home and then the housing market really shot up — turned a lot of people away from buying a home towards renting,” Brian Carberry, senior managing editor of Apartmentguide.com, told CBS News.cbsnew.com
7.) The Latest 2022 US Rental Vacancy Rate Is 5.6%
The vacancy rate is the percentage of all the units in a housing inventory that are bright and ready for renting. If you have 95 occupied rentals from 100 units. This gives a vacancy rate of around 5%.
Low vacancy rates mean people want to live there and it’s affordable. It also provides a healthy rental income to the landlords.
8.) The Top 10 States With The Highest Average Rent
If you’re interested in investment properties, the list below will give you a good idea of what to look for. The states with the highest rents tend to have more high-income bracket individuals living in them. Hawaii, with a population of 1.4 million, ranks in first place.
- Hawaii ($1,823)
- New York ($1,703)
- California ($1,648)
- New Jersey ($1,516)
- Florida ($1,426)
- Massachusetts ($1,423)
- Virginia ($1,412)
- Maryland ($1,406)
- Colorado ($1,384)
- Washington ($1,360)
9.) The Best US States To Own Rental Property
One of the many factors that can make or break a rental property investment is location. Here are some of the best places in the US to own a rental property.
- North Carolina
10.) US Vacation Rental Market To Reach $21.53 Billion By 2026
In 2021, The US vacation rental market was valued at $14.3 Billion. Vacation rentals have grown significantly over the years, thanks to popular internet platforms like Airbnb and VRBO. More US citizens are opting for a holiday using rental property rather than an expensive hotel.
United States Vacation Rental Market Report 2022-2026: Rise in Popularity of Countryside and Coastal Vacation, Rise in Flex-cation, Usage of Vacation Rental Tools & Software Gaining Wider Appealglobenewswire.com
11.) The Ideal ROI For A Rental Property Is 10% and Above
The best target ROI for an investment rental property should be 10% or higher. However, a landlord having a 6% ROI in the first year is considered healthy. That rate should continue to increase as time goes on.
12.) The Usefulness Lifespan For A Rental Property Is 27.5 Years
This IRS-assigned timeline benefits landlords by claiming a 3.64% annual depreciation expense on the property value. Although not applicable to the land value, it can still be deducted from the taxable rent income.
13.) Bonus Stat
Because you’ve made it all the way through to here, here are a few takeaways and a little secret…
Not all landlords fully own the properties that they rent out to tenants. 59% of landlords mainly ‘mom and pop’ have a mortgage or some form of loan on their rental properties. They just ‘Richard Bransoned’ their way into investing in rental properties and must have seen the following advantages:
- It offers diversification because the tenant’s income is usually different from one another.
- Renters are more stable than owners who may want to sell their homes at any time.
- Rental properties create a steady stream of monthly cash flow which can help reduce your tax liability (see #12).
- Wealth building opportunity if you make wise investments and properly manage your rental property.