Housing prices are still rising. Normally, this would not be the best time for investors, but this is not a normal time.
Key Points
- Nationally, home prices have risen 18% from November 2020 to November 2021. Even still, buying single-family homes should be a solid investment strategy for 2022.
- The big guys — investors such as Invitation Homes, Fundrise, Tricon Residential, and American Homes 4 Rent — are focusing on single-family homes.
- Rents are up. Provided you can make your numbers and arrange financing, the home’s price becomes less of a factor since your intent is buy-and-hold.
Institutional investors are doing it
If you have any hesitation about whether single-family homes are a good investment, just look at what other investors are doing. The big guys — investors such as Invitation Homes, Fundrise, Tricon Residential, and American Homes 4 Rent— are focusing on single-family homes.
It’s almost as if they just recently figured out what we mom-and-pop landlords have known for a long time: It’s very doable to get a 10% ROI on rental property. Armed with that nugget, real estate investors (big and small) are responsible for buying 18% of homes in the third quarter of 2021, up from 11% a year earlier, even with the inflated home prices. Single-family homes make up almost three-quarters of these purchases. Condos, townhouses, and multifamily represent the rest.
Home prices are up, but so are rents
Although I suggested previously that to avoid raising rents on existing tenants, landlords should try to get market-rate rent for any new rentals they buy. According to CoreLogic, rents are up 10.2% nationally from September 2020 to September 2021. That represents the largest increase in more than 16 years. And some markets outpaced that by far: Miami had a 25.7% increase, and Phoenix increased 19.8%.
Provided you can make your numbers and arrange financing, the price of the home becomes less of a factor since your intent is buy-and-hold. The worry is a home and rent price decrease. But that’s unlikely to happen anytime soon. The demand is high from people needing to either buy or rent, and the supply of single-family homes is low.
But for you worriers, you can avoid the top-five markets CoreLogic lists as the most at risk for a housing decline.
- Prescott, Arizona
- Lake Havasu City-Kingman, Arizona
- Worcester, Massachusetts
- Springfield, Massachusetts
- Merced, California
Interest rates are low now but will likely rise
We’ve been enjoying historically low interest rates for a while now, but the party’s almost over. If you remember, last January, you could get a mortgage interest rate of 2.67% — sometimes even lower. By December, rates had risen to 3.12% (which is still good). But with the inflation we’re now experiencing — the highest levels since 1982 — expect the Federal Reserve to raise rates even higher. By this year’s end, they could be 4%. If you need to borrow money to get a rental property, it looks like now’s the time.
All the signs are pointing to getting that single-family rental now. I don’t know about you, but to me, it feels like mom-and-pop real estate investors are running after a slow-moving train. We can still get on it with some effort — but soon, it might be too late.
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