Following the Great Recession, the single-family rental (SFR) market experienced solid growth. In fact, the SFR market expanded by more than 3.8 million households between 2006 and 2016. Now, with COVID-19 a part of everyday life, this trend has continued as Americans rethink the kinds of lifestyles they want. With social distancing and stay at home orders in place, densely populated areas are losing their appeal to many, creating an uptick in interest for single-family homes.
Single-family homes are in demand
Demand for single-family homes was already arising trend prior to the onset of the global pandemic. Experts are now predicting that the impact of COVID-19 could make homeownership more difficult for those who have suffered job losses, reduced salaries or potential decreases in credit scores. This means we may see an increase in demand for rental homes.
Whether renting or buying, data suggests that nearly one-third of Americans are considering a move to less populated cities, and in some regions, they’ve already relocated.
Real Estate Market Differences
Despite COVID-19, real estate investors continue to find profitable deals across the US. For 2020, experts have marked states such as Texas, North Carolina, Florida, Georgia, Tennessee and Arizona at the top of the list. Additional secondary markets have picked up steam, while expensive fees and high land costs have slowed others.
On the other hand, COVID-19 has created labor shortages in some markets, which means that some investors can’t get approval for property inspections while others have had job sites shut down. This all can mean delays in construction.
Why renters prefer single-family homes
Investors should consider what amenities will be in high demand, given the way COVID-19 has altered how people approach living and working. Outdoor living spaces, for instance, will be more appealing and having a home office will be a top priority for many.
Additional amenities that will likely attract long-term renters even after the pandemic is no longer an issue are:
Privacy – There are no other tenants right above, below or beside single-family inhabitants. Renters prefer this privacy. They don’t want the sound of their neighbors blaring music or TV coming through the walls, or of kids running and jumping in the unit above them.
More space than a townhome, condo or apartment – Tenants have a lot of stuff! A single-family home provides more storage, with larger closets, basements, attics, and garages. Single-family homes could also provide space for a home office, washer and dryer, shed, and/or an outdoor living space.
Feels like home versus a rental – As mentioned before renters tend to feel more permanently set up in a single-family home where their pets and children can play in a backyard. In addition, it allows families with children to have school stability. Moving a child in and out of schools is hard for both kids and parents – and is preventable if they stay in one place.
Renters are paying their rents amidst COVID
Real estate investors across the country were expecting a period of increases in unpaid rents due to COVID-19. Surprisingly, this has not yet been the case. In May, Multi-Housing News reported that 87.7 percent of renters paid full or partial rent. For comparison, 89.8 percent of renters paid their rent during the same time period last year. Multi-Housing News goes on to say that as of July 5, 2020, 77.4 percent of renters made payments, and as of July 13, that number was up to nearly 88 percent.
The data doesn’t show any difference in payment trends between property types – it is largely the same between apartment, condos, townhomes, and single-family rentals.
Advantages of investing in single-family homes over condos, townhomes, and duplexes
Appreciation – Single-family homes tend to appreciate faster than multi-unit properties. A single-family home is valued on supply and demand, while other rental properties are valued on rents and market condition.
Monthly cost savings – The monthly cost of owning a single-family home versus owning a multi-unit investment property can be significantly less. They’re typically easier to finance, carry lower interest rates, and don’t carry the burden of monthly condo fees. In addition, HOA fees are less common and lower on single-family homes, depending on your local market.
Liquidity – Historically, there’s a higher interest in living in a single-family home rather than apartments or multi-unit properties. Most of the market for live-in homes is due to people seeking to escape a shared wall with another person.This can make it easier for investors to collect income from their investments, potentially resulting in higher profits and more liquidity.
Easier to manage due to longer leases – Turnover costs time and money. Updating, cleaning, repainting, and attracting new tenants can be expensive and exhausting. Tenants looking for a single-family home are more likely to sign longer leases. They tend to become more emotionally attached due to the ability to add their own touches to the property – planting flowers, adding their own patio furniture, watching their kids and/or pets play in the yard, etc. This reduces costs caused by vacancies.
Even with the uncertainty of the market during the pandemic, investors have continued to flock towards single-family homes. They’ve noticed that owning a large pool of rental homes is allowing them to weather the crisis far better than initially feared. Many investors assume single-family homes will become more desirable to live in, but also more expensive to buy.
Housing trends are likely to change or fluctuate as the U.S. recovers from COVID-19. While some variations may be subtle, staying acutely aware will help real estate investors make informed decisions.
Broadmark Realty Capital Inc. (NYSE: BRMK) is an internally managed real estate investment trust (“REIT”) offering short-term, first deed of trust loans secured by real estate to fund the acquisition, renovation, rehabilitation or development of residential or commercial properties. The company has originated over $2.2 billion in loans since its formation through a rigorous and responsive underwriting process. Have questions? Contact one our lending experts today.