For those of you who are reading this while locked down at home and feeling stranded, isolated and somewhat removed from the world, your reality may describe someone else’s version of paradise. Although apartment complexes aren’t going anywhere in urban areas, a house with a yard and plenty of storage space may once again be the American dream as we brace for what some are calling a new way of life.
I’ve long believed in the benefits of being a landlord of single-family rentals, but now in 2020, it may be the best investment of your portfolio.
Density and apartment living have seen substantial growth over the last decade, with nearly 300,000 new apartment units being built on average every year. There is convenience and affordability in living within close proximity of others, especially in a downtown setting, where shopping and restaurants can be an elevator ride away. But when your own four walls become all that you see, having distance between neighbors and a yard to mow has a whole new appeal for many.
Since the unemployment rate hit nearly 15% last month, the demand for rentals will only increase as job loss, car loans and student debt all lead families to consider or require more affordable housing. The pandemic-induced stay-at-home orders across the world have put a spotlight on just how nice it is to have a backyard, more space and neighbors who are well over six feet away.
Millennials aren’t kids anymore. With the oldest members of the group almost in their 40s now, they have gotten married and even have children. Not to mention they are now the most populous adult generation in the country at nearly 80 million. As they move from being single downtown apartment tenants to family suburb tenants, the positive impact will be felt in single-family rentals.
Apartments have a larger percentage of single renter occupants than that of single-family rentals by almost a 2-to-1 ratio. One advantage I see of investing in single-family is that whether the tenants are married partners or roommates, single-family rentals have a greater potential to house more than one working adult, and therefore a greater chance that rent gets paid in hard times.
Rentals, in general, have seen a tremendous increase. In just the past two months, “share prices of the largest home-rental companies, such as Invitation Homes Inc. and American Homes 4 Rent, have outpaced the broader stock market,” with their combined single-family rental portfolios of over 130,000 homes.Recently, JPMorgan Chase even announced a joint venture with American Homes 4 Rent to build 2,500 single-family rental homes. Those market indicators, plus low vacancy rates, tell us that that single-family rentals may be a solid investment.
Though some corporations have gotten into the single-family rental business as well, it remains a DIY investment. A 2017 Harvard report shows that small individual landlords own over 70% of all single-family rental properties in the U.S, and our firm’s report in partnership with the National Landlord Association, which represents self-managing landlords of single-family rentals, showed that rent payments stayed steady for the first quarter of 2020.
As a single-family rental landlord, you may also be more prepared in the event tenants are unable to pay rent and you need to borrow to stay afloat. Household debt was approximately flat over the last decade, which indicates low borrowing, while valuations have seen record increases. The 2008 recession still fresh in everyone’s minds, fewer home equity loans have been taken out, leaving landlords with flexibility in equity in their homes and rentals.
Landlords of single-family rentals may also have greater flexibility in comparison to property managers of apartment buildings. If your single-family rental has a vacancy, you’ll feel the struggle of not having a tenant every moment — and sometimes even stay up nights worrying about it. But you’ll also have the option to adjust immediately and lower rent if needed without any impact to a larger portfolio of rentals. Apartment buildings, by design, have hundreds, if not thousands, of similar unit apartments on a single property, and lowering rent for one unit can impact all the other units.
Single-family rentals have been a smart investment for many years, and they will continue to be through the coming recession.