Why Single-Family Rental Properties Have Become More Popular

Why Single-Family Rental Properties Have Become More Popular

If you’ve been paying attention to real estate market dynamics in the past few years, you’ve likely noticed that single-family properties are becoming more popular among real estate investors. There are certainly some advantages to investing in single-family properties as rentals, but to many amateurs and newcomers, the surge in interest seems somewhat unfounded.

Why are single-family rental properties becoming more popular among real estate investors of all shapes and sizes? And is this explosion in popularity justifiable?

Single Family Property Advantages

Houston property management gurus like GreenResidential.com understand that nearly any type of rental property has potential. While some properties can hypothetically be categorized as surefire successes or surefire failures, most properties have the potential to be successful under the right conditions, since most properties have both strengths and weaknesses to offer. As a simple example, even an apparently “bad” rental property can be worth considering if the price is low enough to offset its issues.

Many real estate investors prefer multifamily real estate because of its potential to support multiple income streams and mitigate consistency and vacancy issues.

But there are some impressive advantages offered by single-family properties as well:

• Simplicity. Some people are attracted to single-family homes because of their inherent simplicity. You only have to find one tenant/family to fill the property, and you’ll only have to deal with complaints and requests from one group of people. The more units you add, the more complex things tend to become.
• Availability. Most property buyers have struggled with inventory issues in recent years. New construction isn’t keeping up with rising real estate demand, people are more reluctant to sell, and demographic changes have restricted inventory for buyers. Investors primarily interested in multifamily units are having a harder time finding acceptable properties to purchase, ultimately forcing them to consider single-family homes as an alternative.
• Lower costs. Single family homes are usually less expensive than their multifamily counterparts. If you’re working with limited capital or just want to minimize this portion of your portfolio, this is a huge advantage.
• Less competition. In some areas, there’s considerably less competition for single-family homes than there is for multifamily homes. This keeps bidding to a reasonable level, enabling investors to adhere to even strict budgets and reduce stress in the property search.
• Ownership possibilities. In most cases, an investor loan is going to have ahigher interest rate than a comparable home loan. If you buy a single-family home to live in, then convert it into a rental when you move out (years later), you can hypothetically benefit from the lower interest rate and gain practical benefits for your personal life simultaneously.

Are There Downsides to Investing in Single Family Properties?

Are there any downsides to investing in single family properties that would mitigate or potentially reverse this trend in the future? The short answer is yes. There are always downsides to investments, no matter how attractive they first appear. In real estate, there’s always significant risk; market downturns, major economic changes, changes in neighborhood dynamics, and even prolonged vacancies can all jeopardize the return on your investment – though, to be fair, many of these downsides also apply to multifamily properties.

Instead of looking at specific downsides of single family properties, it’s perhaps better to look at the potential advantages of multifamily properties as a basis of comparison. Multifamily properties are attractive for their own reasons; because they contain multiple units, you don’t have to worry about vacancies as much, and generally, they allow you to generate more revenue. However, they also tend to be more expensive, with more competition, making it harder to break into this field of investment.

Despite a handful of weaknesses on both ends of the spectrum, both single family and multifamily properties are worth considering. It’s not hard to see why real estate investing is such an attractive option. But why has there not been an explosion in single family property investment previously? What recent changes are shifting the dynamics?

Recent Events

Recent changes to the real estate landscape have made single-family properties even more popular:

• Ridiculously low interest rates. When interest rates were slashed to near zero as a response to the COVID-19 pandemic, there came a frenzy of real estate buying activity. Individual and commercial investors wanted to buy up as many properties as possible during this potentially lucrative period, despite the rising prices. In this feeding frenzy of a market, even the worst single-family homes were worth considering.
• Low inventory. Inventory continues to be low, with no clear remediation for this problem in sight. If you’re a new real estate investor eager to get into the game and single-family properties are much more available than others, your choice is essentially made for you.
• Ballooning prices and cash offers. Prices of properties across the board have risen dramatically in the past several years, and they don’t seem to be coming back down (despite rising interest rates). Because of this, many investors are increasingly favoring comparatively cheaper single-family homes.
• Investment firm operations. Single-family properties have beentargeted by investment firms as well, for a variety of reasons. It’s not just hobbyist landlords and retirement investors taking advantage of this market – and investment firms have enormous buying power.

So is the jump in interest in single-family properties warranted?

In some ways, yes. Lower interest rates, limited inventory, and attractive neighborhoods make single-family properties excellent additions to most real estate portfolios. And as inventory rates drop further, these assets are likely to become even more valuable.

But at the same time, single-family properties do come with disadvantages – and they’re not a good fit for every real estate investing approach. For most real estate investors, single-family rental properties are definitely worth considering, but they’re far from a guaranteed home run.

Work with a real estate agent you trust, take their advice to heart, and crunch all the numbers yourself if you want to maximize your chances of success.