Single-family rentals (SFRs) have been a hot topic in the investing community for a while now.
But, in more recent years, savvy investors have shifted their focus from simply purchasing and renting individual homes to investing in single-family rental developments and land developments designed for single-family rentals that offer growing and lucrative opportunities for long-term returns.
And with construction on single-family rental developments hitting record highs in 2021 while maintaining course for similar growth in 2022, this new trend doesn’t appear to be slowing down anytime soon.
If you’re wondering— What’s driving single-family rental demand?
And are single-family rental developments a wise investment for 2022 and beyond?
Then keep reading because we’ll discuss this phenomenal investment opportunity in this article, so you can decide if it’s the right move for you.
We’ll also be sharing more about our single-family rental land development project near Austin, Texas, which marks one of many successful SFR land deals to come for our team at Red Oak Development Group, thanks to our amazing investor community.
A Growing Investor Interest In Single-Family Rentals
According to Harvard’s report on America’s Rental Housing in 2022, there are 44-Million renter households across the nation. Single-family rentals make up about a third of that rental stock.
Renter households are increasing, with 870,000 households being added to the renter mix between the first quarter of 2020 and the third quarter of 2021.
The number of rentals purchased by investors also hit its highest level in more than 20 years. Of which 74% of those purchased were single-family homes, proving a growing investor interest in single-family rentals.
When coupled with some of the lowest vacancy rates since the mid-1980s, it’s no wonder that this market is heating up for investors!
5 Reasons Single-Family Rentals Are Hot For Renters
Today’s renter includes people from all walks of life, including individuals and groups from growing families to working millennials, empty nesters, and college students. And with multiple factors causing the rise in rental demand, we’re seeing an influx of would-be homeowners re-entering the mix.
What’s causing this drive-in rental demand across the nation?
Here are five key factors at play…
#1 – Single-Family Rentals Offer A Monetary Savings Over Home Ownership
While this is nothing new, monetary concerns play a significant role in renters choosing to rent single-family homes over purchasing one.
The cost of managing a mortgage payment, property taxes, insurance, HOA fees, and the full responsibility of maintenance and repairs on a home adds up fast.
Coupled with the fact that most lenders require a minimum downpayment of 3-5% to qualify for a mortgage loan, the American Dream can quickly turn into a costly investment that a good deal of the U.S. population simply can’t afford at the moment.
Single-family rentals require less upfront and ongoing monetary investment while offering the same comforts of living in a traditional house setting, making it a win-win for renters.
#2 – The Home Inventory Shortage
The current housing market plays a massive role in the surge of higher-income households entering the renter fold. While this renter group typically leans towards purchasing their own homes, the competition for inventory has grown quite fierce in recent years.
When homes hit the market, sellers in major cities like Austin, Texas, are flooded with numerous offers to sift through. Many of which are all-cash offers from real estate investors and select homebuyers who can afford to accept the home “as-is” regardless of inspection or appraisal outcome since they don’t have to go through the lengthy and detailed lender approval process.
The odds are stacked against prospective homebuyers who cannot pay cash or above asking prices for a home, which, unfortunately, is the majority of today’s homebuyers.
This complicated home buying—or home-winning process—has resulted in a rise in single-family renters. Instead of entering a bidding war or settling for any home they can win, prospective homebuyers can rent until they find the home of their dreams.
And chances are, once homeowners experience the ease of renting a single-family home, some will continue to do so for the foreseeable future.
#3 – Young Professionals Prefer More Flexibility
With the COVID-19 pandemic encouraging young professionals to reassess their relationship between life and work, the preference for flexible and sometimes even nomadic lifestyles has also increased.
Single-family rentals offer the perfect alternative to settling down in one place. They provide flexibility while still offering the same benefits as living in a traditional house without needing to save for down payments or being stuck in the same place for lengthy periods of time.
#4 – Multi-Family Renters Are Seeking More Space And Privacy
A recent survey of 3,300 renters by RentCafe showed that 78% of renters are interested in renting single-family houses. Of those surveyed, 29% said they prefer SFRs because they offer more space than traditional apartments, while 25% said they provide more privacy. Both benefits were amplified by the recent pandemic when people grew weary of living in close proximity to others.
Single-family rentals often offer renters more space, private garages, and yards that are perfect for kids and pets. And unlike multi-family housing, single-family renters don’t have to deal with shared walls or neighbors above or below them, making SFRs an excellent alternative for renters desiring increased privacy.
#5 – The Suburbian Job Market
As more jobs are made available in the suburbs, individuals and family renters move to these areas.
Lockhart, Texas, a suburb about 30 minutes Southeast of Austin, Texas, has experienced significant growth in jobs by 32%, or 2,000 additional jobs added between 2008 and 2018 alone.
This trend in new job growth around the entire Austin area isn’t expected to slow down anytime soon either, adding to the increased demand for more affordable and flexible housing for renters, such as single-family rentals.
Are Single-Family Rental Developments A Good Investment?
Cities like Austin, Texas, with thriving job markets and scarce housing inventories, are only the tip of the iceberg when it comes to the cause of the upward trend in single-family rental popularity.
More investors are choosing to invest in single-family rentals due to their asset appreciation and rental income increase over the past decades.
Coupled with the fact that the land holds immense value and increases in price over time, SFRs make an excellent investment that almost guarantees investors will receive positive returns.
And with rental prices increasing to record highs and renter demand on the rise, the return on investment in single-family rentals offers a steady promise to investors looking to invest in both shorter-term land development projects and long-term rental housing.
Moreover, according to a recent report by RoofStock, single-family rentals offer almost the same average annual returns as stocks but with less volatility.
Although SFRs are still affected by national economic conditions, they are not as volatile as stocks and are less affected by market changes, offering much less risk.
Single-Family Rental Land Development Opportunities For Investors
Our Red Oak Development Group team continues to be future-focused on developing ahead of trends and the path of progress. We do this by focusing on developing communities in various ways. From multifamily to single-family rentals, we’re quickly becoming one of Austin’s fastest-growing real estate development firms.
We offer multiple promising land development projects for investors in and around the Austin, Texas, and Flagstaff, Arizona areas. This includes Luling 54 (Meadow View Estates), a single-family rental community development in Luling, Texas.
Located in the submarket of Lockhart, about 30 minutes southeast of Austin, Luling 54 sits on 54.5 acres of land and will offer 45 1-acre single-family rental lots. This project is in progress and is currently awaiting comments back from the county on our preliminary plat submission.
The 18-month roadmap for the execution of Luling 54 includes permitting, surveying, platting the lots, improving the water lines, and building and excavating a road. The end goal is to sell this land development deal to custom home builders or those on the MLS, ultimately offering our investors a favorable return on investment.
If you’re interested in learning more about this project, or if you’d like to be an investor in Luling 54 or any of our other exciting projects, we’d love to hear from you. Reach out to us at in**@re******.com.
