Single-Family Rentals in 2023: Are They Still Worth it?
Are you considering expanding your portfolio in 2023? Do you wonder what real estate investment options are the best to dabble in? Whether you’re a seasoned landlord or a fresh rookie, the goal is always to create a positive cash flow. However, to make the most of any investment, you have to consider the true cost of real estate vs. the potential output.
This article explores one of the most common real estate investment opportunities-single family rentals. Are you considering investing in one in 2023? Are single-family rentals still worth it? We’ve got all the answers below:
What are Single Family Rentals
If you’re debating becoming a single-family rental investor, you need to know what they are. A single-family rental, often shortened in the industry to an SFU, is a standalone property ideally meant to house one family. It’s more common amongst working-class professionals with children but attracts other demographics, from students to travelers. Condos and townhomes are great examples of this option.
Tenants looking for an SFU often do so for benefits like improved privacy, a larger yard, and reduced chances of conflict with the neighbor. Although many residents of SFUs tend to be homeowners, there’s some debate about their profitability for landlords.
However, as an investor, there are still strong reasons to consider investing in single-family rentals in 2023. Let’s highlight some of the top 3 below:
Top 3 Reasons for Investing
One of the best reasons to invest in a single-family unit is its low cost. Compared to their multi-family counterparts, they cost a lot less, making it easier to acquire loans from lenders when needed. They also have a higher appreciation rate as they tend to have higher demand, increasing your ROI.
Although you don’t have the advantage of sharing upgrade and repair costs per unit, you can limit your expenses with proper maintenance. Find a good property manager that will take care of your rental investment and maximize your profits.
- Tax Breaks
Another perk of investing in an SFU is that you get a lot of tax breaks you can utilize to reduce your expenses and save money. For example, when filing your Schedule E form, some of the deductions that relieve your financial burden include:
- Depreciation – Buildings and land tend to depreciate over time, and the IRS permits homeowners to reduce their taxable income depending on how old the property is.
- Transportation – House viewings, tenant complaints, maintenance, and upgrades often require your physical attention. If you keep accurate records of how much you spend on gas or airfare, you can add it to your deductions.
- Repairs and Maintenance – Damage, tenant-caused or otherwise, is inevitable. Since such defects may compromise the habitability of your property, you may deduct standard repair and maintenance costs.
- Wages – Many landlords need other professionals to assist them in keeping the house standing. Whether it’s a lawyer, a property manager, or an independent contractor hired for other services, you can exempt their salary from your taxable income.
- Easy Management
Single-family units require minimal management compared to multi-family rentals. In addition, having only one family on the property means less damage and lower chances of dealing with tenant disputes. Thus, if you’d like a more passive source of income, SFUs might be your cup of tea.
Besides, if you have a long-term lease, you don’t have to worry about vacancies and tenant screenings, which can take a lot of time and money.
Real Estate Investment Options to Consider
Other rental investment options you might want to consider in 2023 include the following:
- House Flipping – House flipping is a quick way to earn cash in the rental business. It involves buying a fixed-upper below the market price for the property type, making upgrades, and selling it back to the market. However, it can be risky because you could invest in a money pit by accident or decide to sell when the market isn’t favorable.
- Vacation Rentals – Vacation rentals are short-term and cater primarily to travelers or people looking for a weekend getaway. They’re more popular around tourist hotspots and are lucrative with the correct management.
- Multi-family Rentals – Unlike SFUs, multi-family rentals are buildings that can house more than one family per unit. They’re less affordable, but they also have a higher monthly flow. You can also divide your running costs per unit, making them lower.
The real estate industry is broad, with several well-performing aspects to invest in, and there’s no doubt that single-family rentals are highly profitable. You can quickly secure financing to fund such a project, making them more affordable. As a property owner, you can take advantage of several tax deductions, and management is more scalable.
However, if you’re a long-distance landlord or have a tight schedule, you might need an extra hand. Thus, consider hiring an experienced property manager who can help you reduce vacancies, attend to tenant complaints, and schedule general maintenance.