Investing in Single-Family Home Rentals: A Journalist's Perspective

July, 2023

I've come across a myriad of investment strategies and opinions. One of the most debated topics, especially in the current economic climate, is the viability of buying a single-family home and renting it out for income.

Some investors argue that this form of investment yields a ridiculously low annual return and comes with a lot of hassle. The temporary demand surge created by the Airbnb craze may have made the math work for a while, but some argue that this was just a passing phase.

However, there are others who have found success in this strategy. For instance, some investors have managed to find distressed properties, fix them up, and then cash out, leaving little to no money in the property. This strategy can yield an infinite cash flow percentage return, with appreciation of 4% or more per year.

There are also those who have managed to make substantial returns from single-family home rentals. For instance, one investor purchased five single-family home rentals in Raleigh in 2012-2013 for $130,000 each. With a down payment of 30%, the cash outlay was $200,000. The cash flow from these properties has been about $200 per month per unit for 11 years, totaling $132,000.

On the other hand, there are those who argue that the return on investment for single-family home rentals is not worth the hassle. They argue that after accounting for all the work involved, you end up paying someone to stay in your house.

There are also those who argue that residential real estate can be a good business, but it's not a good side business. You really have to work at it to make it profitable.

However, there are those who argue that government policies make real estate investment attractive. The government helps people buy real estate with minimal down payments and also stops people from investing in a lot of good opportunities due to "accredited investor" laws.

The viability of buying a single-family home and renting it out for income depends on a variety of factors including the investor's strategy, the location of the property, and the investor's ability to manage the property. It's not a one-size-fits-all investment strategy, and what works for one investor may not work for another.

The Real Estate Market: An Unsustainable Bubble?

July, 2023

The real estate market is a fascinating beast. Despite the economic downturn, the market remains unfazed, with homes in many areas receiving multiple offers. In fact, most homes across the country are selling for more than their asking price. This is largely due to the fact that there is currently a lack of inventory, which is keeping the market alive for now.

However, this raises an important question: when will housing become affordable again for millennials? Some speculate that it might take a couple of years for the market to adjust. But with a 400K loan over 30 years at a 3% interest rate costing about 1.6K per month, and the same loan at a 7% interest rate costing 2.6K per month, it's clear that the current situation is unsustainable.

Let's face it, how does the housing market stabilize given these numbers? How many people have the income to qualify for a loan at an over 7% mortgage rate? The monthly payment is up around 40%, yet there are those who believe that housing prices will stabilize and move higher. This is hard to comprehend.

Some argue that 7% is not high by historical standards. However, this argument fails to consider the fact that houses today cost significantly more than they did in the past. The high interest rate argument is therefore moot.

The basic principle of supply and demand dictates the real estate market. Currently, supply is low, which keeps prices high. Some believe that there will be no crash and that when rates come down over the next couple of years, more people will sell their homes and buy new ones because they have a lot of equity.

However, others argue that a recession is inevitable, leading to a flood of new inventory and not enough buyers, causing prices to drop. This is a cycle that we have seen many times before.

There are those who have tried to buy a home and put down 50% cash, yet still can't afford the monthly payments. In fact, their mortgage would double over their current one.

The reality is that the number of people who have the income to qualify for a loan at an over 7% mortgage rate is about as many as there are houses available.

The biggest point that seems to be missing from the conversation is that because rates are high, no one wants to sell either to give up their low interest rates. Ultimately, supply and demand dictate prices.

The current state of the real estate market is unsustainable. The numbers simply don't add up. Something has to give, and when it does, it's likely that the market will crash. However, as the old saying goes, the market can stay irrational longer than one can remain solvent. Only time will tell how this situation will unfold.