This article/post contains references to products or services of one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services.
Real estate is a tried and true strategy for investors looking to build capital in physical assets. One way that investors can generate cash flow while benefiting from appreciating property values is by renting a property.
However, the traditional way of renting a property is notoriously difficult, especially for investors without a lot of capital. Fortunately, times have changed. Today, there are a number of fintech companies that allow investors to add single-family rental homes to their portfolios with a small investment.
This article will dive into how to invest in single-family rental properties and a few things you’ll want to know before you get started.
the short version
- Single-family homes are a popular investment option for real estate investors
- They are in high demand and provide cash flow as soon as they are rented.
- For investors on a budget, there are a number of platforms that offer single-family home investments without the burden of buying or owning one.
Why investing in single-family homes could be a good idea
Single-family homes are in high demand. According to data from the Arbor Realty Trust, about 95% of single-family homes are occupied, with rental growth from vacant to occupied reaching unprecedented levels since 2020. With such a high occupancy rate, these types of properties are a reliable initial investment for investors looking to dip their toes into real estate.
Related >>> How to invest in real estate with little money
One of the attractions of investing in single-family homes is that they tend to generate cash flow immediately through the rental. This can be used to pay off the mortgage on the property and at the same time build equity in it. As part of a long-term real estate strategy, an investor might take advantage of the cash flow and equity from a single-family home to purchase more rental units or a larger multi-unit property.
Another reason to consider investing in a single-family home is because of its low vacancy rates. From a management perspective, a single-family home only requires holding one lease at a time rather than constantly looking for new tenants to occupy separate apartment units.
Compared to larger properties, single-family homes can be easier to finance. They also tend to be more affordable and require less start-up capital. This lowers the barriers to entry for less established investors.
How to invest in single-family rental homes
Before you make the decision to invest, you’ll want to do some market research. Sites like Zillow or Trulia will allow you to see what properties are available for sale. You can check home values in a given neighborhood to get an idea of how much properties are appreciating and what your potential rental income might be.
One way to identify a good investment opportunity is to use the 1% rule. This rule states that the monthly income you generate from your investment property should be equal to 1% of your purchase price. For example, if you buy a house for $100,000, you should aim to earn no less than $1,000 per month in rent.
After you’ve done some research to find a potential property, you’ll want to gain a better understanding of the laws and regulations that govern the area. Some areas limit the number of days a property can be rented on short-term rental sites like Airbnb. Other areas have laws that can make it difficult to evict a bad tenant. You’ll want to know how these types of laws could affect your investment and what you’ll need to know to mitigate any risk.
Read more >>> What is due diligence in real estate? (Best practices, tips)
When you’re ready to buy a property, you can go to your local bank and apply for a traditional mortgage. However, if you don’t have a ton of start-up capital, there are other financing options you can consider. Crowdfunding platforms like Fundrise can help cash-strapped investors invest in real estate without taking on the burden of a mortgage or becoming a homeowner.
Low Barrier Investment Opportunities
While the traditional method works for many people, buying a single-family rental home requires a lot of time, money, research, and ongoing work to maintain the property and screen tenants.
People interested in taking advantage of the lucrative market for single-family homes for rent with no money down can investigate these new real estate investment companies.
The ceiling is an online platform that provides investors with the opportunity to invest in renter-occupied single-family homes. Investors can choose an individual property to purchase or select a portfolio of properties to invest.
There are some fees with Roofstock, but they are significantly lower than buying a property outright. Buyers pay a 0.5% market fee, while sellers pay a 3% listing fee. You can also work with a Roofstock-approved property manager in exchange for 10% of the monthly rental fee. This could be a good option if you are interested in owning properties remotely or don’t want to manage them yourself.
Read our Roofstock review here.
Fig is an end-to-end real estate investment platform. It allows investors to buy, lease, manage and sell properties, all in one place. The platform is also a place for prospective tenants to find properties to rent.
If a tenant misses a payment, Mynd guarantees rental income up to $5,000. This can help you keep cash flowing smoothly. Mynd operates in 26 different markets and fees may vary depending on the region or area where you want to invest.
Houses Arrivals is a real estate crowdfunding platform that allows people to invest in rental properties and vacation homes. Instead of buying a property on their own, investors buy shares in a property from Arrived’s portfolio of properties. Depending on what is available, they may choose to invest in shares of one or several different properties. Investors can then receive a portion of the rental income generated by the property.
What sets Arrived Homes apart is the ability to invest in vacation ownership. Vacation properties can often command a much higher rent than traditional single-family home rentals. Investors can start with as little as $100 and pay a 1% annual administration fee.
Read our opinion >>> Home review arrivals 2022: we tried it
fundraising is another popular crowdfunding real estate investment platform. Investors can invest in a variety of properties, just like with Arrived Homes. Fundrise invests in large private deals such as luxury apartment developments and commercial properties that would be out of reach for most new real estate investors.
You can get started on Fundrise with as little as $10 with your startup portfolio. They also have three other portfolio levels with different investment minimums and different combinations of REITs, funds, and properties. Investors will be able to earn quarterly dividends and benefit from any property appreciation at the end of their investment term.
Vest is a real estate investment platform that is tailored to the specific requirements of an investor. The matching algorithm that Doorvest uses to help investors find properties can be useful for someone on a budget. You can also shorten the search process, making it easier to get started.
One of the key benefits of using Doorvest is that they will oversee and coordinate renovation work on your behalf to ensure rental properties are ready for tenants. This is useful if you are investing in a property that needs a bit of work before it is ready to rent.
One of Doorvest’s downsides is their property management requirement. Investors will need to agree to use Doorvest to manage their property and find tenants for the first year, a service that comes with a 10% management fee. After the first year, investors can decide to continue working with Doorvest or find their own property manager.
More information >>> Doorvest Review: Hassle-Free Real Estate Income for a Fee
lofty.ai is a fractional real estate investment platform. It is based on the Algorand blockchain that allows investors to buy tokenized shares of physical real estate assets.
Similar to investing in a Real Estate Investment Trust but with a cryptographic twist, investors buy shares in an LLC that controls each investment property using Lofty tokens from their Lofty wallet. This gives investors an ownership interest in the property that allows them to vote on things like repairs.
Investors can earn property rentals, which they can choose to be paid daily, as well as any capital gains that are generated during the investment term. This is useful for crypto investors looking for ways to earn passive income while putting their coins to work.
Learn how it works.
Pros and cons of investing in a single-family home
Single-family homes tend to be a much safer investment than multi-unit properties. There is a high demand for single-family homes, which means investors can be more selective about who to rent to. The properties also require less start-up capital, which can also make them much easier to finance.
Single-family homes are also a great investment to generate passive income. Whether you become a landlord or work with a property management company, you can collect rental payments with minimal active work.
Some real estate investment platforms that offer single-family homes prioritize underserved areas. While this isn’t inherently a bad thing, it can have its own risks. These could include a constant turnover of tenants, properties sitting vacant, or minimal appreciation in property values.
Although single-family homes tend to be easier to manage, you are dependent on your tenants to cover the mortgage on the property. Regardless of whether or not they pay their rent in full and on time, you’re still on the hook. Although multi-family properties can be a bit more difficult to maintain, they help spread this risk across multiple tenants.
Should You Consider Investing in Single Family Homes?
If you’re looking to add real estate to your investment portfolio, single-family homes are a great place to start. They tend to be more affordable, provide cash flow, and increase in value over time.
For investors on a budget, there are a number of investment platforms that allow you to capitalize on real estate investments without owning or managing your own property. These platforms allow you to buy shares or ownership stakes in a property, just like a business, while also collecting rent payments.
Think you can’t afford to invest in real estate? Think again>>>>
Leave a Reply