8 Reasons to Invest in SFRs in the Suburbs Right Now

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Featured Image for Article - 8 Reasons to Invest in SFRs in the Suburbs Right Now [COVID-19 Guide]

Summary: In this article, learn the top 8 reasons to invest in SFRs in the suburbs during and after COVID-19. Also find out why demand for single family homes remains high, even amidst the pandemic, as people move out of highly populated cities and into the open spaces of suburbia.  

Introduction

The fast-spreading novel Coronavirus has changed life as we know it and we’re having to adjust to a “new normal”. Millions of American’s have lost their jobs and filed for unemployment. Most of our time is now being spent in the comfort (or discomfort) of our own homes. The pandemic has altered our perspectives in a lot of ways, and many people are realizing they want more out of where they live. 

Many people living in big cities with dense populations are feeling especially boxed in as they’re ordered to stay in their often tiny apartments. They miss the culture, diversity, art, constant buzzing and all the things a big city has to offer. Many are now considering what they never thought they would…moving out of a city they love.  

What does this mean for real estate investors? It means that now may actually be a great time to buy rental property where the demand is growing–in single family homes with yards, in the suburbs. 

Here are 10 reasons why landlords should invest in Single Family Rentals in the suburbs today:


#1 – People are Moving Out of Big Cities Into Suburbs and Smaller Cities

We know that big cities like New York, hit hard by COVID-19, have been seeing a slow decrease in population since 2017, with people opting to move to the suburbs. This trend is also true for Chicago and Los Angeles. The desire for people to move out of cities in search of more affordable–and now more comfortable housing has been growing for years…. And now that COVID has hit bigger cities the hardest, this trend is likely only going to rise. 

When asked during an April press conference why New York has reached this level of infection, Governor Andrew Cuomo said that,” It’s very simple. It’s about density.  It’s about the number of people in a small geographic location allowing that virus to spread. Dense environments are its feeding grounds.” 

On the other hand, The director of The City Observancy Joe Cortright, a think-tank based on data-driven analysis argues, “Density isn’t destiny.” Which means that there are tons of highly populated cities that haven’t been hit as hard by the Coronavirus as New York. 

For instance, Tokyo, Taipei, Seoul and Vancouver are very densely populated cities that haven’t experienced severe impacts from COVID-19. While there have been both rural and suburban areas that have seen a large number of Coronavirus cases. 

Regardless of the reasoning around why big U.S. cities, like New York, are being hit so hard by Coronavirus, the trend is clear. The desire for people to move away from cities is not only continuing, it’s increasing. 

Lifelong New Yorker, Chloe Davis and her husband never expected to move their family out of the city. Davis says, “I’ve been inside for 48 days now with three little boys. It’s a challenge for me as a parent and for the kids themselves.” They’re now looking to move to the suburbs for extra space and a yard. Queue: Single-Family Rentals. 

Additionally, there are plenty of New York residents that have left the city during the pandemic. Reports are just coming out that many are unsure if they’ll actually return to the Big Apple as COVID-19 is probably not going away anytime soon. It might last for the next two years, so this trend of leaving big cities and moving to the suburbs is expected to continue.

Many other big cities, including Houston and San Francisco, have also experienced a decline in population as a huge amount of Millennials (of all generations) are choosing to move out of big cities and into the suburbs. Millennials are getting older, starting families and are looking to ditch the downtown apartment and settle into a nice single-family home with more space. 


#2 – People Want To Live in Single Family Homes Over Apartments

As mentioned above, people are leaving cities and experts are predicting urban sprawl to increase as more people decide to move to the suburbs now and following the pandemic. 

There are several reasons that are throttling this movement, including people wanting to avoid riding public transit, highly dense populations and the want for a more comfortable space.

A lot of Millennials are opting for single-family rental homes rather than buying. Either because buying is out of their price range, a want for flexibility or they just aren’t ready to commit to one place. Many of these renters are young families or single professionals. 

Baby Boomers also make up a huge population–the second largest generation behind Millennials. Many aging Boomers are downsizing but because they don’t want to live in a multi-family rental, they choose single-family rental homes. 

While it’s hard to say how COVID-19 may impact the single family rental market moving forward, it seems the momentum is leaning even more towards single family rental homes with more space, distance from their neighbors and a yard. People feeling cooped up in multi-family rentals during the pandemic may seek more desirable options. This is good news for SFR investors.


#3 – Many People Still Can’t Afford to Buy Single Family Homes

There are still more people renting than pre-2008 and hard lessons learned from the housing market crash led to stricter lending laws. As such, qualifying for a loan has become much more difficult. 

At the start of 2020, the average American could not afford to buy a standard home in the majority (70 percent) of U.S. counties. And with COVID-19 suddenly taking over the world, many people may be forced to dip into their cash reserves, further limiting their ability to buy a home anytime soon. 

For those who can’t afford to buy, but are still looking for more space and a yard, renting is the next best option. 


#4 – Renting is Preferable for Some

While many Americans are not able to purchase homes, for others renting is preferrable. It’s a much easier and simpler option for a lot of people. That holds true especially during times of crises–like we’re in now with COVID-19. The burden of a mortgage may be far greater than rent. 

Not to mention, if a major appliance stops working or a tree falls on the roof in a rental, it’s not the renters responsibility to cover that expense, it’s the landlords. Renters can avoid the stress of big unexpected expenses that often come with owning a house. That’s a big plus during times of volatility. 


#5 – High Demand Continues to Push Rents Up

With the demand for single family homes rising, and people either unable or unwilling to purchase a home, more people are looking into single family rentals.

It’s important to note, however, that this trend isn’t new. Amazingly, we’ve experienced higher rents every year for the last several years in most markets around the country, according to CoreLogic’s Rent Index

A housing study by Harvard was released about America’s Rental Housing in 2020 that included some interesting highlights and trends. The report says, 

“Despite slowing demand and the continued strength of new construction, rental markets remain extremely tight. Vacancy rates are at decades-long lows, pushing up rents far faster than incomes. …These conditions reflect fundamental market changes since the recession, including an influx of higher income households, constraints on new supply, and substantial losses of low-cost rentals.” 

The growth of rental prices has flattened over the last couple of months and that’s due to the impacts of the Coronavirus. Usually during this time of year, rents are growing so this is likely a short-term trend and growth should return to normal down the road.

In other words, rents should continue to rise, unless there are drastic changes to the affordable housing market and lots of new construction on high-quality single-family homes happens.


#6 – More People Will Be Working From Home Permanently 

The landscape of working remotely will never be the same again, thanks to COVID-19. As someone who has worked from home for the last few years, thankfully my work life has been relatively unaffected by stay-at-home orders. 

However, with a huge number of people now working from home, rather than in offices, companies may choose to keep this trend going after the Coronavirus subsides. And because so many businesses have been negatively affected, they’ll probably be looking for ways to cut expenses to help recoup some of the losses caused by the pandemic. 

To further support this trend, results from a recent survey conducted by USA Today shows that working from home during the COVID-19 pandemic actually increased 54% of employees productivity. Factors contributing to a rise in productivity included: 

  • Employees saved time and money by not having to commute 
  • They were less distracted by co-workers and,
  • Had fewer meetings.  

In the past, your job and home were tethered to each other by distance. Now, more and more people are able to work remotely. This gives people the freedom to choose where they want to live…which seems to be outside of cities. 


#7 – The Majority of Tenants Are Still Paying Rent

For those who are reading this and are skeptical about buying rental property right now due to all the questions and quite frankly, drama that has surrounded whether or not tenants will be able to make rent, know this: things don’t look as bad as the media wants you to think.

Let’s look at the facts. A recent survey by NMHC showed that 91.5% of tenants paid rent by the end of April. Which is a pretty standard rent collection rate, even with the pandemic.

We also recently reached out to property teams in the markets where RealWealth® members invest and found that rent collection rates were above 90 percent in April–which is also close to normal. 

This is a really positive sign for investors in these markets because it means that the many cash flow and foreclosure fears might be unwarranted. Whether this trend continues, only time and the Coronavirus will tell. But overall, a silver lining in cloudy skies. 

Investor Tip: Even if your tenants can’t pay, many banks are offering forbearance options to landlords. 


#8 – Vacancies for Single Family Homes Have Not Increased

While fewer potential renters are searching for places to live right now, vacancies for single family rentals have not gone up according to a 2020 report by Harvard’s Joint Center for Housing. With stay-at-home orders, the benefits of having a bigger single-family home with a yard right now are quite obvious. 

Property teams in the  markets where RealWealth™ members invest, have also not reported an increase in vacancies. Rather, there has been more demand than available rental properties. Another great sign for real estate investors. 


Bonus: Have Epidemics Made People Move in the Past?

Following the Cholera epidemic in the 19th Century, people who could afford to started moving away from lower Manhattan to different neighborhoods to escape the crowded city.

Typhoid Fever and Tuberculosis, which were rampant in the late 1800s, overwhelmed many U.S. cities with filth and human excrement soiled the streets. Doctors encouraged people to move west to warmer, drier climates with fresh air and open space. 

As a result, thousands of people moved out west to places like Colorado and Los Angeles. The diseases didn’t go away, but the spread of diseases diminished significantly, especially as cities started cleaning up their streets.  

Epidemics, pandemics, stock market crashes, or any type of crisis tends to trigger some sort of action by a large number of people. Oftentimes that involves relocating or changing a living situation in order to adapt. 

And not to sound like a broken record here, but this is good news for landlords who own single family rental properties.


Conclusion

There are many reasons to invest in SFRs in the suburbs right now.  Demand for rentals during COVID-19 remains strong, even amidst an economic recession. While pretty much all industry numbers impacting overall GDP are in the negative, residential real estate is holding steady at 21 percent. 

History has proven that recessions are usually good for real estate. However, not all states have been equally affected by the COVID-19 pandemic. As it’s created very unique circumstances–some of which we’ve never experienced before, it makes it even harder to predict future outcomes. No matter what, make sure you take proper precautions and find creative ways to perform extensive due diligence.

If you’re looking to invest in single family rental property in the smaller U.S. cities and suburbs, we can help. Join our network to view sample property pro formas and to connect with property teams in suburbs outside of markets like Jacksonville, Tampa, Dallas, Chicago, Cleveland, Birmingham, Atlanta and more.
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