If you’re a tenant – hearing the words “rent is going up” is more than likely not something you want to hear. However, if you’re an investor, that phrase really is music to your ears.
A recent study performed by CoreLogic known as the Single-Family Rent Index, April 2021 showed a 5.3% increase in national rent over one year. That doubled since April 2020, and was the largest annual rent price increase in nearly 15 years!
Here’s the scoop – detached rentals (a rental that is a single-family home for example) experienced an even larger higher growth rate of 7.9% year after year, compared to the 2.2% for “attached rentals” (apartment buildings for example). This is supported by the CoreLogic report that half of millennials and 2/3 of baby boomers “strongly prefer to live in a single, stand-alone home.”
If you think as an investor, from an investor point of view that is, single-family rentals will offer larger loan-to-value mortgages at fixed rate interest rated for long terms on appreciating assets with definite tax advantages and reasonable control.
What’s the ideal investment? That’s quite simple – rentals. Rentals are an IDEAL INVESTMENT as they provide and offer an income which will offset the carrying cost of the investment. Depreciation will contribute to annual cash flows with a non-cash deduction. Equity build-up happens because a portion of each payment which is made is applied to principal reduction. Leverage increases the overall yield through the use of borrowed funds.
As a homeowner, most are quite aware of the housing inventory shortage which has caused most homes (if not all) to rise over 12% in the past year. If you remember, we’ve discussed that shortage before in previous blogs. That increased demand for homes, coupled with the shortage of supply, is the cause and contribution of that rapid appreciation. Unfortunately, with multiple studies that have already been performed, that trend is expected to continue for several more years.
Yes, appreciation is a quite large component and factor when talking about the rate of return. However, cash flows are bolstered by the increasing rents. The combination of both (appreciation and cash flow), makes investing in single-family rentals incredibly attractive to investors!
Here’s an added appeal – the familiarity and understanding of this type of investment requires the same exact aspects as homeownership. The same service providers which a person may use for their home can also be used for rentals. An added appeal is the familiarity and understanding of this type of investment because it requires the same aspects as homeownership. If an investor doesn’t wish to manage the property themselves, professional management services are available for placing and qualifying a tenant only, or even collecting rent and maintaining the property.
If you need more information, I encourage you to download my guide on Rental Income Properties. Contact me if you’d like to have a more in-depth conversation and address any personal questions you might have.
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