Landlords See Biggest Income Gains

I saw this great article WSJ.com by Kathleen Madigan regarding income gains for landlords. This is very applicable to the Boise Investment Property market.

Landlords See Biggest Income Gains

In this recovery, it’s better to be a landlord or investor than a saver.

That is the message from Friday’s report on personal income. Since the recession ended in the second quarter of 2009 to the average so far in the third quarter, the gains in income have been paced by rents collected by landlords and dividends paid to shareholders.

Since mid-2009, nominal personal income has increased 17%. Rental income has soared 85%, and dividends are up 44%. Retail income and dividends compromise less than 10% of all income, but have accounted for 25% of the increase in all earnings so far in the recovery. Following close behind is proprietors’ income, up about 42%.

Wages and salaries, about half of all household earnings, have grown about 14%, accounting for 40% of the entire income increase.

Some of the divergent growth rates reflect changes in the economy coming out of the Great Recession–trends that won’t last over time.

Dividends, especially from financial companies, were cut almost in half during the downturn. That means dividends were at an extremely low base when the recovery kicked off. Ignoring a tax-related jump in the fourth quarter of 2012, dividend growth has already been slowing.

The rapid increase in rental income likely reflects the surge in investment properties. Small-time landlords and big investment funds have bought up distressed properties and are renting them out to earn income. As many of those homes are sold, look for the growth in rents to ease off–although not anytime soon.

Contrast the windfall to investors with the puny returns to savers.

Interest income is below its level in mid-2009. That creates a drag on total personal income, despite the fact that Federal Reserve data show the level of interest-earning financial assets has held fairly steady in the past five years.

The bane of savers, of course, is ultra-easy monetary policy. Fed policy has helped boost the wealth of the investors who are also benefiting from the growth in dividends. But near-zero short-term rates are battering the finances of savers. And with the Fed staying the course in policy, don’t expect interest income to gain ground for the next few years.

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