Introduction
Buying a rental property can be daunting, especially if you're new to buying real estate. But, there are plenty of benefits to owning your own house and renting it out. In this article we'll tell you everything you need to know about single family rentals: what they are, why they're smart investments, who rents them and more!
Single family rentals , or SFRs, are just what the name suggests – single-family houses rented out to private tenants.
These properties typically have three or fewer units, but usually have more than one bedroom. Single family rentals can be a good investment for a number of reasons, including their ability to offer recurring income and diversify your portfolio.
SFRs are the ideal stepping stone into real estate investing for new investors…
Single family rentals offer a strong rate of return, due to the fact that demand for them is increasing, while the number of new properties is not.
You've probably heard that you can make a lot of money from single family rentals. But what exactly are they? The basic idea is this: you buy a home, and then rent it out to people who can't afford to buy homes themselves (or prefer living without the hassle of managing a home). The result? You achieve cash flow and appreciation for a return on your investment.
Sounds great! Why aren't we all doing this already? Well, there are inherent barriers and risks associated with being an investor in single family rentals. For one thing, the capital and time constraints associated with the due diligence, purchase, operations, and sale of a home can be a full time job for the average investor. That’s where mogul comes in, to optimize value creation and pass on those returns to our investors!
First time buyers are finding it hard to get into the housing market, so they'll continue to rent instead. This keeps demand high for rental properties.
The housing market is a fierce and unforgiving beast. The competition to buy a home is intense, with many buyers needing to take out loans from the bank in order to purchase their home. They need to have good credit scores in order for the bank to approve them for a loan. If you don't have stellar credit health, then it's going to be very hard for someone to get approved for a loan from the bank or even through government programs like FHA or VA loans. Even then, interest is expensive!
Homeownership rates in the US tell us that there is a growing trend towards renting homes rather than buying them. In 2006, ~31% of Americans were renting their homes compared to ~36% in 2016. Now in 2022, that percentage is up to ~37% and still climbing.
Renting is much cheaper than buying: In most cases, it costs less to rent than it does to buy. The average rent to own discount across the Sunbelt is upwards of 20%.
The housing crisis really opened up the floodgates for rental housing: due to rough economic times and high unemployment rates after the 2008 housing crisis, many Americans had no choice but to move back into rentals or live with family members until they were able to financially recover (or at least until they saved enough money for a down payment). It can be seen in the major uptick of renters as a percentage of the population pre and post crisis.
Were you to invest in single family rentals, you'd be joining 75 million other American households who already do.
The Southeast region has the largest number of rental households by far: more than 23 million people live in these homes across Florida, Georgia and South Carolina alone! Texas comes in second with 10 million renters, which accounts for about 38% of total households in the state!
Buying and maintaining a single family home can seem like a huge financial undertaking, but the return on investment can have major upside.
You may need to purchase insurance on the property, pay taxes on the land and building, sell or rent out your property when you're not using it (and pay a realtor/manager their commissions), as well as make repairs or improvements to keep it in good condition. All of this work will allow you to generate cashflow via paying tenants that will cover your expenses and capital expenditures, and beyond! This will allow you to generate that yield discussed in the “Why Invest in Real Estate” post.
Single family rentals are an effective way for investors to diversify their portfolio and secure a regular monthly income.
If you're looking for a way to diversify your portfolio and secure a regular monthly income, single family rentals may be the answer. Renting out a home is an effective way to build equity and reap tax benefits, as well as achieving appreciation on the property value to generate a solid return.
Conclusion
Investing in single family rentals isn't just a good investment – it's an opportunity to break into the market and build generational wealth. It's time to dive in and start making money off of real estate. Get started with mogul!