Since the great recession, the American rental market has seen incredible demand, with 37% of Americans choosing to rent a home as opposed to own. This is the highest percentage since 1965. Currently the fastest growing segment of rental housing is the single-family home. Here are some reasons why this type of rental investment property has never been hotter.
1. Saving for a down payment seems impossible
Did you know that 67% of millennials age 18 to 24 and 61% of millennials age 25 to 34 have less than $1,000 saved? That’s an alarming percentage. Therefore, coming up with a down payment for a house seems nearly impossible.
There are many reasons for difficulties saving, including the fact that college debt has skyrocketed in the past 10 years or so. The average college student now graduates with $39,400 of debt and has a monthly payment of $351.
2. The mindset to save has been replaced with monthly payments
The American mindset has also shifted from a saving mentality to making monthly payments. Cars, phones, computers, and other items used to be saved for and purchased outright. Now, the main question is, “how much are the monthly payments going to be?” This mindset will not work with real estate because of the large up front down payment and closing costs.
3. The need to settle down is not as important
The mindset of many young Americans is less and less centered on owning a home and more about having the freedom to move and travel. This is a trend that has been increasing for awhile. Technology now gives people the opportunity to work remotely and get paid to do work on a laptop anywhere with an internet connection. The need to settle down in one place is not as important as it once was.
4. A safe bet for investors
The single-family home was once a piece of real estate purchased for owner occupancy and only occasionally rented out. From 2005 to 2015, 56% of the gains in the rental housing stock were due to single-family homes (Source: NAHB). Currently, there are investor/developers like BB Living out in Arizona who are investing in entire subdivisions, much like investors purchase apartment communities.
While large investment firms bought up a lot of single-family homes in 2011 and beyond, what we’re now seeing are investors looking to purchase a swath of homes in new subdivisions as the new rental community. This is primarily because of the difficulty in leasing and managing homes in different areas. Investors can buy 50 homes at a time, and often at a discount from the developer who doesn’t have to sell homes one by one. It’s a win-win, and with the growing demand for single-family home rentals it’s a safe bet.
5. The next progression in the rental unit
What starts as a studio, then moves up to an apartment or condo and ends at the single-family home. While the average millennial doesn’t have enough savings to purchase a home, they do have the cash flow to cover the rent on a single-family home. As millennials grow up, the demands of a growing family and the need for space and privacy create the desire for single-family homes. As home prices skyrocket coupled with the inability to save for a down payment, you end up with a strong demand for a single-family home rental.
These factors are what has led to such an influx of single-family home rentals that Americans have never seen before.