An interesting article appeared in ‘Forbes’ this week citing Buffalo as the most affordable city in the USA. But what does this mean for real estate investors? Many people ask me – if you can buy a house for $35,000, why do the tenants rent not buy?
There are multiple reasons for this, but none as far as i can see, about to change for the worse. Many tenants either have a bad credit history or are unable to save up a deposit required. Others simply have no wish to own property. Banks have tightened up criteria over the years, and many even won’t lend such small amounts.
So despite extreme affordability, the dynamic in the city is changing in certain markets, which helps others. Some previously working class areas are now gentrifying as new highly paid jobs push prices up in desirable areas like Elmwood or Allentown, moving middle class people west and north, to Blackrock and West Side, which in turn creates demand in the remaining ‘budget’ areas like Lovejoy.
1. Rents are rising in the gentrifying areas, as is tenant quality. However, house prices are also rising here so yields remain stable/are falling.
2. Voids are rare and becoming rarer as demand exceeds supply.
3. Demand is increasing in Budget rental areas – this can’t push rents up too much as the upswing is limited to affordability, but it does mean landlords can choose from a number of tenants, so tenant quality improves.
But as cheap cost of living attracts business, then prices will continue to rise and yields will fall, as in any market, bringing prices into line with other cities.
The good news is we have a few years before that happens…
Photo: Clark Gent by Nanagyei