Morgan Stanley real estate analyst Laurel Durkay Appeared on CNBC The financial giant’s latest housing outlook was recently released. This is great news for homeowners and a call to action for potential buyers on the sidelines, Waiting for interest rates to drop.
That’s the inventory shortage; over the next decade, 2 million households will need be built to meet demand. this refers to the rental market Already set Soaring.
This is a sentiment shared by real estate data analysts at lending institutions and data-intensive websites. “While inventories in May were significantly improved compared to the previous three years, they were still down 34.2% compared to typical levels from 2017 to 2019,” he said. real estate agent networkSabrina Speanu.
An article in Forbes Keith Gumbinger, vice president of online mortgage company HSH.com, told the business site, echoing Spianu’s comments: “To get the best results, we first need to see a significant increase in the inventory of homes for sale.” “In turn, these additional The inventory will alleviate the upward pressure on housing prices and stabilize housing prices, or may help housing prices fall back from peak or near-peak levels.”
Low inventory keeps tenants renting
Stock is limited – especially stay away sunbelt market— keeping rents high and preventing inflation from falling as quickly as economists hope. The resulting high interest rates created a perfect storm Can not afford. Developer AMH Home said in its market, price Buying a house is 25% more expensive than renting. this The push for potential buyers to move toward rental homes continues.
Rental data website Yadi Matrix It has been revealed that rents paid by apartment tenants on renewed leases are still rising. Rents in the Northeast and Midwest are up significantly from last year. The highest increases were in New York City, with an annual increase of 4.8%, and Columbus, Ohio, with a 3.6% increase.
single family home is a coveted investment
Single-family homes are the most profitable asset class, with domestic developers such as AMH Homes focusing particularly on single-family homes, Morgan Stanley said. The build-to-rent single-family home development boom is one of the hottest real estate sectors.
By 2023, builders expect to complete 97,000 rental homes, which includes communities other than build-to-rent communities, increased by 45% from the previous year and hit a record high. Moving into a rental allows tenants to have the feeling of living in a single-family community while they prepare financially to move into their own home. This is an ideal stopgap measure amid high interest rates.
Elsewhere, high interest rates have led developers of large multifamily rental projects, such as Seattle-based Tyler Carr, to Who is As a 104-unit development breaks ground in Boise, Idaho, press pause button. In Worcester, Massachusetts, in the center of the state, about 2,000 apartments have been delayed.
“We’re definitely seeing a decline in construction,” said Robert Dietz, chief economist at the National Association of Home Builders. wall street journal. “Deals and financing have dried up.”
Housing data company CoreLogic, quoted in ForbesA recent analysis of single-family rent increases found that among the 20 metros analyzed, New York had the highest annual single-family rent increase in February 2024: 6.9%. Seattle is coming exist It ranked second at 6.8%, followed by Boston at 6.4%.
Take a step back and look at the data this way: wider In the shot, the numbers are staggering. according to real estate agent networkFrom May 2019 to May 2024, the overall typical listed home price increased by an astonishing 37.5%. This demand creates golden opportunities for small and medium investors who either Unable to get Approval of multi-family units or unwillingness to take responsibility arrive Focus on building their single-family portfolio.
Essential Steps You Can Take to Build a Single-Family Rental Portfolio
So what can real estate investors do? make sure Their positioning is Enter Single family rental? Here are 12 measures to consider.
1. Increase your credit Fraction
Let’s start with the basics. Your chances of getting without a high credit score loan approved are seriously reduced. There are many ways to do Start building your credit. The sooner you start, the better.
2. Buy a house to rent first
While it’s understandable that the desire to buy a home to live in is strong, it may not be the best move if you want to expand quickly. stay low debt to income ratio Will get you approved faster and buy more homes in less time a period of time.
3. House Hacking
Here’s another old-school trick: Assuming you already own a single-family home with extra space that you can easily rent out (such as a finished basement), you can rent out a portion of the house to a full-time tenant or someone else to help pay for the short-term / Mid-Term Guest, will help you save cash for your next property faster.
4. Live in your own home and move every two times Year
If you’re not in a rush to expand, this is a great way to avoid capital gains tax when buying or selling your assets personal Residency for profit. this tax law Allows owners who live in the home for two years out of every five years to be exempt from paying capital gains tax on $250,000, and $500,000 if single Profitable If you are a couple. You can use the money you earn as down payment For investment real estate.
5.BRRRRR
No article about extensions would be complete without mentioning BRRRRR method. In an era of high interest rates, be careful that once you take out equity, your investment still has cash flow. it, Or at least break even. also, be sure Properly estimate rehab costs so you have enough cash to cover them and rent your property quickly.
6. Liquidate assets
Whether you’re an empty nester looking to downsize personal Living or owning stocks or a 401(k), you can liquidate assets that aren’t appreciating quickly, since the real estate market is one of the quickest ways to free up cash for investments.
7. Borrow money from friends family
If you want to start your single-family real estate investing career, it’s also a good idea to borrow money from friends—as long as they agree! Borrowing from someone you know has the same purpose as a hard money lender (without the high interest rates) and once you refinance the property you can pay them back and use the equity to continue BRRRR.
8. Take out the HELOC
If your single-family investment appreciates at a higher rate than you pay Hurlockconsider using some of the interest on your residence to start your investing career.
9. Move into your rental and rent out your personal Residential
Since renting is currently 25% cheaper than buying in some markets, move into a rental while renting out your home personal Not only does residing put you ahead financially, it can also lower your debt-to-income ratio. If you can manage to accumulate a down payment for a second home, aided by the lower cost of living, you’ll start to build an investment portfolio.
10. Make more money and minimize it spend
We may be in an era Quietly quit smokingBut there’s a lot to be said about making the most money from your job, being strategic about advancing or building your career, and keeping the cost of living low enough to save and invest in real estate. if You can’t make more money at your day jobconsider a sideline.
11. Move somewhere cheaper
Move to a cheaper place does not necessarily mean move into a bad Neighborhood. This may mean living with mom and dad (if you’re young) enough, they are willing), move into a co-living spaceeven emigrate overseas. The idea is to reduce your living expenses so you can Save on your first investment.
12. Find seller-financed trade
Finding these is often easier said than done. However, there are always investors who give up being full-time landlords and don’t want the tax hit that comes with a one-time rent cash, But prefer to make regular payments while enjoying retirement. The benefit for buyers is that the loan won’t show up on your credit report and may be easier and cheaper to qualify than with traditional lenders.
final thoughts
As ATOM Data recently Top 10 counties to buy a single-family home in 2024 Reports show single-family rentals are booming nationwide. Between 2023 and 2024, in 216 (or 63%) of the markets analyzed, median three-bedroom rents will increase more than the median single-family home price.
Purchasing a single-family home can serve as a springboard for other purchases and is one of the easiest loans to qualify for, thanks to FHA Loan Guide. A 203(k) The loan can also help you renovate your home, giving you BRRRR to live in, which you can then refinance and reuse.
In today’s market of high interest rates and low inventory, not every deal will generate cash flow. As long as you don’t lose money, appreciation is the real way to play. Once interest rates drop, you can refinance and enjoy cash flow.
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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
