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Investors are Doubling Down on Single-Family Rentals

Note: originally posted on LendingHome.com and LendingHome is now Kiavi.

If it feels like single-family rentals are a hot commodity with investors right now, you’re right. The combination of soaring home prices and rents is creating a frenzy among investors for this long-standing asset class. First of all, general residential real estate investor activity is increasing. According to Redfin, the Seattle-based online brokerage, residential real estate bought by companies or institutions hit an all-time high of 67,943 in Q2 2021. Nationally, in the first half of this year, investors bought more homes than they sold. Renter-occupied households grew 29% since 2000, as estimated by John Burn Real Estate Consulting using Census data. Needless to say, the SFR market is red hot!

Why now?

Well, to start, our lives have changed drastically in the last year and a half due to the pandemic. People are transitioning homes due to work location changes, and the need for more space and more privacy has never been so prominent. Moving out of closer quarters like condos and apartments and into rentals of single-family homes satisfies the desire to better accommodate the adjusting lifestyles.

Also, due to low inventory in the market right now, there are simply fewer options for buying. According to realtor.com, over the last year, active listings have declined by 25.8% and the total inventory of unsold homes (including pending listings) declined 13.8%. And compared to 2019, the inventory of active listings is still down 52.8%. Because of this decrease in purchasing opportunities, would-be homebuyers are now looking to rent.

Major institutional investors have started to tap into this market, making sourcing more competitive and the market that much hotter. With such tight inventory, such investors are also taking on build-to-rent to get into the SFR game. These days, build-to-rent is becoming more prevalent than multifamily, reflecting a pivot in investor strategy, which will likely last for several years.

Finally, according to Norada Real Estate Investments, by August 2021, the median national home listing price grew by 8.6% YoY to $380,000—and when home values increase, so do rent prices. According to Realtor.com, the median rent for all sizes of rentals nationwide was $1,607 as of August, an increase of 11.5% YoY.

Investors are lining up to get their hands on SFRs

So, now is the time, more than ever, to add a single-family rental home to your portfolio. Between increases in home values and rent cash flow, you have an opportunity in single-family rentals that can be invaluable for your portfolio.

And if that wasn’t enough, tenants of SFRs tend to stay put longer than multi-family rental tenants, adding to the stability of this asset class. The average stay for an SFR tenant is trending toward four years. So there is less turnover and less maintenance when you are only dealing with one family over a long period.

Adding SFRs to your investment strategy

Adding single-family rentals is an excellent way to diversify your portfolio, increase your profits, and build wealth over the long term. Pivoting your next project to this strategy could be a prudent move.

Also, if you have a project that was initially a flip, maybe that property is a perfect candidate for a single-family rental, and you should consider holding it to enhance the property potential for your portfolio profits.

Some things to consider when looking to add a single-family rental are:

  • Look for an area that has a good school district, low crime rate, and is decently close to grocery stores/freeways. Doing your due diligence and scouting out prime location spots will give you quality renters and less turnover. Plus, it’ll help ensure you have the best investment.
  • Check net cash flow, cash-on-cash return, vacancy rates, appreciation—the works. The numbers need to make sense in any project before you commit.
  • Consider how you plan to manage the property. Will you do it? Will you hire a company? What does it mean for your time or your profits when choosing either? Weigh the options against each other and your goals.

As you venture into the possibility of adding one, or more, single-family rentals to your portfolio, consider the above to make the most of every opportunity that comes your way. Now is a fantastic time to take advantage of price appreciation and monthly cash flow by jumping into single-family rentals.

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The above is provided as a convenience and for informational purposes only; it does not constitute an endorsement or an approval by Kiavi of any of the products, services or opinions of the corporation or organization or individual. The information provided does not, and is not intended to, constitute legal, tax, or investment advice. Kiavi bears no responsibility for the accuracy, legality, or content of any external content sources.