The stock market is looking wobbly. Bonds are paying you about what you’re losing to inflation. And the rest of the investment landscape is about as reliable as the latest presidential candidate poll.
So if you’re wondering how to get ahead, let alone keep up with your rising monthly rent payment, take a look at where some investors are generating decent returns buying up houses and renting them out.
Your rising monthly rent is a big reason that rental housing has become a hot property.
Since the Great Recession ended, the overall rate of inflation has been fairly tame, by historical standards. Since July 2009, when the biggest economic storm in decades had finally lifted, the government’s measure of consumer prices has risen by about 10 percent.
The average rent, on the other hand, is up nearly 14 percent. That’s more than food, clothing, and the cost of many other products and services. (But not all: The cost of airfares, doctors’ fees, college tuition and hot dogs are all rising faster than your rent.)
But rent is a much bigger share of your monthly budget, which means it’s become a big source of profit for investors buying rental properties.
Since the housing collapse forced millions of Americans from their homes, professional investors have plowed more than $25 billion into the purchase of more than 150,000 houses. And they’re still buying.
It’s not hard to see why. With more than 7 million homeowners evicted by lenders since the mortgage bubble burst, most of those families are now renters.
And the next generation of homebuyers are more likely to rent than their parents did when they first left the nest. Thanks to tighter credit, and the reality check of the housing bust, milllenials have become the “Meh Generation” of potential homebuyers, taking a much more cautious approach to the homeownership aspirations of their parents and grandparents.
As a result, rental housing is in demand. As CNBC has reported, single-family rental homes made up about 9 percent of the U.S. housing stock before the housing bust. Now they are about 13 percent and still rising, according to Moody’s. Some 13 million of the 22 million new households that will form between 2010 and 2030 will likely be renters, instead of buyers, according to the Urban Institute.
Since 2006, the number of single-family rental homes has increased 35 percent, to 15.1 million from 11.2 million, according to John Burns Real Estate Consulting. And more of that new rental housing, roughly 3.9 million units, came from former owner-occupied homes, compared to 2.9 million newly built apartments.
Read MoreInvestors napping up new homes for rentals
So as homeownership has fallen and continues to drop, more people need to rent. That’s created a land rush of investment in rental properties.
But the big gains have already been made by investors who snapped up houses at distressed prices at the bottom of the market. That means today’s would-be landlords need to cast a wider net.
One way to find potentially profitably rental properties is to look at neighborhoods where rents are rising faster than the median home price — a sign that demand for renting is still stronger than buying.
That’s still the case in some in 45 percent of the housing markets analyzed by RealtyTrac, a real estate research firm.
Read MoreInvestors snapping up new homes for rentals
“There are still plenty of solid opportunities available for real estate investors willing to cast a wider geographic net,” said Daren Blomquist, a RealtyTrac analyst.
But even in locations showing rising rents, there’s no guarantee you’ll come out ahead as an investor. As the rental real estate market has become more competitive, it may be harder to make the numbers add up in your favor. The only way to know is to do the math.