2022 Trends | Why Single-Family Rental Market Remains Strong?
Single-family rentals are one of the most popular real estate investment vehicles. Have you ever wondered why? Out of all the real estate investment options on the market, many new and veteran investors find single-family rental properties to offer the best bang for your buck.
Even with the uptick in mortgage interest rates, demand for single-family rentals has remained healthy and robust. Recent reports indicate that monthly rents for single-family rental properties have grown substantially for the first half of 2022 (HousingCanary).
There are major investment opportunities in states like Texas, Georgia, and Ohio where market conditions show a heavy supply and demand imbalance compared to other areas throughout the country.
In fact, part of the reason Doorvest has planted its flag in these key markets is so it can offer these important opportunities to investors such as yourself.
Single-family properties have also been drawing a lot of attention from bigger, institutional investors which means they are probably worth pursuing if the returns are good enough to shift the focus of larger firms.
Much like these larger institutions, you too can pave a path to bigger profits by investing in single-family rentals. While on the surface it may seem a little tough, the process is much easier than you might think.
It’s clear that single-family rentals are a property type worth consideration for your portfolio. If you haven’t started investing in single-family rentals, here are a few reasons why you should.
Advantages to Investing in Single-Family Rentals
There is no one way to invest in real estate, however many big-name real estate investors have had a lot of success by relying on single-family rentals as the linchpin of their real estate portfolio.
Single-family rental properties offer a few key advantages over other types of rental property including multifamily and commercial properties. Let’s look at some of the strategic benefits that single-family rentals can bring to your portfolio.
Lower Affordability and Higher Rents
Single-family rentals have become highly desirable over the last couple of years, as homeownership affordability has waned for prospective buyers.
Home price and mortgage interest rate trends have left many renters who were looking to transition to homeownership to retreat from the market until conditions have cool.
This opens a ton of potential from a single-family rental perspective as current rental demand has started to surge. Low unemployment and a larger pool of potential residents have helped sustain higher rent prices.
In fact, the market has seen double-digit growth in single-family rent prices over recent months compared to the year prior, with no signs of deceleration. In combination with the shortage of new residential construction, rent price increases are property here to stay for the foreseeable future.
Reduced Risk and Volatility
Over the last couple of years, investors have had to quickly adapt to changing economic conditions. From huge stock market swings to searing inflation, real estate has often offered sanctuary for those seeking more risk-averse investment alternatives.
Historically, the average annual returns of single-family rentals have mirrored both stocks and bonds, but with significantly less volatility when considering multiple factors. Stock prices can fluctuate over a matter of minutes.
While real estate prices can change, fluctuations are often delayed. Also, it's important to understand that in most situations you are buying the land along with the rental property built upon it. Land is considered a scarce resource and real estate a tangible asset, meaning their value is much more consistent.
Similarly, single-family rentals are a great way to hedge against rising inflation. Data even indicates that the median sales price of houses has been outpacing inflation, making real estate a safer place to park your money (National Mortgage Professional).
Like other investing methodologies, adding single-family rentals to your portfolio also helps diversify your money into multiple asset classes, helping further shield you from shifting markets.
Additional Income Generation
Being a property owner is no easy task. The job comes with managing resident disputes, collecting payments, and responding to maintenance requests.
Whether you choose to delegate these processes to a property management company or manage them yourself, at the end of the day you should be able to generate steady streams of rental income.
There are many ways to earn additional income by renting out your single-family property. The most popular strategy is to simply focus on finding a reliable, long-term resident. Benefits to this method include lower vacancy costs and more predictability of the income being generated.
Other Noteworthy Advantages of Single-Family Rentals
There is a multitude of advantages that single-family rentals can provide for new and seasoned investors. While higher rents, reduced risk, and the opportunity for additional income are certainly a few of the top reasons single-family rentals are worth considering, they aren’t the only advantages worth pursuing.
For example, one of the biggest upsides to investing in single-family rentals is the opportunity to take advantage of ongoing appreciation. In fact, many investors champion a buy-and-hold strategy above others.
Additionally, single-family rentals have often had a lower barrier to entry for newer investors looking to get into real estate investing. This is mostly because they are easier to manage and often have lower acquisition costs compared to other types of real estate such as multifamily or commercial.
Lastly, single-family rentals can also offer you key tax advantages by allowing you to deduct certain expenses including, but not limited to, operating costs, mortgage interest, and depreciation.
You can also take advantage of 1031 or like-kind exchanges to help defer paying capital gains and depreciation recapture taxes.
Conclusion
As inflation and mortgage interest rates are working against new homebuyers, creating barriers to homeownership, rental markets are experiencing heightened growth and attention.
Single-family rental properties remain an attractive investment option for several reasons. First, rent prices are climbing, meaning greater potential for bigger profits.
The shortage of new single-family homes being built makes the uptick in rental pricing trends appear stable for the foreseeable future.
Outside price gains, single-family rentals offer a great opportunity for diversification. Traditionally, real estate has also been a great tool to hedge against inflation.
Additionally, single-family rentals offer the potential for additional income generation. Finding a reliable, long-term resident can pay big dividends especially when markets are becoming increasingly volatile.
If you are having difficulty determining if single-family rentals have a place in your portfolio, Doorvest can help. Utilizing Doorvest’s sophisticated suite of tools and resources can help you make more informed decisions about whether investing in single-family rentals is right for you.
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