If you have been thinking about investing in rental property, you undoubtedly considered buying and renting out a home. Real estate professionals refer to this investment category as single-family rentals, or SFRs for short. Back in 2012, a few years after the financial crisis, Warren Buffet said that he’d buy a couple hundred thousand single-family homes if there were a practical way to do it. If buying and renting out homes passes muster as an investing strategy with the Oracle of Omaha, it could be right for you too.
In all, there are about 15.8 million single-family homes rented out each year, which amounts to about one-third of the U.S. rental housing stock, according to the 2019 State of Nation’s Housing, a report produced by the Joint Center for Housing Studies of Harvard University.
Over the last few years, the number of single-family rentals has declined as homes have been converted over to owner occupancy. The decline in single-family rentals matches a broader trend of declining renter households overall. In fact, the share of renter households in the United States has declined by a full percentage point over the last few years to about 35.6 percent as more people have chosen homeownership. It is important to put these falling numbers in perspective. While renter households have declined in recent years, the share of renter households was only about 31 percent back in 2005.
Does the decline in the stock of single-family rentals mean you should stay away from SFRs? Not necessarily. Supply and demand fundamentals have been favorable. Single-family rental vacancy rates stood at about 5.8 percent in the first quarter of 2019, down from 6.2 percent a year earlier, according to the US Census Bureau’s most recent Housing Vacancy Survey.
The best bet may be to seek out single-family homes that cater to certain subsets of renters. While there has been a decline in renter households overall, there has been an increase in the number of households rented by people aged 55 and older as well as in high-income renters. Households making over $75,000 make up over 25% of renter households, a large six percentage point increase over the last ten years.
Some of the pros of investing in SFRs include:
Here are some of the cons associated with SFR investments:
To find single-family rental properties for sale, visit our Buildings for Sale page and tell us a bit about your investing criteria. We’ll keep you posted as properties become available for sale.