One of the things that makes real estate investing so popular is the variety. Residential real estate, for instance, consists of a variety of property types. That begs a question, however. What is the best type of residential real estate property? The answer, without a doubt, is single family rental properties. In today’s blog post, we’ll discuss why single family rentals are a must-have for investors in 2020. Specifically, we’ll talk about three things:
- Why you should be investing in single family homes
- What the best single family rental markets in 2020 are
- How to find single family homes for sale
Why You Should Invest in Single Family Rental Properties in 2020
The Decreasing Supply of SFRs Leads to High Demand
The most striking feature of single family rental properties is that they enjoy high demand from tenants. As one-unit properties, SFRs garner a lot of attention from a variety of tenants, such as working professionals, students, and young families. This trend has been in place for many years and demand is only increasing in 2020. According to CNBC, the vacancy rates of single family rentals are decreasing. For instance, in the third quarter of 2019, SFR vacancies were at 6.8%. This is a 0.3% decrease from the year prior.
While there are a plethora of factors that lead to this high demand, decreasing supply is the primary cause. It’s true that single family homes make up 40% of the rental market and the foreclosure crisis gave this supply a boost. However, supply has significantly decreased year-after-year. As a result, rents from single family rental properties have increased by 3% annually.
Single Family Rental Properties Are Profitable
Because of the decreasing supply and high demand, investing in single family rentals is very profitable for real estate investors. Single family rentals generate high and consistent rental income, cash flow, and a good return on investment. In addition, single family properties benefit from appreciation or an increase in property value over time.
With good appreciation rates as well as high rental income, SFRs are the perfect property type for a buy-and-hold real estate investment strategy. Also, like most real estate investments, investing in single family properties allow investors to claim tax deductions, leading to significant savings.
They Are Affordable
Speaking of savings, residential investors will be happy to know that SFRs are considered affordable investments. While the supply-demand factor does lead to price increases, single family homes are still relatively affordable. They are, on average, less expensive than other real estate investment property types, such as multi family properties. This is because single family rentals have less square footage and fewer units. In the long-lasting debate between single family vs multi family rentals, SFRs easily win on the affordability front. This is perfect for new investors who will benefit from the cheaper prices and experienced investors who are looking to expand their real estate portfolio.
Financing a Single Family Home Is Not Too Difficult
Single family rental properties are also relatively easy to finance. As you would expect, this is partly due to their lower property prices. SFR down payments, for instance, are lower than those for multi family rental properties. Other financial requirements, such as credit score and cash reserves, follow the standards for real estate financing.
Nonetheless, the main reason why SFR property financing is simple is because single family properties are seen as low risk investments for beginner real estate investors. As a result, lenders are more willing to provide beginners investment loans for single family properties.
Single Family Properties Are Easier to Manage
Finally, single family rentals are relatively easy to manage. This feature is a life-saver for real estate investors, especially those who are familiar with the hassles of multi family property management. Because they’re smaller, SFRs generally require less maintenance and there are fewer tenants to deal with. In addition, tenants treat SFRs with more respect and caution compared to apartments, as they typically see SFRs as their homes. As a result, less damage and repair is likely for single family properties. Investors can decide to self-manage their SFRs. If the math makes sense, professional property management can also be an efficient option.
Where to Invest in Single Family Rental Properties in 2020
So, where should you invest in single family homes for sale in 2020? For the answer, we turn to Mashvisor’s single family rental data! According to Mashvisor, the best single family rental markets in 2020 are Flint, MI, Redford, MI, Rochester, NY, Mesquite, TX, Portsmouth, VA, and Bartlett, TN.
- Median Property Price: $124,090
- Price per Square Foot: $75
- Price-to-Rent Ratio: 8
- Traditional Rental Income: $1,229
- Traditional Cash on Cash Return: 4.4%
- Median Property Price: $115,316
- Price per Square Foot: $102
- Price-to-Rent Ratio: 7
- Traditional Rental Income: $1,115
- Traditional Cash on Cash Return: 3.7%
- Median Property Price: $135,837
- Price per Square Foot: $93
- Price-to-Rent Ratio: 9
- Traditional Rental Income: $1,211
- Traditional Cash on Cash Return: 3.1%
- Median Property Price: $194,314
- Price per Square Foot: $11.49
- Price-to-Rent Ratio: 9
- Traditional Rental Income: $1,410
- Traditional Cash on Cash Return: 3.0%
- Median Property Price: $186,416
- Price per Square Foot: $116
- Price-to-Rent Ratio: 13
- Traditional Rental Income: $1,190
- Traditional Cash on Cash Return: 2.3%
- Median Property Price: $273,844
- Price per Square Foot: $145
- Price-to-Rent Ratio: 13
- Traditional Rental Income: $1,693
- Traditional Cash on Cash Return: 2.9%
How to Find Single Family Rental Properties for Sale in 2020
This all leads us to the most important question: How can you find single family rental properties for sale? Once you select a city, you can use Mashvisor to search for and analyze single family homes. Mashvisor’s investment property search tools use the most up-to-date single family rental data available. The heatmap analysis tool, for instance, helps you find the best single family rental market in any city in the US housing market. You can then use Mashvisor’s investment property calculator to calculate cap rates for single family homes as well as cash on cash return, cash flow, and occupancy rate.