Single family rentals can be the best investments you make. They offer a steady stream of positive cash flow, build wealth, and generate a great return on investment. Heading into the US housing market 2019, you’re definitely going to want a part of that action. To help you get started, here’s a guide on how to invest in single family homes.
Real Estate Investing for Beginners: How to Invest in Single Family Homes
If you’re new in the industry or planning on becoming a real estate investor, you might be wondering why single family homes are so popular.
Single family rental homes make up one third of all US rental properties. That’s about 16 million single family rentals currently in the 2019 real estate market. And that’s still not enough to keep up with the high demand- there are nearly 13 million new single family rental properties expected to be developed by 2030.
It’s also no secret US housing inventory is struggling to keep up with these rising demands, and the single family rental market is showing no signs of slowing down. Investing in rental properties is definitely the right move to make right now.
If you’re a first-time real estate investor, single family homes are also great because they’re easier to manage. But first things first, learn how to invest in real estate with single family homes for some serious returns.
#1. Know What You Want
Define your investing criteria. A great starting point for beginners learning how to invest in single family homes is deciding on a strategy. Determine exactly what it is that you’re looking for with this single family rental. If it’s safety and security, follow a low-risk investment strategy which generates a steady yield. Perhaps this means investing in a pricier investment property in a good school district. Here, there’s less volatility.
But if you’re after higher returns, this might mean taking on more risk. There’s typically a trade-off between risk and return. It just depends on what level of risk you’re able to take on with this investment property and how well you manage it.
#2. Find the Right Location
The results of investing in single family homes can differ based on where you actually invest. Location is key. That’s the first thing you need to know when learning how to invest in single-family homes.
Location makes a difference depending on your investment strategy, property type, and tenants. What kind of tenants do you want to attract for this type of rental property? Which strategy is more profitable in the neighborhood you’re choosing? Questions like that are what you need to ask yourself to help determine the optimal neighborhood. That’s how to find an investment property that’ll be worth your time.
Keep in mind that you don’t need to limit yourself to the city you’re in. If you’re after cash flow and your research finds that you can’t turn over a profit as quickly as you’d like in your current market, consider looking elsewhere. This, of course, depends on each investor; what are your aiming for and what are you capable of doing?
#3. Work Out the Finances
Financing an investment property is something you should have figured out before you even begin your search. You set the price you want to pay for. One of the most important factors affecting your property’s profitability is its purchase price. Now if you can pay the cost of the single family home in cash, the process will be much easier. However, that isn’t usually the case.
The more common method for financing an investment property is getting a loan. You should start by networking and asking any friends or colleagues who have experience in the field. Building reliable relationships with people who understand the workings of the industry is great for you in the long run. They can help you to choose the best mortgage lenders and financing method for you.
Don’t settle on the first lending institution you find. Visit multiple ones, sit down with multiple bankers until you find one that’ll give you a mortgage with the best rates. Make sure you have enough to cover a down payment for investment property (usually 20%). Your bank will look at your debt to income ratio to determine your level of risk based on debt and income.
#4. Use an Investment Property Calculator
After you get your finances in order and have a strategy and a location, it’s time to start the search. Again, don’t settle on the first real estate listing you find. Ask anyone how to invest in single family homes, and they’ll tell you to do your due diligence. You want to keep your options open and have multiple properties on your watch.
Conducting a thorough investment property analysis before you purchase your single family home investment will save you a headache down the road. Using an investment property calculator will eliminate the need for a manual property analysis because it produces the same results. It’ll find the investment’s key return on investment metrics such as cap rate, cash on cash return, cash flow, and so on.
At the same time, it’ll tell you how your property is performing compared to the market. This will help you choose a promising investment property when searching for single family homes for sale.
#5. Purchase and Market
If you found the one, make an offer. Getting the offer accepted and closing on it is when everything is final. It’s yours! What do you do now?
Well if the property was already being used as a rental and is occupied by a tenant, that’s great. If your single family home is vacant and can use some cosmetic renovations here and there, spruce it up a bit before promoting it. This’ll help you attract tenants. Make sure to research local rental rates to help you determine the rent payments. You might find that your property’s value allows you to raise the rent.
Although you now know how to invest in single family homes, the learning doesn’t stop here. Even after you’ve invested in a rental property, it’s important to keep track of your investments and make sure you maintain the property and your tenants’ needs.
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