One of the simplest definitions of single family rental property investing is getting paid for what you own, rather than just paying to own it. The topmost advantage of investing in a single family rental property is that it gives the investors the liberty to determine their profits in many ways. Buying a home might not give you the desired ROI, but it will still give you expected bang for your buck, if you invest in a single family rental property.
The other advantages of buying single family rental properties are huge tax write-offs, a passive rental income and a long term capital appreciation of properties. Single family rental properties are easy to buy and hold for the new real estate investors. Investing in single family rental properties can deliver immediate returns, plus long-term appreciation of the asset. It is a great way to save for your retirement as this type of real estate investment becomes a good source of regular passive income.
The discrepancy between the number of renters and landlords in the United States is increasing every day. According to the Rental Protection Agency (RPA), close to 112 million people are renting. On the other hand, only less than 23 million are landlords. Although the daily growth of new landlords numbers more than 500, it is not enough to narrow the gap. Therefore, the biggest advantage of buying single family rental properties is that the renters will provide you with a direct income stream. Renters or tenants of single family rental properties pay the landlord for the use or occupation of the property.
Aside from the rent, the landlord may also deduct mortgage interest and depreciation. With the number of renters increasing daily, investors find single family rental properties more and more attractive. Rental property investing entails purchasing a property for the purpose of renting it out to generate income. Investors find real estate investing viable for many reasons. Unlike stocks, a real estate is a tangible asset. Investors choose real estate because they can touch and feel the asset, and also watch it appreciate over time. They see single family rental properties as a way to improve monthly cash flow and diversify their investments.
Single Family vs. Multi-Family Rental Properties
Single and multi-family rental properties are good investments with more than 1% return-on-investment. They definitely lead to a positive cash flow, but there are differences between both the investments. Single family rental properties are affordable and have higher appreciation. You can get suitable tenants and maximum exit strategies with single family rental property investment. On the other hand multi-family rental properties give you high rent, maximum vacancies, and rent depends on the landlord as it is not subject to economic factors.
Advantages of Buying Single Family Rental Properties
Buying single family rental properties has a lot of advantages such as forced savings for retirement, tax benefits, increase in wealth, stable income and long term capital gains.
Forced Savings for Retirement
One of the top advantages of buying a single family rental property is that it is a great way to save for retirement. A single family rental property is a good source of regular passive income. The rent is often used to pay off the mortgage for the property. Once the mortgage has been fully paid, the landlord has the choice whether to hold the rental property for a monthly check or sell it for lump sum profit.
Tax Benefits
Rental property owners also have significant tax benefits, which is one of the advantages of buying a single family rental property. The IRS allows tax deductions for property tax, repairs, and ordinary and necessary expenses for managing the rental property. Costs of supplies and materials, as well as maintenance and repairs needed to keep the property in good condition are also deductible. The biggest benefit is writing off depreciation, which can save you thousands each year in taxes.
Long-Term Capital Gains
Single family rental property investors purchase properties to rent them out, with the expectation that the property value will increase in the long-term. Landlords can sell their single family rental properties at a profit when the market conditions are right. This is especially profitable for real estate investors who leveraged their rental property investments.
Investment With Leverage
You can buy a single family rental property with 20-25% down payment and a mortgage loan for the balance. In other words, you get a $100,000 investment for a $20,000 cash payment which means you are using a relatively small percentage of your funds to make the purchase. In order for the leverage to work in your favor, the real estate prices in that location should not decline. In real estate markets where prices fall significantly, homeowners can end up owing more money on the house than the house is actually worth. With good credit, it is not difficult to get financing for a rental property. ‘
A Tangible Investment
A single family rental property is a tangible asset unlike financial investments such as stocks, bonds, mutual funds and other financial instruments. You can call it your own and it lets you have better control over it. You can sell it whenever you want to.
Stable Income
Unlike the stock market, the real estate market is not prone to sudden and extreme fluctuations of price. Certain factors such as population growth and growing demand for housing and rentals ensure that the investment you make on a single family rental property will be a profitable one.
Increase In Wealth
Real Estate is the best avenue for long term investment for the accumulation of wealth with minimum risks involved. No other asset increases wealth the way real estate does. Real estate is a powerful wealth building tool that has made millions of individuals millionaires over a period of time. Appreciation of a property is one of the biggest ways to increase your wealth as a real estate investor. You can do it by choosing the right properties in the right market and managing them the right way.
To know more you can read this blog – What Are The Benefits of Investing In Real Estate.
How To Invest In Single Family Rental Properties?
There are two general approaches to single family rental property investment – Fix and flip investing and buy and hold strategy. Each approach has its advantages and disadvantages, depending on whether the investor is aiming for short-term or long-term capital gains.
Buying And Holding Single Family Rental Properties
Buy and hold real estate investing is the process of acquiring real estate, particularly rental property, to own and profit from over a long period of time. Buy and hold real estate is a great way for investors to diversify their investment portfolio and achieve financial freedom.
Fixing and Flipping Single Family Rental Properties
Fix and flip involves buying a real estate, repairing or renovating it, and then reselling it for a profit. On the other hand, buy and hold strategy is often referred to as buying and holding rental property. The investor buys and holds the property with the expectation that it will generate dividends through rental income. Fix and flip real estate strategies often require a lot of work because repairing or renovating a house usually takes months. It is also considered a bit more risky, especially for new investors venturing into real estate.
Nevertheless, fix and flip investments are lucrative because the investor can earn huge profits after reselling the property. You may not earn so much as a flip, but investing in a rental property is a permanent income. You don’t have to deal with any problems or tenants if you don’t want. It's easy to hire a property management company and you can work the numbers in before you purchase the property.
Single Family Rental Property Market In The U.S.
For any real estate investor interested in buying a rental property in the United States, the location of the property is always crucial. When choosing the location, wise investors always consider the neighborhood's safety, vulnerability to floods and other natural disasters, and curb appeal. In general, rental property investors prefer buying properties in areas where people tend to rent. Neighborhoods near schools or universities rate high in this aspect.
Aside from the location, would be rental property buyers also look at the different costs involved when purchasing a rental property. Preparations prior to the purchase of any rental property involve researching property taxes, mortgage interest rates, and available financing schemes. Rental property investors often take out loans like home equity line of credit to finance their real estate investments. Leveraging other people's money often results in greater margins of profit for the investor.
Researching the real estate market is often challenging for first time single family rental property investors. Finding a good realtor can greatly increase the investor's chances of success. Finding a good turnkey rental property provider can also be helpful. Turnkey rental property providers buy and rehabilitate houses and help tenants move in. The turnkey providers determine suitable locations for lucrative investments. They purchase and renovate the properties, and also find qualified tenants.
These homes are then sold to single family rental property investors. This is easier for first-time rental property buyers because they just step in as the new landlords. In some cases, the turnkey providers will even give you a rent guarantee and a warranty for property wear and tear for a full year. Turnkey property providers also offer property management services after the sale, thereby decreasing the landlord's property management burdens.
To know more about how to buy turnkey rental properties, click on the link.
Best Single Family Rental Property Markets For 2020
There are factors to consider when choosing a real estate market for single family rental property investing, such as population and employment growths, and increase in house values. When buying single family rental properties located in a different city or state, investors also research purchase prices, taxes, and housing regulations. Other investors also look at the percentage of the population that are renting. For instance, D.C., New York, and California have the most renters, in terms of percentage of the population. These are some of the best markets for investing in single family rental properties. However, I would recommend doing your own research and taking help from a local realtor as well.
Orlando Single Family Rental Market
Orlando, Florida is one of the best markets for buying a single family rental properties in 2020. The median sales price in Orlando is around $188,000 while the median rent per month is $1,360. Orlando is one of the fastest growing metropolitan areas in the US, with a 5-year population growth of 14.20%. Rents increased by 3.4% within the last 12 months, giving single family rental property investors great opportunities for profits.
Tampa Single Family Rental Market
Tampa, Florida is also another great market for single family rental property investing. Tampa has significantly lower median sales price and rents per month as compared to Orlando. Tampa is a stable market, thanks to numerous Tampa-based Fortune 500 companies that help keep unemployment low.
Cleveland Single Family Rental Market
Although Cleveland, Ohio has a -0.52% population growth, this is offset by a 13.3% increase in home values. Cleveland also has one of the highest rental yields at 14.67%. Cleveland real estate market offers high cash flow for single family rental property investors and promises a strong future growth.
Seattle Single Family Rental Market
Washington is one of the states with the highest renters, and Seattle is a great market for single family rental property investing. Seattle has a high population increase rate and has one of the highest increase in home values.
Atlanta Single Family Rental Market
Atlanta, Georgia is another good choice for investing in single family rental properties. The job growth rate in Atlanta is higher than the national average, at 2.90%. What is interesting about the region is that the value and rents for 3-bedroom single family homes are rising. Current rental yield is close to 6%, but there is a big possibility that it will increase. For an in depth review of Atlanta Real Estate Market, click on the link.
Jacksonville Single Family Rental Market
Jacksonville, Florida is another market with a high 5-year population growth, at 9.6%. One of the reasons why Jacksonville is attractive for single family rental property investors is the low median home price. Median rent is just about $1,000, however, the rental yield is considerably high. It is #6 on Forbes Best Cities for Tech Jobs. It is the 2nd fastest growing tech base in the U.S. Single family rental properties in Jacksonville have a 3-year appreciation forecast of 10.4%.
Summary
With the current real estate market conditions in the US, now is a great time to invest in single family rental properties. Compared to the low yields in stocks and bonds, rental properties are a good source of regular monthly income. For investors wanting to diversify their portfolios, tapping into this market with the help of a good realtor or turnkey provider can provide higher ROls. Norada Real Estate Investments helps take the guesswork out of real estate investing. By researching top real estate growth markets and structuring complete turnkey real estate investments, they help you succeed by minimizing risk and maximizing profitability.
Click on the link for the complete list of investment properties for sale in the various real estate markets of the U.S.
References:
- https://www.rentalprotectionagency.com/rental-statistics.php
- https://www.investopedia.com/articles/mortgages-real-estate/10/out-of-state-property.asp
- https://www.realwealthnetwork.com/learn/best-places-to-buy-rental-property
- https://www.forbes.com/sites/financialfinesse/2017/08/09/should-you-invest-in-rental-real-estate/#34a083435c15
- https://www.irs.gov/businesses/small-businesses-self-employed/tips-on-rental-real-estate-income-deductions-and-recordkeeping
