Why Invest in Single Family Rentals?
The Upfront Benefits of Single Family Rentals
“The Pre-Investment Phase”
According to the latest U.S. Census Bureau, there are 85 million single-family homes in the United States. The average length of homeownership clocks in right around 13 years. That means 6.5 million homes are placed on the market each calendar year, resulting in plenty of opportunities for savvy investors to choose from.
When buying your primary residence, emotions are high. You and your spouse can get hung up on cosmetic finishes, school zones for children, and the size of the backyard. You might even form an emotional attachment to certain properties. But with single family rentals, it’s nothing more than a numbers game. The numbers either work or they don’t. It’s as simple as that.
When purchasing single family homes, your main competition is homebuyers looking for a primary residence. This gives you a distinct advantage. As an investor, you can write more appealing offers – including larger down payments, fewer contingencies, and faster closing dates – which increase your chances of getting a good deal.
The Ownership Benefits of Single Family Rentals
“The Holding Phase”
The Point-of-Sale Benefits of Single Family Rentals
“The Cash-In Phase”
Plenty of Buyers.When you own a single family rental property, you almost never have to worry about demand (at least on a macro scale). Unlike multi-family properties, commercial properties, industrial facilities, or raw land, there are always a large number of potential buyers for single family homes. Not only that, but you appeal to both traditional homebuyers and real estate investors. (When someone sees that the house is currently being rented, it gives them encouragement that they could purchase it as a rental property, too. The average first-time investor is more likely to purchase an existing rental property than they are to buy an owner-occupied house and turn it into a rental. They like the “proof of concept” that it offers.)
Motivated Buyers.When you buy a single family property as an investor, you’re highly objective. You let the numbers do the talking. But when you sell to a typical homebuyer, they’re often ruled by emotions. This plays to your advantage. You’re dealing with motivated homebuyers who might overpay if they find themselves in a bidding war.
Purchasing Power.When you cash out of an investment property that you’ve owned for several years, chances are you’ve built up a considerable amount of equity. This gives you lots of purchasing power and plenty of options. For example, you could take advantage of a 1031 Exchange and roll all of the profits into a similar investment property. Or you could take the cash and use it to fund something else. You can even use the proceeds to buy multiple new investment properties by putting just 20 percent down on each.
- Franklin D. Roosevelt, U.S. president
“Ninety percent of all millionaires become so through owning real estate. More money has been made in real estate than in all industrial investments combined. The wise young man or wage earner of today invests his money in real estate.”
- Andrew Carnegie, billionaire industrialist