There are plenty of compelling reasons to invest in single-family rentals, including it's popularity as a stable asset for long-term earning potential.
But really, is it worth your while? While we will always encourage you to evaluate based on your own due diligence, measured against your financial goals and risk tolerance, we'll also be the first to remind you why this investment model works so well!
Why Are Single-Family Rentals Worth the Investment?
You're earning more than passive income
Passive income is among the most compelling reasons to invest in anything, let alone in real estate. You want those dividends, that cash flow, that evidence that your investments are performing. Passive income is the consistent reward for investing in single-family rentals: you start earning immediately.
But it’s not the only benefit of this model. Focusing solely on cash flow sells your investments short! Investors reap the rewards of property appreciation. As they use rental payments to pay off mortgage debt, the property eventually maxes out its equity. Cash flow becomes pure profit.
Investors can opt to sell for 100% of the profit or continue to hold the property for the generation of passive income and as a valuable portfolio asset.
A buy-and-hold strategy withstands these economic ups and downs
Investors are largely encouraged to employ long-term strategies. This is true of stocks and other common investment classes and it’s certainly true of real estate. Of course, SFRs have an edge over other traditional investments: it’s largely inflation-proof and recession-resistant. Real estate is essential, so rental demand doesn’t drop when consumer spending power ebbs. If anything, the worth of real estate increases!
As a real estate investor, you have far more security in the consistency of your asset performance.
The tax benefits are big
We’ve mentioned both equity and cash flow, but tax benefits are the other big draw. Between deducting owner, operating, and maintenance expenses, benefitting from depreciation, and the ability to defer capital gains taxes (think the 1031 Exchange!) there are plenty of tax incentives for investors to take advantage of.
Turnover is relatively low
When investing in rental properties, the most expensive conditions are during a vacancy. When this happens, you not only have expenses related to cleaning and prepping the property for the next resident, but you’re not earning that monthly passive income. The great thing about SFRs is that turnover is significantly lower than that of multifamily properties. You’ll see lease renewals upwards of three or five years, sometimes longer!
The greater your resident retention, the better your bottom line.
Demand for SFRs continue to grow
The share of SFR households is quickly growing – representing 45% of all renter households. Not only are the number of people choosing SFRs growing, but so are rental rates. You may be concerned that today’s housing market makes it difficult to turn a profit on an SFR – but demand is keeping prices competitive!
They're a more liquid real estate asset
Though real estate is not a particularly liquid asset, single-family rentals are certainly more liquid than other real estate classes. Even concerning multifamily properties, your buyer pool is much smaller. The price alone is a big deterrent, too! The same can be said for commercial real estate and office spaces – both of which experienced big pandemic-era setbacks!
If you need to turn a real estate asset into cash, the quickest route starts with a single-family property. These can be sold not just to investors or companies, but to homebuyers on the general market.
Diversification is easier
Portfolio diversification not only increases your streams of passive income, but it mitigates risk as well. Of course, if you’re buying multifamily or commercial properties, you’re looking at a steep price tag each time on top of more rigorous lending standards. It’s much easier to acquire multiple single-family properties. You diversify not only in terms of multiple streams of income but also in terms of location and market – all of which reduce your various risks.
It's a built-in retirement strategy
Americans today are highly unprepared for the realities of retirement. A look at the statistics tells us that few Americans are on track with their savings if they have savings built up at all. For retirees, the cost of living only seems to go up with each passing year.
You don’t want to be stuck on a fixed income. Part of what makes SFR investing attractive is that you have both ownership over an asset as well as passive income. That passive income, built up across multiple properties, can be your income through retirement! And that’s not to mention the opportunities to build generational wealth through real estate.
There are even more reasons we could list why SFRs are our area of expertise.
