In the last six months, the single-family rental (SFR) market has experienced a growth of billions of dollars in new capital. This stems from the reaction of general uncertainty that has occurred as a direct result of the COVID-19 pandemic.
Initially, there was a housing shortage. Then, the older millennials sought out means of settling in areas with more space. Then, came the statistic that estimated for every 3 homeowners, there will be an average of 5 renters from now until the year of 2030. If you are a real estate investor, now is the time to move into the single-family rental market.
The Demand for Single-Family Portfolios Grows Tremendously
Between the months of March and April of 2020, the demand for portfolios consisting of single-family homes grew a whopping 650%! When these types of investment properties are examined, it shows that they are more stable and have a higher level of profitability than other types of investments, such as commercial segments, the stock market, S&P 500, and treasury notes. Historically, the single-family rental market always experiences some degree of growth during downturns of the economy.
The SFR market is an asset class that easily outperforms other types of rental asset properties. Today’s growing families prefer single-family units to multi-family units. Furthermore, investors seek out opportunities in the SFR rental market for numerous reasons. First, tenants usually reside in these properties for 8 or more years, which results in a consistent level of rental income. Secondly, tenants invest in the SFR market because of the fact that it is more convenient and affordable than purchasing their own home. The pandemic has resulted in families wanting more of their own space, than shared space, which is common in multi-family units.
Rent Collection Performance
Yes, the rental market is experiencing a disruption, of types; however, only in the way that the money is flowing. Generally speaking, most individuals believe that multifamily units outperform single-family units, in terms of rent monies collected; however, that is no longer the case. Instead, single-family homes are outperforming multi-family units.
Uncollected rent in SFRs is only 5%, compared to multi-family units, which is 24%. On top of this, MFRs has experienced a rent collection loss of 5% to 10%, which is considered to be immense for real estate investors. Also, SFRs are made up of larger families while most who rent apartments are individuals.
Multi-Family Living Decreases in Popularity
On average during the past 10 years, approximately 300,000 new apartment dwellings were constructed each year. Living close to others offers both convenience and affordability. This is especially true in downtown regions, where shopping venues, businesses, and restaurants are just a short distance away.
Since the arrival of COVID-19 to the United States, this type of atmosphere has become less appealing. More and more people are attempting to put distance between themselves and others. Even the idea of having a lawn is becoming more appealing. As a result, multi-family living has significantly decreased in popularity.
Financial Matters
Many financial matters have spiraled seemingly out of control for many people. The unemployment rate is high, businesses are either cutting back on employees or have completely shut down, and job loss is at an all-time high. Coupled with student loan debt, credit card debt, car loans, and other types of debt, more and more people are leaning towards more affordable housing. Millennials are now taking their families to the suburbs and rural areas.
Combined, all of these financial matters are resulting in a higher demand for single-family rental units. For investors, this is a gold mine of an opportunity.
Build-For-Rent Assets
Investors now agree that the most popular properties are build-for-rent assets. These are single family units that are constructed for the sole purpose of renting and maximizing profits from the rent monies collected. In fact, these are known to have the single-largest margins compared to other types of single-family properties. When constructing these, it is best to build in a subdivision style.
If you choose to sell-out, you will find that they sell approximately 75% faster than other types of properties.
Communities that are created for the purpose and intent of renting offer many benefits. These include permanent financing opportunities, higher occupancy, the tenants are known to live in the rentals for longer periods of time, and the overhead costs are lower than traditional investment properties that are constructed.
Families are no longer going into home buying. Instead, they are opting for rentals because – in the long run -it is a more affordable option for them and their budgeting needs.
Rentals do not require a huge down payment commitment and maintenance and repairs is offered by property owners. These elements play a large role in why renting is more appealing than buying, to most.
A General Overview
According to studies, 35% of all of the housing market inventory in the United States are single-family rental homes. Currently, there are over 12 million single-family units that are currently being rented and that number is increasing significantly, each day.
The demand for SFRs is at its absolute highest.
We can see this in the dropping vacancy rates being reported by real estate investors. As a result of this, this is a positive and productive way to produce a highly stable flow of steady cash.
These facts and figures alone are just a few of the reasons why investors are encouraged to enter the market of single-family rentals.
3 Trends Observed in 2020
In the year 2020, there were 3 main trends that were observed as it relates to the single-family rental market. Below, these are highlighted, with a brief explanation of each:
- Declining Supply – The supply of the single-family homes available on the market decreased significantly, which resulted in an increase of property prices. Shortly thereafter, rental prices increased by 3% from the previous year and these continue to increase.
- Millennials Relocate to the Suburbs – Out of all population groups, millennials are the ones that are actually driving the overall current demand for single-family homes. This group started abandoning the big cities and moving to the suburbs – especially after the arrival of COVID-19 and the establishment of the pandemic.
- Technological Advancements – Now, it is easier than before to search out properties for single-families. Also, investors may search out information on data pertaining to certain homes and trends in certain areas of the country.
An Easy DIY Investment
While it is true that many corporations have started to invest in the single-family rental housing market, it remains to be dominated by individual property owners. In fact, individuals own over 70% of all properties in this market within the United States. This is a relatively easy form of investment for individual landlords.
If you invest in rental properties as an individual, you may be able to acquire funds from a variety of sources.
Later, your investment may actually be flipped for an investment.
The demand is surging and those that build homes are now redesigning and even re-imagining the housing sector. This is resulting in a build-to-rent movement that many are finding exceptionally easy to invest in – whether it be short-term or long-term.
From Vertical to Horizontal
While vertical multi-family housing units were once considered to be the ideal investment, those in real estate are starting to understand that the single-family horizontal housing market is the way to go. Home ownership had an increase rate for a while, but it is now slipping faster than ever before. Those that qualify as “empty nesters” want to back away from taking care of the home and want to downsize. They are interested in lease portability and mobility is very important to them.
Millennials have other priorities than taking care of their home. They are following the leas of the boomers. They want to enjoy their lives and not be bogged down into the time and money that it takes to properly care for their home. More people are spending more time at home. As a result, they want their own property space -whether to raise kids, walk a dog, or have outdoor events. This is especially true due to the restrictions that are currently causing individuals to spend more time at their homes.
As homeowners, individuals must handle emergencies as they arise. Be it a clogged septic tank, malfunctioning heating, and air unit, or a crack in the roof. These are time-consuming and very costly. Many people just do not want to be burdened with the time and money expenses associated with homeownership.
By renting, they may call their landlord or the overseeing property management company to oversee these events and situations, and not incur any additional expenses. On the other hand, real estate investors can come up with their own amount for rent, which allows for these types of expenses. It is a mutually-beneficial experience for all of those that are involved.
Getting Started in the Single-Family Rental Housing Market
If you have an interest in investing in the single-family rental housing market, simply follow the steps outlined below:
- Locate Properties – You should contact a property management company that has access to information on the properties that are currently available in various locations. Many companies will utilize a specially-designed heatmap system that not only outlines certain types of properties, but also filters those properties based on criterion that you choose. You may be able to filter by the price of the listing, the amount of rental income that may be produced by the company, as well as the return on investment that you will experience.
- Determine Method of Finance – When entering into this particular housing market, it is important that you determine the method of financial assistance that you will use in order to make your purchase. Look into various lenders and determine their rates. You may also consider working directly with a broker whose job is to uncover the absolute best mortgage lenders for the investment that you have an interest in making.
- Property Management Allocation – One factor that plays a role in the success of your single-family housing rental business is property management. While you may be able to manage one unit on your own, anything more and it is imperative that you hire a property management company to assist you. These companies specialize in the management of the property and the tenants. They will handle all of the responsibilities associated with the property – from tenant selection to recovering a property after a tenant moves out of the property. You will really need this type of company to achieve the highest level of success in your single-family rental business. We will expound on this a bit more later in this guide.
Let Us Help
We here at Pioneer Property Management are standing by to assist you in your investment into the single-family housing market. We provide you with professional, prompt, and highly-reliable service and are backed by a solid level of experience that you can trust to handle all of your business needs. Our management style is specialized to be proactive, rather than reactive. We specialize in cash-flowing properties that produce investments so that you may experience a highly-profitable business, without all of the challenges that may arise.
We guarantee an enhancement to your rental property portfolio. We combine the elements of streamlined policies, optimal procedures, highly efficient systems, and calculated execution to ensure that your business runs optimally. If you want to minimize complications and maximize your revenue, we recommend taking advantage of the many services that we are standing by to assist you with.
Our experience is vast and our resources are virtually endless. You will not only receive a strong financial return on your investment properties, you will gain access to services, tools, and resources that will leave you experiencing massive levels of success for many years to come! If you would like to learn more, simply contact us today by calling: 970-500-5527
