Are Single Family Rentals a Good Investment?

Posted Jun 22, 2022

are single family rentals a good investment?-1390535704

Deciding which investments to add to your portfolio can be more challenging than you might anticipate. If you have found yourself interested in alternative investments, real estate is a choice. Because of the many different types of properties at your disposal, you can invest in a property type that aligns with your individual investment objectives.

One type of real estate investment option that's available is single-family rentals. These homes have the potential to add cash flow to your portfolio. However, the current market has caused some real estate investments to be less appealing than others. The following offers a more in-depth overview of the feasibility of single-family rental investments in the current market.

What Constitutes a Single-family Rental?

Single-family homes are a real estate asset that's usually a detached structure in a residential neighborhood. Many single-family properties come with a spacious yard as well as a garage. A high percentage of investors choose to place their money into multi-family rentals, which are apartment complexes with over five living spaces. While multi-family rentals are another investment option if you have the necessary capital, they require a considerable amount of upkeep and management if you want the potential to bring in high returns.

In comparison, renting out a single-family home gives you the opportunity to obtain monthly rental payments without needing to spend the money to purchase an apartment complex. Maintenance requirements are also considerably less demanding. If you're considering investing in single-family rentals, look for a property in a good neighborhood. Any home that's relatively close to a larger city will invariably be in high demand among potential tenants.

Why You May Want to Add Single-Family Homes to Your Investment Portfolio

Single-family rentals may offer benefits to practically any investment portfolio. Adding this investment to your portfolio can provide diversification from stocks. Real estate is a tangible asset that you can rent out or sell.

These rentals may provide you with a monthly income stream from rent collections. The home itself can also appreciate in value over time, which means that any eventual sale of the home could net you a sizable profit. Even though the greater economy has been impacted by inflation as of late, single-family rentals are largely considered to be resistant to inflationary conditions.

Considering Single-family Rentals in the Current Market

During the first year of the COVID-19 pandemic, many real estate investors chose to forgo investing in single-family rentals as a result of the increased uncertainty surrounding the market as a whole. Since the initial year of the pandemic, the economy has been consistently improving, which is also displayed by the real estate market.

In 2021 alone, rental prices increased by more than 11%. Since there is higher demand among potential tenants who want to live in a single-family rental, the rental prices are increasing at a high rate, which gives you the opportunity to earn even more money from your investment. Keep in mind, however, that home prices are also increasing, which means that you'll likely have competition when searching for the right home to invest in.

If you've been looking for alternative investments, single-family rentals may prove to fit your situation and your investment portfolio. You have the potential to benefit from monthly rent payments as well as appreciation on the home that you invest in.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. All real estate investments have the potential to lose value during the life of the investment. All financed real estate investments have the potential for foreclosure. The income stream and depreciation schedule for any investment property may affect the property owner’s income bracket and/or tax status. An unfavorable tax ruling may cancel deferral of capital gains and result in immediate tax liabilities. Programs that depend on tenants for their revenue may suffer adverse consequences as a result of any financial difficulties, bankruptcy or insolvency of their tenants. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

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