The homeownership rate is down. There’s a scarcity of entry-level houses for sale. But the flip side of these trends is an increase in single-family houses for rent.
Individual and institutional investors are both holding on to single family properties longer than they used to in the past. Property flipping isn’t over, but it’s no longer investors’ first thought as they plot return.
A recent Zillow analysis of U.S. census data found that single-family rentals are at a 30-year high. Meanwhile, RealtyTrac reports that 65% of the houses sold in 2015 are now owner-occupied.
Here are three key factors if you are considering investing in rental properties:
- Will you pay in time or money to maintain and manage the property? You’ll have to do more than cash monthly rent checks. You have to respond to tenant problems and ensure that the property stays in good condition. That requires an emergency fund and constant availability.
- How does the cash flow play out? Review the opportunity with your accountant to make sure you are including insurance, maintenance, renovation, and tax considerations into your ownership estimates.
- When it’s time to sell, how will you maximize return? Traditional agents take 6%. You could become an agent yourself to keep the listing side of the commission. You could sell through a service like USRealty.com, which lets you get the property on the multiple listing service for free, charging only $279 at closing. (You can buy an upgraded listing package for only $99.) To maximize your return, you’ll want to think through the whole arc of the investment, from getting the property reach to rent to capturing the last bit of return through smart selling.