Are single family homes the new cash flow king?
Investing in rental properties is a great way to build your wealth. When evaluating options and doing research you will see there are two distinct paths to achieve this. You could say there are two kinds of people in this world. Number being the multifamily market. Multiple units starting at 2 units and moving up and then there is the single-family market. Both have their advantages and really depend the goals of the investor. Typically, all the research you perform will direct you to multifamily investing to look at straight cashflow… BUT what if I told you this could being a dying breed. What if I told you the new king is single family? Especially for the small investor this is the trend. Here are some high level reasons why…
- Less competition buying – Because you are not the only one trying to buy investment properties and all the internet research tells investors to buy multifamily it has become a saturated market driving the prices out of cashflow. What this has ultimately done is drive the 10% COC to now around 3-5% or less. The reason is simple supply and demand. The internet has driven so many investors to the same thing! Now the single-family market takes a little more hunting skill but there are more deals to be had because naturally there are more single-family homes available. You will need find areas where the rental demand is high to make sure the numbers work at the purchase price.
- Renters want more space – In a post COVID world where more of the workforce is virtual and school is virtual location close to the trendy areas has expanded. Think of this way… If a renter can pay 2000 for 2 bedroom with 1200 square feet close to downtown or pay 2000 for 4 bedroom with 2000 square foot 30 minutes outside of town and work from home what do you think they will choose? This is happening and rental prices are on the rise outside of major areas. Supply demand working in the investors favor.
- Forced Appreciation- Maybe its not all about the monthly cashflow. Big statement I know but think of it like this. Yeah you may not make a ton of money every month but what if the property value goes up 3-5% annually and someone else is paying down your debt service for 5-7 years as a resident. Everything in that gap is CASH! Every heard of internal rate of return?
- Disposition – Lastly the simple fact there are more options to sell in the single-family market. Sell to another investor or a home buyer that will live in the home. Multifamily sell prices only sell for what the renters are paying.