By: Carter Jones, Originations Intern
We are living in an era of self-driving cars and artificial intelligence. The political climate in 2017 is strenuous, but the stock markets are hitting record highs. Yet, through these technological advancements and unpredictable environments, residential real estate continues to be one of the most stable and attractive investments. Investors of all sizes are riding this wave and seeking to jumpstart or expand their portfolios. There are plenty of reasons to invest in residential real estate, but the five key points are listed below.
Range of Assets
Within the residential real estate spectrum, there are a range of assets and property types available to investors. This asset class is mainly driven by single family residences, or SFRs, as they account for over 11% of the US housing market and roughly 30% of total rental housing. A broad definition of a SFR includes condominiums, townhouses and small multi-family units. There are even sub-types within residential real estate. For example, residential properties can be classified as either luxury or affordable housing, both of which have their distinct advantages and can provide a stable income stream. Residential real estate also provides the unique opportunity to own multiple properties, like a portfolio of SFRs across the country. Due to such a large market and variety of assets, investors can expand their portfolio to fit their knowledge and strengths.
Flexibility and Ease of Ownership
When compared to other investments, residential real estate is unique in the fact that it strikes a perfect balance between flexibility and ease of ownership. For flexibility, property owners can be hands-on with their investment and add tangible value whenever they so choose, for much less cost than a commercial asset for example. Investors can also choose to take a passive approach and hire third parties, like Renters Warehouse, to manage their asset(s). Regarding ease of ownership, owning a residential property is much less complex compared to owning a commercial property, for example. Residential assets typically require much less capital in order to invest or operate. During operation, residential properties face less liability because they are not in the public eye and do not serve patrons, unlike commercial properties. Residential lease terms are more straightforward due to simple lease structures, therefore, making it easier to find tenants. This ease of ownership makes the buy and hold strategy very attractive, as investors can increase their wealth while receiving passive income.
Unlike their commercial counterpart, the market for residential real estate is liquid. Typically, it is much easier to bring a residential asset to market than it is to sell an office building or retail center. Furthermore, the purchase of a residential property, say a townhome, is much less complicated than the purchase of a commercial property. Currently, there are more than 326 million people in the United States. That number increases every day, and thus, creates an everlasting market for residential real estate. This liquidity gives assurance to hesitant investors and confidence to those exercising the fix and flip strategy.
The market for residential rental properties is red hot. In fact, it is at an all-time high and shows no sign of slowing down. This is due to two major reasons. First, a rising interest rate environment creates more demand for rental housing. Potential home buyers are forced to rent if they are unwilling to lock-in their mortgage at these elevated interest rates. Secondly, the United States is experiencing a large demographic and ideological shift in relation to home ownership. The new working class, especially millennials, value flexibility in their occupation and change jobs more frequently. They see no need to own a home when they do not want to be tied down for extended periods of time. In general, home ownership is losing its appeal. People do not necessarily associate buying a home with the American Dream, and demand for home ownership is at an all-time low at 63%, per the US Census.
Availability of Financing
Debt can have a negative connotation and can intimidate potential investors. However, using debt to finance the acquisitions of residential investment properties is a great tool. Being able to leverage acquisitions dramatically increases the investor’s purchasing power, and allows the investor to expand their portfolio with ease. Another great option is the ability to refinance. Refinancing an asset or a portfolio’s debt enables the investor to realize any appreciation, and thus use their additional proceeds to purchase more assets and expand their portfolio. Specialty lenders, like CoreVest Finance, offer a large range of long-term and short-term loan products for residential real estate investors. Specifically, both the portfolio rental loans and bridge credit lines are valuable and popular instruments available to investors who are seeking to take advantage of this attractive market.
Although investing in real estate can seem daunting, it is important to keep these five points in mind and get the most from their cumulative effect. It is a great time to invest in residential real estate, and CoreVest Finance wants to help investors maximize their opportunities.
Looking to explore your financing options? CoreVest can help. We provide attractive long-term debt products for stabilized rental portfolios, as well as credit lines for new acquisitions. For more information about how CoreVest can help grow your rental and rehab business, please call 844.223.2231 or submit our contact form.