Many real estate investors swear by multi-family investments, but investing in single-family homes can also be a great way to increase cash flow and your bottom line. For many, the single-family home is also a way to diversify their real estate portfolios. If you’re thinking about investing in this asset class, here are trends, opportunities and strategies to consider.
#1. Demand remains strong, but affordability is still a concern.
A recent survey by Trulia reveals an increase in the number of Americans planning to buy a home, with 40% intending to buy in the next two years. However, the issue of affordability continues to trouble potential homebuyers. More than half of homebuyers are concerned about saving enough for a down payment, a rate which is even higher among Millennials, now the largest demographic cohort of homebuyers. Investors will also need to navigate rising median and mean prices, despite the slight uptick in inventory. Because of this, we expect increased activity in more affordable markets.
#2. There’s a growing demand for single-family rentals.
With affordability still a concern, more and more consumers are deciding to rent. This is particularly true among Millennials, whose confidence in being able to save for a down payment is at its lowest level since 2011. Yet as Millennials start to have families of their own, we are noticing their needs outgrowing traditional apartments or even 1-2 bedroom rentals. We are seeing a growing demand for our single-family rental loan product. This demographic shift may be one factor driving the increased demand for single-family rentals and subsequent spike in rent prices in 2019. We anticipate that the remainder of 2019 will offer even more single family investor opportunities to buy, rent, refinance, or sell to turnkey owners seeking these single-family rental properties.
#3. Overlooked markets could yield opportunities for investors.
Competition is growing on the buy side of single-family home real estate investing, with institutional investors selling off considerable portions of their portfolios, and platforms like Opendoor, Knock and Offerpad attracting busy homeowners looking to sell quickly. Investors should seek creative solutions in a crowded buying landscape. Single-family home investors should also consider overlooked markets; the largest and most overcrowded, San Jose, San Francisco and Seattle, saw the greatest decline in prices at 2018 year-end, and many experts still consider them overpriced.
#4. Strategic financing can help mitigate the risk of changing markets.
Through the remainder of 2019, investors should prepare for longer timelines to sell and budget for either holding the property longer, or anticipate selling at lower prices. Finding the right balance between the two will best prepare them for movements in the market. Similarly, single-family home investors should also consider financing partners who are set up to close on properties quickly and to deftly respond to changes in the industry. The success of many investors will largely depend on their ability to move quickly and find creative solutions to market shifts in 2019 and beyond.