Single Family Rental Market Analysis: What You Need to Know

Single family rentals are the fastest-growing housing market segment in the US. Here’s how investors can take advantage of this opportunity.

Table of Contents

1. What Are Single Family Homes?
2. 7 Reasons to Invest in Single Family Homes
3. Are There Risks in Renting Out Single Family Homes?
4. What is a Good ROI for Single Family Home Rentals?
5. What’s Next

While the pandemic has spurred exponential growth in the single family home for rent market, it is not the only reason.

There’s more to single family rentals than meets the eye, as we’ll see in this single family rental market analysis. We will also discuss the risks and opportunities associated with this segment of the housing industry.

What Are Single Family Homes?

The typical single family house for rent is a detached, primary residence that stands on its own lot and has its own kitchen, utilities, and yard. It does not share walls, yards, or stairs with its neighbors. 

Single family houses usually:

• Emphasize ownership. You own both the land and the house sitting on it.
• Sit on larger parcels of land. You can use the extra space for gardens, patios, or children’s play areas. 
• Offer more privacy because it does not share amenities. 
• Reduce noise from neighboring buildings, providing dwellers with peace and quiet.  
• Allow for more exterior customizations, including unique landscaping and adding Accessory Dwelling Units (ADUs).
• Less restrictive Homeowners Association (HOA) rules provide more freedom to single family owners and renters to decorate their homes however they like.   

The US Census Bureau also defines any detached, semi-detached, townhouse, or row house as a single family home if it: 

• Has a ground-to-roof wall separating it from other buildings
• Doesn’t share air conditioning, heating, or utilities
• Doesn’t have independent dwelling units above or below it 

So, how attractive are single family rentals for real estate investing in 2022? And what does the housing market 2022 tell us about the future of American rental homes? 

7 Reasons to Invest in Single Family Homes

With rising mortgage rates and rumors of a ‌housing market correction, should you invest in real estate rentals?

Is investing in single family homes for rent more profitable than other strategies?

As this single family rental market analysis will reveal, there are a few surprises as well as some century-old habits resurfacing in the rental market.  

1. Americans Love Single Family Homes

This will not change anytime soon. 

In a survey of over 10,200 Americans, Pew Research revealed in July 2021 that 60% of respondents would rather live in “a place where the homes are large and farther apart, even if schools, stores, and restaurants were a few miles away.” In fact, more people prefer to live in larger single family housing in 2021 (60%) than in 2019 (53%). 

This confirms the findings of a 2017 survey by Trulia that most Americans regret not buying a larger home. That is despite half of Americans saying affordable housing is a major problem affecting their communities. 

2. Single Family Rentals Are Offering the Best Returns

According to Hoya Capital Real Estate, single family rental properties are the best-performing property class since 2019. In 2020, single family rentals had nearly equal net operating income margins to apartments. 

In 2021 alone, the segment gained about 40%. According to the data, historically low supply and high demand driven by demographics and the pandemic propelled the trend.

In its single family rental market analysis, NexMetro Communities found that renters in single family homes also stay longer and have lower delinquencies. The firm reported its renter retention rates rose by 20% since the beginning of 2020.

There’s something else: single family homes have near-excellent investment and development prospects as well. The Urban Land Institute (ULI) reported this in its 2022 report, based on a survey of 2,000 real estate developers, private property owners, advisors, and private equity investors.  

3. Demand for Single Family Rentals Continues to Rise

A growing number of individuals and households are choosing to rent instead of own a house in America. Among the primary motivations for renting single family homes is that they do not require long-term financial obligations. 

Picture this:

• Nearly 6% of finished lots purchased nationwide in Q4 2021 were for rental-house projects, according to John Burns Real Estate Consulting. That number was just 3% a year earlier.
• The US housing industry added 30% more built-to-rent single family homes between 2019 and 2020. 
• This segment makes up 6% of new homes being built in the US today. Analysts expect the number to double in the next 10 years.

As older Millennials grow their young families, this trend will continue. To accomplish that, they are moving from apartments to larger single family homes for rent. 

The John Burns Single Family Rental Survey confirmed this in Q3 2021. Its US rentals data shows that about 50% of tenants who moved into single family homes used to live in apartments.

Another factor propelling single family renters is people are moving more often. As a result, more people are increasingly considering renting as a flexible option. They also want to avoid the costs of frequent home transfers.

4. Millennials Will Drive Future Demand for Single Family Rental Property

Millennials are also increasingly renting single family units as starter homes. Thanks to huge student loans, the skyrocketing cost of living, and record-high home prices, younger people want to experience single family living without the financial burden of ownership.   

Also, developers told a PwC survey that more people want real, walkable neighborhoods filled with amenities. That way, they don’t have to use a car to get to work and back home. Renting a single family home close to most amenities may fulfill these aspirations for younger people.   

Still, a chunky 43% of Gen Zers said they wanted to rent single family houses after graduating from university. The Arbor Realty Trust Single Family Rental Investment Trends Report for Q3 2021 shows that short-term economic factors are driving demand for single family rental properties, including professionally managed ones. 

That makes sense, according to LendingClub. Its May 2022 report reveals that 58% of adult Americans are living paycheck to paycheck. That’s a 4% uptick from May 2021. This may suggest more people will opt to rent in America instead of taking on mortgages with high monthly payments.

Tragically, 30% of Americans earning $250,000 or more and 36% who earn $100,000 are struggling as well, according to a Willis Towers Watson survey. So, sad as it might be, young Americans may not be the only ones renting single family homes in the future. 

5. Investor Interest in Single Family Rental Properties Is Soaring

A growing number of institutional investors taking an interest in single family rental properties is another sign the rental market is more appealing than ever. 

Picture these investment highlights from the housing market:

• Wall Street set up an $85 billion-dollar chest to invest in single family rental properties. It had already spent over 20% of the fund by January 2022. 
• JP Morgan Asset Management is now building thousands of rental single family homes with American Homes 4 Rent. 
• Blackstone purchased Home Partners of America, a US rent-to-own company, for $6 billion in 2021.
• Invesco, through Mynd Management, is spending $5 billion over three years to buy 20,000 single family rental homes.
• Partners Group purchased single family rental homes worth $1 billion across 17 Sun Belt states in Q1 2022. 
• In the same quarter, 13,000 new single family homes were started as rentals, an increase of 63% from a year ago, according to the National Association of Home Builders.

This interest is partly due to investors noting that single family rentals were more resilient against the pandemic than other segments, such as offices and stores.

6. Single Family Rental Rates Are Increasing

The latest data from CoreLogic’s single family rental market analysis shows that the prices of rent for American rental homes rose 12.6% year-over-year in January 2022. The Sun Belt recorded the biggest increase in rent in America. 

The finding notes that single family rents have risen for 10 consecutive years now. But the 12.6% rate is the fastest increase in 17 years. Overall, rent growth at the start of 2022 was three times that recorded in 2021 and four times that recorded in 2020.  

Dwellsy, a home rental marketplace, also reported that median rents in February increased 35% year-over-year to $2,160 nationwide. 

Rents for single family units have risen along with house prices in recent years. So, as an investor who wants to capitalize on rent growth without paying high home prices, you can buy rundown houses below market rates, fix them up, and rent them out at current rental rates. It’s a straightforward way to profit in the current market. 

Or, you can reduce the rent by passing the savings to the tenant. This can encourage long-term occupancy, and, thus, provide you with consistent rental income.

7. There Is an Increase in Non-Traditional Single Family Home Renters

People who can afford to buy a single family home, with or without a mortgage, are also opting to rent single family residences. As some news stories have quoted, this demographic fears housing prices will soon plummet. 

They do not want to buy at the peak of the market and see home prices drop a few years later. 

To single family rental investors, this marks an opportunity to serve this demographic. Since we might see a market correction over several years, instead of right away, this demographic may be high-quality tenants for the next few years.

However, renting out a single family house isn’t risk-free.

Are There Risks to Renting Out Single Family Homes?

Every investment has its own risks as there are opportunities. Performing a thorough single family rental market analysis will help you identify several concerns you should know. Here’s a quick rundown of the potential risks you’ll want to plan for. 

1. In Some Markets, Rental Earnings Are Declining

Here’s what a recent single family rental market analysis found. The average gross rental returns on three-bedroom, single family homes that landlords purchased in 2022 are decreasing in 153 out of 212 US counties. While returns have reduced by just 1% year-over-year, earnings could decline further in segments with already small profit margins, such as markets with median home prices over $250,000. 

2. Some Local Markets’ Home Prices Are Outpacing Rent Growth

You’ll need to calculate a healthy price-to-rent ratio when buying a single family house for rental income. As an example, the survey in the previous point showed that homes priced over $500,000 returned the lowest yields (6%), suffered the greatest decline in returns, and had the smallest margins.

3. Markets’ Home Prices Prices Are Also Rising Faster Than Wages

In the same study, only 17 out of 212 counties saw wages rise faster than home prices. Higher home prices increase rents. Yet higher rents are unsustainable where wages are out of whack with local incomes.

4. Investing in a Transitory Market May Lead to Higher Vacancies Later

As noted earlier, most Americans want to experience single family living. But an overwhelming number still prefer to own than rent. So in some markets, such as where people are waiting for home prices to lower before they purchase, rental demand may be transitory. 

Fortunately, you can perform a single family rental market analysis in minutes rather than weeks. 

For example, you can track and compare market changes in real-time using predictive analytics and real estate comps. 

That can help you identify and counter risks in nearby and far-out markets. You do not need to be a big investor to use the tools. You can do the comparisons from anywhere and whenever you want — long before larger REITs do.

To learn more about how we will help you make faster and smarter real estate investment decisions, click here.

Now, every single family rental market analysis covered here suggests that demand for rentals will continue. The question is, what ‌returns can you expect from your rental property?

What Is a Good ROI for Single Family Home Rentals?

For mortgage-financed rentals, you’ll want to aim for a return rate between 8% to 12%. For cash investments, anywhere between 5% and 10% can be a good ROI. 

Currently, a solid single family rental market analysis will suggest you to expect a 7% ROI across the board for homes priced at $250,000 and up. Meanwhile, expect 8% returns for homes below $250,000, and 6% for properties with prices over $500,000. 

See, there are several factors that influence a rental property’s return on investment. They include rental income, operating expenses, occupancy rate, mortgage rates, property taxes, location, and the type of property you purchase. 

Rental property investors also calculate rental returns using metrics like cash-on-cash return, cash flow, net operating income (NOI), and cap rate.

How to Calculate a Rental Property’s Returns

To manually calculate your rental property’s profitability, take the annual return and divide it by your investment cost. The formula for calculating returns on a rental property is:

ROI = (Net Income/Cost of Investment) x 100

For example, a single family home for rent that generates $24,000 in net income with an investment cost of $110,000 would have a ($24,000/$110,000) = 0.218 X 100% = 21.8% ROI.

Alternatively, you can use a robust rental property calculator online.

Related: How to Find Out Your Property’s Earning Potential With an Investment Return Calculator

What’s Next: Invest in Single Family Rental Homes Like a Pro With Mashvisor

The single family rental market is hot right now. Demand will continue to rise, according to the reports covered in this single family rental market analysis.

Yet home prices are also at record highs, fueled by interest rate hikes and inventory shortages. This can eat into your rental property’s return on investment. So, you need to find just the right single family units to turn into profitable real estate rentals. 

But, you need to act quickly. Loaded institutional investors are sweeping the US rentals market at full speed. 

How do you level the field?

A good rental property calculator can help you find and invest in the right single family home for your needs.

Take Mashvisor’s Rental Property Calculator, for instance. The tool lets you find the right investment based on various criteria, including rental income, occupancy rate, cash flow, budget, and cash on cash return. You can filter, sort, and compare different single family homes side-by-side, analyzing their potential rental income. 

You don’t need to drive anywhere to find your next single family home for rent, because Mashvisor lets you search from anywhere, anytime. Don’t take our word for it. Try Mashvisor out for yourself. 

Start your free 7-day trial here to explore what premium Mashvisor can do for your single family rental income goals.