BiggerPockets Real Estate Podcast Summary
Episode: The Overlooked “Upside” That Will Make Future Landlords Rich
Release Date: March 7, 2025
Host: Dave Meyer
Guest: Chris Salvioti, Senior Housing Economist at Apartment List

Introduction

In this insightful episode of the BiggerPockets Real Estate Podcast, host Dave Meyer delves into the intriguing dynamics of rent growth and its implications for real estate investors. Joined by Chris Salvioti, a senior housing economist at Apartment List, the discussion centers around historical rent trends, the impact of recent economic shifts, and future projections that could significantly influence investment strategies.

Historical Context of Rent Growth

Dave Meyer opens the conversation by emphasizing the pivotal role of rental income in real estate investing. He notes, “Rents would rise and fall with the economy or market trends. But on average they grew about the pace of inflation or about 3% each year” (00:00). This steady growth provided predictability for investors over long holding periods.

Chris Salvioti concurs, outlining that pre-pandemic rent growth was closely aligned with inflation, citing the years 2018 and 2019 as periods of "normal equilibrium level of rent growth" at around 2.5% to 3% annually (04:06).

The Impact of COVID-19 on Rents

The onset of the COVID-19 pandemic introduced unprecedented volatility in the rental market. Dave Meyer explains how the pandemic initially caused a dip in rents due to household consolidation and lease relinquishments (00:00). Chris Salvioti elaborates, stating, “In 2020... nationally rents down about 1%” (05:05).

However, the situation reversed dramatically in 2021 when increased demand outpaced supply, leading to an 18% surge in rents. This period was marked by disrupted construction pipelines and soaring inflation, culminating in a significant deceleration in rent growth by late 2023, with national median rents declining by approximately 5% (06:19, 07:46).

Current State of the Rental Market

As of the episode's release, rent growth has stabilized with national median rents slightly declining by about 0.5% year-over-year. Dave Meyer highlights the challenges investors face in predicting rental income amidst these fluctuations, posing questions like, “Is your rental going to drop... or is it going to grow 10% like it used to?” (01:50).

Chris Salvioti points out that while multifamily supply remains a concern, single-family rentals exhibit more resilience, with single-family rent indices up by approximately 3% year-over-year (09:59).

Predictions for Future Rent Growth

Dave Meyer shares his hypothesis that rent growth will rebound, potentially exceeding inflation rates, driven by reduced multifamily construction and sustained rental demand (14:05). Chris Salvioti agrees with the foundational logic but emphasizes uncertainties regarding timing and magnitude, suggesting that rent growth is likely to return to the 2-3% range in the medium term before possibly accelerating further by 2026 (15:40, 22:39).

Factors Influencing Future Trends

Two primary factors underpin Dave’s thesis:

1. Supply Constraints: Although there is currently a glut in multifamily supply, construction starts are projected to decline, leading to a future shortage that could drive rents upward (14:05).

2. Affordability Challenges: With housing affordability near 40-year lows, many individuals who might otherwise purchase homes will remain in or enter the rental market, bolstering demand (14:05).

Chris adds that household formation—driven by both population growth and economic confidence—will play a crucial role in determining rental demand. Economic uncertainties, such as those stemming from new administration policies, could either dampen or temporarily inhibit household formation (18:40, 20:30).

Regional Differences in Rent Growth

The discussion highlights significant regional variations in rent trends:

• Sunbelt Markets: Cities like Austin, Raleigh, Charlotte, and Phoenix have experienced substantial supply increases. Austin, in particular, saw rents decline by 7% year-over-year due to oversupply (30:04).

• Economic Fundamentals: Chris Salvioti emphasizes that markets with strong pre-pandemic growth and economic fundamentals, such as Austin and Raleigh, are better positioned for long-term rent appreciation despite short-term softness (32:05, 33:50).

Dave Meyer notes the investment potential in these markets, suggesting that current softness may present opportunities for acquiring properties poised for future growth (32:05, 33:50).

Property Class Considerations

Different property classes exhibit varying rent growth trends:

• Class A Properties: These high-end rentals face the most competition and are experiencing the softest rent growth due to an oversupply, leading to concessions to attract tenants (34:46).

• Class B and C Properties: More affordable units remain resilient as demand persists for lower-cost housing, with less pronounced rent declines compared to Class A (34:46).

Chris points out that the resilience in Class B and C segments is tied to broader housing affordability issues, maintaining stronger demand and more stable rent growth (34:46).

Investment Implications

Dave Meyer synthesizes the insights, reaffirming his belief that rent growth remains a crucial upside for real estate investors. By focusing on properties that can at least break even now and benefit from future rent appreciation, investors can enhance cash flow and overall returns, especially with fixed-rate mortgages (36:03, 36:39).

Key Takeaways for Investors:

• Focus on Long-Term Rent Growth: Seeking properties in markets with strong economic fundamentals and potential for rent appreciation.
• Understand Regional Dynamics: Recognize the cyclical nature of regional markets and identify those poised for recovery and growth.
• Property Class Strategy: Diversify investments across different property classes to balance risk and capitalize on varying demand trends.

Closing Remarks

Chris Salvioti encourages listeners to leverage Apartment List’s publicly available research to stay informed about market trends and make data-driven investment decisions (36:03). Dave Meyer concludes by reiterating the importance of considering rent growth as a primary upside in real estate investments, emphasizing its role in achieving financial freedom through strategic property acquisitions (36:41).

Notable Quotes

• Dave Meyer (00:00):
  “The potential for future rent growth is one of the main reasons I believe that investment properties will drive great long term returns for real estate investors in the coming years.”

• Chris Salvioti (04:06):
  “...that's what I'm thinking about as being normal.”

• Dave Meyer (01:50):
  “Is your rental going to drop... or is it going to grow 10% like it used to?”

• Chris Salvioti (14:05):
  “I think we're going to see the pendulum swing back again towards accelerated rent growth and maybe perhaps even above that normal inflation level...”

• Dave Meyer (32:55):
  “...underwriting my own deals, is that I think we're going to get back to at least normal inflation adjusted rent growth... There's a case for upside...”

This episode provides a comprehensive analysis of rent growth trends, offering valuable perspectives for both novice and seasoned real estate investors. By understanding historical patterns, current market dynamics, and future projections, investors can make informed decisions to optimize their portfolios and achieve sustainable financial growth.