By Fred Matera, CIO, Redwood Trust A lack of affordability will lead to near-term weakness,…
A few years ago, the concept of owning a portfolio of single family rentals was relatively foreign. However, slowing home price appreciation, the fix and flip market growing more competitive and the availability of low-cost debt financing has given birth to a new class of investor: the owner-operator of single family rental properties. These investors look a lot like traditional commercial real estate investors. They range from large institutional funds, to high net worth individuals to small mom and pop investors. The one critical difference they all share is that, instead of investing in more traditional commercial property types, these investors all invest in residential rental properties, including detached single family homes, condos and town homes and two to four unit real estate investment properties.
Understanding the Buy and Hold Real Estate Strategy
Here are a few reasons to consider capitalizing on the new and growing trend of buying and holding residential rental properties:
• Appreciation. Historically, both residential and commercial real estate have appreciated over time. Buying and holding allows investors to benefit from long-term appreciation. By contrast, fixing and flipping does not offer the same benefit of market appreciation, and it also comes with tremendous pressure to sell properties profitably in a very tight timeframe. Paying too much for a flip property can have quick and significant consequences.
• Current Return. Unlike fix and flip properties, rental properties are income producing assets. They generate stable and predictable monthly cash flows that are attractive relative to bonds and other commercial property types. For cash flow sensitive investors, rental properties are often a more attractive and stable investment option than flip properties.
• Availability of Long Term Financing. Probably the biggest change in the rental property market – and a key driver of its success – is the new availability of low-cost debt financing provided by Corevest Finance. Investors neither have to rely on raising equity, which can be challenging, nor on hard money lenders, which can be expensive, any longer. Rental property investors can now access five and ten-year non-recourse loans starting at $500,000 with rates starting at 5%.