As a real estate investor either relatively new to the industry or with multiple properties in a portfolio, you may have noticed the recent trend of building new rentals instead of existing homes as an investment. In the past, new homes were primarily built for an owner occupant who wanted to live in a new demand for new rental housinghome that no one else has lived in before while taking advantage of the latest in home owner amenities and new energy-saving building techniques.

Yet today, the trend is building new homes for renters. What is causing that trend? Fewer existing rentals and a higher rental demand.

Newly constructed rentals still represent a fraction of new homes built but the numbers are noticeable. One of the main reasons is a rising demand for rental housing. All real estate is local and some areas will experience varying degrees of rental demand but there is no doubt that both rental rates and rental demand are on the upswing.

In the previous decade, it seemed everyone was a real estate investor because nearly everyone could get a loan due to the shaky loans introduced into the marketplace. Yet that phenomenon reversed and the lenders who issued those alternative and subprime loans went out of business and the remaining mortgage companies were reluctant to issue any new mortgages. What was once easy turned difficult.

In today’s market underwriting guidelines are more stringent than what they were and individuals who could once qualify for a home loan now cannot. But they need a place to live so renting is the next option. As demand increases so does the rent and at some point investors discover that in some instances it’s less expensive to build a rental home than to buy an existing one. And new home rents can exceed rental rates for existing structures in older, less desirable areas.