June 15, 2023 • 3 min read • Real Estate

The single-family rental (SFR) market has gained significant attention in recent years, attracting both individual investors and large financial institutions. With over 12,000 monthly searches for "single family for rent" on Google in the United States, it’s clear that the current demand for rental homes is high. However, investing in single-family rentals on a larger scale can be a complex and challenging endeavor, requiring careful consideration and strategic planning.

Single-family rental investing has traditionally been a fragmented and localized market.

Investors had to manage each property individually, dealing with property managers, handymen, inspections, accounting, taxes, insurance, and utility bills for each unit. Additionally, relying on tenants for annual inspections, maintenance, and lawn care could result in inadequate upkeep. Furthermore, major repairs or replacements, such as a new roof or HVAC system, could significantly impact the investor's income, potentially wiping out several months or even a full year of profits.

Despite these challenges, ultra high-net worth individuals and institutions like Jeff Bezos and JP Morgan have recognized the potential of the single-family rental market and have invested heavily in it. They have taken different approaches, with Bezos backing a proptech firm that specializes in single-family rentals, while JP Morgan has partnered with a home-building company to develop over $1 billion worth of build-to-rent single-family homes across the United States. The allure of higher yields, favorable economics driven by high demand and low supply, diversification, and the potential for appreciation has drawn institutional investors to this asset class.

When done correctly, investing in single-family homes can be a highly profitable endeavor. In today's environment, SFRs can offer a premium in income compared to investment-grade or high-yield bonds. Depending on various factors such as location, associated risk, and leverage, cash yields on single-family homes can exceed 10%. For example, properties in parts of Ohio (higher perceived risk) can provide such returns, while in cities like New York, cash yields may be negative.

The key to unlocking the potential of single-family rentals lies in a diversified portfolio located in areas with tight supply, growing demand and healthy rent-to-income margins.

The ideal rent-to-income ratio is around 30%, where renters spend no more than 30% of their monthly gross income on rent. While some metropolitan areas have ratios as high as 40%, savvy investors seek ratios between 20% and 25%, allowing room to raise rents over time and providing better protection during economic downturns. Platforms like Yieldwink utilize proprietary data models to track these margins across various towns and zip codes. Monitoring sector-specific employment is also a crucial metric in identifying the impact on home prices, as an expansion in the manufacturing sector is more likely to buoy home prices given the sector's comparatively higher wages when compared to a retail sector expansion. Data models have allowed for efficient identification of promising opportunities. 

It is no secret that real estate investing has been a proven path to wealth creation, with the majority of millionaires in the United States achieving their success through real estate investments. Single-family homes have been a popular choice among retail investors due to their familiarity and recognition as a reliable alternative investment asset class.

Investing in single-family homes offers numerous advantages. Firstly, it provides the potential for strong returns, as properties can appreciate in value over time. Additionally, investing in rental properties offers recurring income from tenants, which can be a valuable source of passive income. Moreover, the tax benefits associated with real estate investments, such as deductions for mortgage interest, property taxes and depreciation, can further enhance an investor's overall returns.

In conducting diligence, the Yieldwink team uses a top-down approach and targets specific geographic areas. Once the chosen areas are identified, the team collects specified data and compares them to predetermined criteria. Here are a few (of many) examples:

  • Rent-to-Median Household Income ratio: Average rent should be no more than 30% of the household’s monthly gross income. The lower the ratio, the better.
  • Yard space: While this may vary based on investor’s preference, the Yieldwink team targets properties with smaller yards, as to limit expenses on lawn maintenance during times of vacancy.
  • Bedrooms: Focus on 2-3 bedroom units, as this typically leads to less turnover periods. 1.5-2 baths are preferred.
  • Population: Targeting areas with a specific population growth rate percentage.
  • Employment: Growing employment in specific sectors. Macroanalysis is conducted of growing industries, with a weighting preference to specific sectors. 
  • City budget/coffers: City and State coffers should meet certain requirements. Strong surplus allows for further city investments in the area.
  • Schooling: Contingent on strategy, schooling may play a factor.
  • Inspections: Large expense items are ranked with life-expectancy for repair/replacement timeline. All items are checked against a “no-go” list. For example, aluminum or knob & tube wiring is not accepted. 

Investors should follow a few best practices to maximize ROI and avoid common pitfalls in single-family rental investing. Conducting thorough due diligence on properties, including analyzing the local market, assessing the property's condition and evaluating potential rental income, is crucial. Building a reliable team, including property managers and contractors, can help streamline operations and ensure proper maintenance of the properties. Proper financial planning, including setting aside funds for repairs and vacancies, is essential to avoid financial setbacks. Finally, diversifying the investment portfolio by investing in different geographic areas and property types can help mitigate risks and increase overall returns.

To sum it all up, investing in single-family homes can be a lucrative strategy for investors seeking to grow their wealth and generate passive income. By carefully considering the potential benefits and challenges, conducting thorough research and following best practices, investors can unlock the full potential of this asset class. Whether you are an individual investor or a large financial institution, the single-family rental market offers an opportunity to achieve long-term financial security. 

You, too, can realize the “American Dream” of real estate ownership.


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Yieldwink is a digital platform linking investors to highly vetted private investments in an effort to lower volatility, provide higher levels of income, and enhance returns.