Top 5 Reasons For Investing In Single Family Rentals
There are always plenty of good opportunities for buy and flip rehabs. But presently with interest rates at record lows and high rental demand continuing to grow, quality rental properties could be the next big investment you’re looking for. Diversity is key to a good portfolio and if you haven’t considered single-family rental properties before, you could be missing out.
Many investors are scared off by horror stories about tenants from hell or the costs of keeping a property maintained. In truth, such stories are the exception rather than the norm. When you consider all the benefits of single-family rentals, it’s easy to see the appeal.
- Cash Flow. The most obvious benefit of rental properties and the main reason investors get involved, is the opportunity for a steady cash flow. Instead of earning a single lump sum like you would with a rehab sale, you can slowly earn a steady monthly flow of cash from rent and amenities. With this money, you can pay off debt, invest in marketing other properties or increase your savings. When other areas of your business begin to slow, you will appreciate having this easy flow of money.
- Leverage. Easy cash flow may be the main reason for investors to get involved in rental properties, but it’s something else that makes it so easy to get started. Unlike a rehab sale, which usually requires tens, if not hundreds of thousands of dollars to buy, fix up and get sold, you can acquire a rental property for much less. If you can just come up with the down payment, usually 15-25%, you can instantly own 100% of the property. This kind of leverage allows you to quickly get involved and start renting out immediately to tenants. This way you can enjoy the perks of a steady cash flow and appreciation. With a FHA loan, you can acquire a multi-family property for just 3% of the purchase price. You can then live in one unit, while renting out the others. With good leverage, you can keep your closing payments to a minimum and begin reaping the payments immediately.
- Upside Potential. Having a steady monthly inflow is nice but there is much more to gain in the long-run. With a good rental property, you have a good chance of gaining appreciation. From the start, you enter with 20% equity, after that, every month that the tenant pays it accelerates the payoff of your loan. After enough years, you can have a good chunk of equity, based entirely from your tenant’s contributions. Once you’ve increased your equity you can then sell off at a profit or even take cash out to invest in another part of your business. Once the loan is paid off you can claim 100% of the cash flow and live strictly on this income. Not a bad thing to have in retirement.
- Tax Benefits. Another big benefit of rental properties is the very lucrative tax benefits you can gain as a landlord. Along with mortgage interest, you can also write off repairs, mileage or updates to the property. Even if you only break-even each year, you can still gain thousands in tax return dollars.
- Ease Of Exit. Single-family rentals make the best buy-and-keep investments, as they offer so much diversity in your buyer pool. Single-family properties can attract first time buyers, those looking to downsize and just about everyone else in the buyer pool. This makes them easy to market and easy to get out of and sell without much standing in your way.
There are always ups and downs to everything in real estate and single family rentals are no different. You don’t need to change your entire investment strategy and go all in for rental properties, but you should at least consider the benefits of adding a few of them to your portfolio.