According to Zillow Research, for-sale home prices rose 19.5% in 2021, and are expected to rise another 11% in 2022, despite the probability of higher mortgage rates. This red-hot market is pricing many young families, who would prefer a single-family home, out of the market. Enter the single-family rental (SFR) sector. Driven by large institutions that see a long-term investment opportunity, a niche sector that had typically featured one-off mom-and-pop rentals is now seeing a surge of professionally managed portfolios of homes.
When it comes to alternative investments, single family rentals are tough to beat. Compared with stocks, bonds, and cash, rental properties have generated an impressive and consistent amount of wealth for stakeholders over time. There are a lot of benefits to starting off as a single-family investor. It's the more affordable option, it's easier to finance, and you can be pickier about your tenants. Let's break down the benefits below.
1. IT'S EASIER AND CHEAPER TO GET INTO
With single-family real estate, there's simply more inventory to choose from. Properties are cheaper, too, so you'll need less capital to get started -- even if paying in all cash.
2. YOU CAN CHOOSE YOUR RENTERS
Since you only have one unit to fill, you can afford to be a little pickier about who you let rent it. In a multifamily property, you might have to fill dozens or even hundreds of units at any time. That usually means adopting looser qualifying standards in order to avoid vacancies.
3. THERE'S LESS TUNROVER AND FEWER VACANCIES
Multifamily properties have vacancies constantly, and there's always a tenant moving in or moving out. This requires a lot more work on your part, and it also means more potential losses if you can't fill those spots. With single-family rentals (SFRs), you only have a single tenant to worry about -- and turnover is only every 12 months at the least. It means less time spent finding new tenants and less work turning over the property.
4. IT'S EASIER TO SELL LATER ON
There's always demand for single-family properties, so if you're not making the returns, you want or you just want to get out of the SFR game, selling the home will likely be quick and easy. This isn't the case with multifamily properties.
5. IT'S USUALLY EASIER TO FINANCE
Financing a single-family home is typically a lot easier than doing so for a multifamily one. First off, you need less money. On top of this, underwriting standards are usually looser on a residential mortgage than a commercial loan. You won't need to prove your investing prowess or make a massive down payment, and you'll probably have an overall easier time getting a mortgage.
The National Association of Realtors forecasts that the vacancy rate will further tighten to 4.8% in 2022 (5.1% in 2021) and rent growth to average at 10% (7.8% in 2021). One of the main forces behind the rental market upswing is the Covid-driven work-from-home trend. Once workers realized they could work from anywhere, many took advantage of the flexibility to move out of high-cost-of-living markets to more lifestyle-friendly parts of the country as reported by Forbes
2022 is shaping up to be a very good year for the sophisticated investor who understands the trends accelerated by Covid-19 and knows how to take advantage of them. Unsettled and volatile markets always present some of the best opportunities but also present some of the highest risks to those unaccustomed to taking new trends into account.
Those interested in this market will need to take note of these trends and how they evolve in the coming year. Stay tuned!
About the writer: Shaura Cuyan writes all the hottest Real Estate trends and predictions for Summit VA Solutions! She has previously written for a number of freelancing gigs both locally and internationally and writes her own blog on lifestyle and current issues. She is a Graduate of Bachelor of Arts in Communication and has a Masters degree in Development Communication.