The pandemic era brought with it a surprising flurry of real estate market activity. Even people who aren’t into real estate – investing or otherwise – are aware of just how wild things have been over the past twenty-something months.
Perhaps the biggest frustration plaguing markets across the nation is the lack of affordability. The majority of real estate market experienced significant price growth over the past year. Many grew by double-digit percentages.
While that’s exciting for anyone who already owns property, it’s not so fun for those looking to buy for the first time. NPR reports that the market is short some 4 million homes to meet demand, and much of that demand is for starter homes that just aren’t there. Reasons vary – from generally accelerating home prices to the diminishing profitability for developers due to material and land costs.
This significant lack of inventory and affordable, starter-level homes has caused homebuyers to look to alternatives.
And chief among them? The single-family rental. The SFR boom has been called “unstoppable” and is unlikely to fade in the future.
3 Reasons Behind the Rise of the SFR
Homeownership Feel Without the Hassles
Renting used to be seen as the “lesser” housing option. After all, the American Dream has long lauded homeownership as one of its key achievements. Tides have steadily turned against this idea, particularly as our way of living and working has changed.
Renting isn’t a second-rate compromise. It’s a viable long-term option. Renting a single-family home allows residents to have the feeling of homeownership – that is, living in established neighborhoods, in their own space without shared walls, and with access to all the same community amenities available to homeowners. SFRs offer more privacy, outdoor spaces, and bigger square footage.
Residents can also avoid the headache of qualifying for and securing a mortgage.
Then there are the advantages of having a maintenance and management team caring for your home and fixing problems as part of the deal. Some would argue that renting is bad because the residents aren’t building equity – they’re just “throwing money away.”
For many, however, the perks of not having to worry about unexpected maintenance issues and costs, on top of escaping the burden of mortgage debt, is well-worth the trade.
The American workforce has grown more and more flexible by the decade. Long-gone are the days where employees spend their entire working lives with the same companies. We’re moving around more, changing careers, participating in the gig economy, and benefitting from digital connection. As a result, fewer people plan to settle down in the same place for decades.
Selling a home every few years isn’t wise for several reasons. When you own a home and sell within just a few years, you hardly have time to build significant equity in the property. Thus, you’re not going to make much from your “investment.” Additionally, it’s a headache!
Renting, by contrast, allows residents to work within a lease agreement that lasts a year (or a few) before they can move on if they need to.
A Happy Compromise
The current market climate has only highlighted the value in single-family rentals. The pandemic has deterred many from apartment dwelling. Smaller square footage and closer proximity to neighbors aren’t exactly selling points right now. At the same time, the shortage of entry-level homes combined with exorbitant real estate prices means that people are left with few options.
Unless, that is, they’re looking at SFRs.
Demand for single-family rentals has only grown throughout the pandemic. Despite the fervor for homebuying, renting – at least for single-family homes – has not suffered for it.
Where multifamily rentals are failing to meet the changing needs and expectations during the pandemic, SFRs are stepping up to the plate to do just that.
Why Invest in SFRs?
There are too many reasons on why investing in single-family rentals is a good idea for long-term real estate investors to list in detail here. But as a refresher, here are some of the biggest incentives for taking the plunge:
Demand for SFRs is on the rise now, but they have steadily grown in popularity over the years. If you’re situated in the right market (that is, you’ve done your due diligence and are targeting stable, growing investment markets), you will find no shortage of demand – least of all in 2021. High demand combined with excellent property management means that turnover is minimized, which keeps your earning potential high.
Holding properties builds equity, period. SFR investors benefit from this long-term vision while also paying off their mortgages using rent payments. And that’s not to mention the forced equity gained from rehabbing your properties in the first place! So much of your wealth is found in simply owning and renting the property. As you acquire more rentals, your equity only increases!
We all want cash flow in our investments. While this cash flow is not the sole source of value for the investor, it’s a big incentive. Not only does this cash flow minimize the amount of your own money going towards the aforementioned mortgage payments, but it eventually creates a reliable source of passive income. Investors can acquire properties and build that equity while effectively leveraging money from financial institutions and their rental residents.
By minimizing the amount of your own money needed to acquire properties, you’re able to scale more quickly…thus, cultivating long-term, inflation-resistant wealth.
Join the thousands of investors building long-term wealth with REI Nation!