Why is now a great time to invest in Single-Family Rentals?
In the ever-evolving landscape of real estate investments, single-family rentals (SFRs) have emerged as a shining star, offering investors a plethora of benefits and opportunities. From consistent income to geographic diversification, SFRs have gained popularity recently, especially with institutional investors, for several compelling reasons. Let’s delve deeper into the top four reasons why investing in single-family rentals right now is a smart choice.
#1. Consistent Income
Consistency is the hallmark of successful real estate investments, and SFRs excel in this department. Data shows that single-family rentals have a track record of providing investors with steady and reliable income streams. One of the key factors contributing to this reliability is the low vacancy rate typically associated with SFRs. Families, professionals, and retirees often seek out single-family homes for the spaciousness, privacy, and amenities they offer, resulting in a consistent demand for these properties.
According to a recent study by the Urban Institute, SFRs have consistently maintained lower vacancy rates compared to multi-family properties, making them a prime choice for investors looking for dependable rental income. These low vacancy rates translate into minimal income interruptions, allowing investors to forecast and manage their cash flow with confidence. An added benefit of our affordable housing SFR strategy is the large percentage of rentals that are receiving government subsidies, providing an added layer of reliability and predictable cash flow. Also, tenants receiving Section 8 vouchers on average will stay 6.6 years. That is more than double the average 2-3 year length-of-stay for a typical U.S. renter.
#2. Low Supply and High Demand
The current housing market supply and demand dynamics have positioned SFRs as a lucrative investment option, especially affordable and workforce single-family housing. Limited construction of new affordable single-family homes, coupled with economic conditions that make homeownership less attainable for many, have created a robust demand for rental properties. This perfect storm of factors has tilted the scales in favor of landlords.
The National Association of Realtors reports that the median price of existing single-family homes has been steadily rising, making it increasingly challenging for individuals to enter the housing market. Consequently, more people are choosing to rent single-family homes, thereby driving up demand. This shift has the potential to offer investors attractive rental rates and robust appreciation prospects for their SFR portfolios.
#3. Massive Opportunities to Scale
The single-family rental market presents an intriguing opportunity for investors looking to scale up their portfolios. Currently, the market remains fragmented, with numerous small-scale, independent property owners holding relatively modest portfolios (1-9 properties). These individual investors, often referred to as “mom and pop” landlords, represent a significant portion of the single-family rental market (85%).
However, this fragmentation provides larger investors backed by institutional and private investors with a unique opportunity for aggregation and consolidation. The growing interest of institutional and retail investors in the workforce housing sector highlights the potential for strategic partnerships and property/portfolio aggregation. Similar to multi-family rentals, there are major economies of scale when growing a single-family rental portfolio.
Diversification is a fundamental principle in investing, and SFRs offer an excellent avenue for achieving it within the real estate asset class. The ability to diversify your real estate holdings across multiple properties in different geographic areas can be a powerful risk mitigation strategy.
Economic conditions, job markets, and housing trends can vary significantly from one region to another. By spreading your investments across diverse locations, you can reduce the impact of localized economic downturns or unforeseen challenges. Data from real estate experts consistently underscores the value of diversification in mitigating risk and enhancing long-term returns on investment.
Investing in single-family rentals isn’t just a trend; it’s a strategic move grounded in data and market dynamics. With reliable income, high demand, consolidation opportunities, and diversification potential, SFRs offer a path to financial growth and stability. However, as with any investment, success requires thorough research, due diligence, a well-defined strategy, and the ability to execute and manage cash, construction, properties, and tenants effectively.
Partner with Experts
That is where GSP REI comes in. Over the years we’ve honed our single-family affordable and workforce rental housing strategy and have expanded our in-house construction and property management teams to execute effectively. Our Income Funds have delivered consistent, asset-backed returns since the company’s inception and our new Growth Fund offers upside potential, tax benefits, and steady monthly cash flow. Now is a great time to embrace the potential of single-family rentals and enrich your real estate portfolio.
Explore our current single-family rental fund offerings here: https://gsprei.com/current-offerings/